Buyers are usually more concerned with the quality of earnings analysis and other non-tax reviews. Tax reviews can help discover historical exposures or contingencies that could affect the financial model’s projected return on an acquisition.

Whether a company is an C or S corporation, or an LLC or partnership, the need to conduct tax due diligence is essential. The majority of these entities do not have to pay entity level tax on their net income; instead, net income is passed out to partners or members or S shareholders (or at higher levels in a tiered structure) for individual ownership taxation. Therefore, the tax due diligence process should include examining whether there is a possibility for assessment by the IRS or local or state tax authorities of additional tax liabilities for corporate income (and associated penalties and interest) due to mistakes or incorrect positions that are discovered during audits.

Due diligence is https://allywifismart.com/a-comprehensive-list-of-vdr-software-providers/ more crucial than ever. The IRS has increased its scrutiny of accounts that are not disclosed in foreign banks and other financial institutions, the expanding of the state bases for the sales tax nexus and the growing number of states that impose unclaimed property laws are just some of the issues that must be considered prior to completing any M&A deal. Circular 223 can impose penalties for both the party signing the agreement as well as the non-signing preparedr if they fail to adhere to the IRS’s due diligence requirements.