Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale

When you are making preparations for a business sale tax due diligence can appear to be an afterthought. However, the results of tax due diligence could be crucial to the success of a deal.

A rigorous review of tax rules and regulations can reveal potential issues that could cause a breach before they become problematic. This could be anything from the basic complexity of a company’s tax structure to the specifics of international compliance.

Tax due diligence also considers the possibility of a business creating a an international tax-paying entity. A foreign office, for instance, can trigger local tax on excise and income. Although a treaty may mitigate the impact, it’s important to be proactive and know the risks and opportunities.

As part of the tax due diligence process, we analyze the contemplated deal and the company’s prior operations in acquisition and disposal and review the documentation for transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize value.

For instance, a business’s tax deductions could exceed its income taxable, leading to net operating losses (NOLs). Due diligence can help to determine if these NOLs can be recouped and also the possibility of transferring them to the new owner as a carryforward or used to reduce tax liabilities following the sale. Other tax due diligence topics include unclaimed property compliance which, although not a specific tax issue, is reimagining business with quantum computing becoming an area of increasing scrutiny by state tax authorities.