Tax Due Diligence in M&A Transactions

Due diligence is an important part of preparing a tax return. It’s not only a best practice, it is an ethical requirement that safeguards both you and your clients from costly penalties and liability. But tax due diligence is complicated and requires a high level of care, which includes reviewing information from a client to ensure that it’s accurate.

A thorough examination machine learning: deciphering patterns for business success of tax records is crucial to a successful M&A transaction. It can help a company negotiate a fair price and reduce the cost of integration after the deal. Furthermore, it helps to identify compliance issues that could affect the structure of the deal and its valuation.

For example an recent IRS ruling emphasized the importance of reviewing documents in support of entertainment expense claims. Rev. Rul. Rul.

Also, it’s crucial to check the requirements for reporting for both foreign and domestic entities. These are areas of increasing scrutiny by the IRS and other tax authorities. It is also imperative to examine a company’s position on the market and identify developments that could impact the performance of its financials and valuation. For example, a petroleum retailer that was selling at inflated margins could have its performance metrics decrease when the market returns to normal pricing. Conducting tax due diligence can assist in avoiding these unexpected surprises and provide the buyer with the assurance that the purchase will go smoothly.