Due diligence is a vital part of preparing your tax return. It’s more than just a good practice, it’s a moral requirement to protect yourself and your client from costly penalties and liabilities. Tax due diligence is complex and requires a large deal of care. This includes reviewing the client’s information to ensure the accuracy of the information.
A thorough review of tax documents is crucial to the success of an M&A transaction. It can help a business negotiate a fair deal and reduce the costs of integration after the deal. Additionally, it can help identify concerns with compliance that could affect the deal structure and valuation.
A recent IRS ruling, for example, stressed the importance of scrutinizing documents to justify entertainment expense claims. Rev. Rul. Rul.
It is also crucial to look into the compliance of unclaimed property and other reporting requirements for domestic and foreign organizations. IRS and other tax authorities are also reviewing these areas. It is also important to assess a company’s position in the marketplace, noting patterns that could affect the financial performance metrics and valuation. If, for instance the petroleum retailer was selling at a higher margin in the marketplace and its performance indicators could deflate when the market returns to normal pricing. Tax due diligence can avoid these unexpected surprises, and provide the buyer with confidence that the transaction is going to succeed.