Buyers are often more concerned about the quality of the earnings analysis and other non-tax reviews. Tax review can help to discover historical exposures or contingencies that could affect the financial model’s forecasted return on the acquisition.
Tax due diligence is essential regardless of whether https://allywifismart.com/data-room-and-its-support-for-modern-businesses/ a business is C or S or an LLC, a partnership or an LLC or C corporation. The majority of these entities do not pay entity level tax on their net income. Instead, net income is passed to members, partners or S shareholders (or at higher levels in a tiered structure) for taxation on ownership of individual. Due diligence should consist of a review of the possibility of a tax assessment of additional corporate income taxes by the IRS, state or local tax authorities (and the associated penalties and interest) due to of incorrect or erroneous positions found on audits.
The need for a thorough due diligence process has never been more crucial. A greater amount of scrutiny by the IRS of undisclosed foreign bank and other financial accounts, the growth of state-based bases for sales tax nexus and changes in accounting procedures, and an increasing number of states that have laws against unclaimed property, are just some of the many issues that need to be taken into consideration in any M&A transaction. Depending on the circumstances failure to meet the IRS due diligence requirements could result in penalties assessments against both the signer as well as the non-signing preparer under Circular 230.
