Tax Due Diligence in M&A Transactions
Due diligence is a crucial aspect of tax return preparation. It’s much more than a logical practice, it’s a moral necessity to safeguard you and your client from the hefty penalties and liabilities. Tax due diligence can be a complicated and requires a ensuring data integrity in M&As with top-tier VDR solutions significant amount of care. This involves reviewing client data to ensure the accuracy of the information.
A thorough review of the tax records is essential for the success of an M&A deal. It will help a company negotiate an acceptable deal and decrease post-deal integration costs. Additionally, it can help identify concerns with compliance that could affect the structure of the deal and its valuation.
For instance A recent IRS ruling highlighted the importance of examining documentation in support of entertainment expense claims. Rev. Rul. Rul.
It’s also essential to look over the reporting requirements for both foreign and domestic entities. IRS and other tax authorities are more and more looking into these areas. It is also important to look at a company’s position within the market, taking note of any changes that could affect the valuation of financial performance and other metrics. If, for example, the petroleum retailer was operating at a higher margin within the industry its performance metrics could be inflated when the market returns to normal pricing. Tax due diligence can avoid these unexpected surprises and give the buyer confidence that the transaction is going to succeed.
