Often overlooked by customers focused on quality of return analyses and also other non-financial homework reviews, tax due diligence is definitely an essential area of the M&A method. With the complexity of Federal, state and local tax laws, the myriad taxes imposed by businesses, aggressive (and occasionally evasive) tactics employed to reduce or defer taxation, vigorous enforcement by challenging authorities and expanding bottoms for developing state tax nexus, M&A transactions present significant potential risks which would otherwise end up being hidden with no thorough overview of tax affairs.
Tax homework, generally performed on the buy side of an transaction, examines all types of taxation that may be made upon a company and challenging jurisdictions it may fall under. It can be more concerned with significant potential tax exposures (such mainly because overstated net operating profits / losses, underreported VDRs: at the forefront of revolutionizing business intelligence taxes payable or deferred and unrecognized taxable income) than with fairly small overlooked items, just like an improperly disallowed meals and entertainment deduction, which are have the preparer penalty different under Circular 230.
Practice tip: Also to performing tax due diligence in the buy aspect of M&A transactions, savvy CPAs will accomplish sell-side taxes due diligence with respect to clients with the sale of their company. This really is an effective way to name potential deal-breakers, such as a insufficient adequate point out tax stores or unrecognized or past due tax debts, which could impression the sale selling price of a organization. By handling these issues just before a prospective buyer finds them, retailers can maintain control over the M&A process and potentially concerned a higher sale price for their business.