Due diligence is a critical aspect of tax return preparation. It’s more than a best practice, it is an ethical obligation that protects both you and your clients from costly penalties and liability. Tax due diligence is complex and requires a significant amount of care. This includes reviewing the client’s information to ensure its accuracy.
A thorough examination of tax records is crucial to an effective M&A deal. It will help a company negotiate an acceptable price and decrease the costs of integration after a deal. It can also identify concerns regarding compliance that could impact the structure of the deal or even the valuation.
For example, a recent IRS ruling stressed the importance of examining documentation in support of entertainment expense claims. Rev. Rul. Rul.
It is also crucial to look into unclaimed property compliance and other reporting requirements for both domestic and foreign organizations. These are areas that are subject to increasing scrutiny by the IRS and other tax authorities. It is also important data room and its support for modern businesses to analyze a company’s performance in the marketplace, noting patterns that could affect the financial performance of the company and its valuation. For instance, a petroleum retailer that was selling at an overpriced margins could see its performance metrics deflate when the market returns to normal pricing. Doing tax due diligence could assist in avoiding these unexpected surprises and provide the buyer with confidence that the deal will go smoothly.