Buyers are often more concerned about the quality of earnings analysis as well as other non-tax reviews. But doing the tax review can stop significant past exposures and contingencies from becoming apparent that could impede the expected return or profit of an acquisition that is forecast in financial models.

Tax due diligence is crucial, regardless of whether the company is C or S or an LLC, a partnership or a C corporation. These types of entities do not pay income tax at the entity level on their income. Instead the net earnings are given to members, partners or S shareholders for the purpose of individual ownership taxation. Therefore, the tax due diligence effort needs to include reviewing whether there is a potential for assessment by the IRS or local or state tax authorities of additional corporate income tax liabilities (and associated penalties and interest) as a consequence of mistakes or incorrect positions that are discovered in audits.

Due diligence is more crucial than ever. The IRS' increased scrutiny of undisclosed accounts in foreign banks and financial institutions, the expanding of the state bases for the sales tax nexus as well as the growing number of jurisdictions that have unclaimed property laws are just a few of the factors that need to be https://allywifismart.com/data-room-and-its-support-for-modern-businesses/ considered when completing any M&A deal. Depending on the circumstances, not meeting the IRS' due diligence requirements could result in penalty assessments against both the signer as well as the non-signing preparer under Circular 230.