Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale
Tax due diligence is often left out when preparing for the sale of the business. Tax due diligence results can be crucial to the success or failure of a business transaction.
A thorough study of tax laws and regulations can identify potential deal-breaking issues well before they become a problem. This could range from the complexity of the financial situation of a business to the nuances involved with international compliance.
Tax due diligence also looks at whether a company can create an overseas tax-paying presence. A foreign office, for example can result in local taxes on income and excise. Even though treaties can mitigate the impact, it’s vital to be prepared and know the potential risks and opportunities.
As part of the tax due diligence process, we analyze the contemplated deal and the company’s prior transactions in the areas of acquisition and disposal as well as look over the documentation on transfer pricing for the company and any international compliance issues (including FBAR filings). This includes assessing the underlying tax basis of liabilities and assets and identifying tax attributes that could be used to boost the value.
Net operating losses (NOLs) may occur when a company’s deductions exceed its tax-deductible income. Due diligence can be used to determine if these NOLs are able to be realized and if they are transferable to an owner who is tax-free carryforwards or used to reduce tax burdens after a sale. Other tax due diligence aspects include unclaimed property compliance which, although not a tax issue is becoming a subject of increased scrutiny by state tax authorities.
