Due diligence is a crucial part of tax preparation. It’s not just a good practice; it’s an ethical necessity to safeguard you and your client from the hefty penalties and liabilities. Tax due diligence can be a complicated and requires a significant amount link of diligence. This includes reviewing the client’s information to ensure its accuracy.
A thorough examination of tax records is essential to the success of an M&A transaction. It will help a company negotiate a fair price, and also reduce the cost of integration after the deal. Furthermore, it can reveal issues with compliance that could impact the structure of the deal as well as its valuation.
For instance an recent IRS decision highlighted the importance of reviewing documents in support of entertainment expense claims. Rev. Rul. Rul.
It’s also important to review the status of unclaimed property compliance as well as other reporting requirements for both domestic and foreign organizations. IRS and other tax authorities are also looking into these areas. It is also necessary to examine a company’s position in the market, and note developments that could impact financial performance metrics and valuation. For instance, if a petroleum retailer was selling at a higher margin within the industry and its performance indicators could be inflated when the market returns to normal pricing. Doing tax due diligence could help avoid these unexpected surprises and provide the buyer with the assurance that the purchase will go smoothly.