Tax due diligence is an important aspect of M&A that is often ignored. Because the IRS can’t effectively conduct an audit of each company in the United States, mistakes or mistakes made during the M&A process could lead to expensive penalties. A well-planned and meticulously documented process can ensure that you don’t incur these penalties.
Tax due diligence is generally the examination of tax returns, as well as documents pertaining to information from current and past periods. The scope of the audit varies depending on the type of transaction. Acquisitions of entities, for instance, are more likely to expose an organization than asset purchases, as taxable target companies may be jointly and jointly liable for the taxes of the participating corporations. Moreover, whether a taxable target has been included in the consolidated federal income tax returns and whether there is sufficient documents relating to transfer pricing in transactions between companies are other factors to be considered.
Reviewing prior tax years can help determine if the firm is in compliance with regulatory requirements, as well as some red flags that could indicate tax abuse. These red flags include, but aren’t the only ones:
The final stage of tax due diligence is comprised of interviews with top management. These meetings are designed to answer any questions a buyer might have and discuss any issues that could have an impact on the deal. This is particularly crucial when dealing with acquisitions that have complex structures or unclear tax click for more info about Paperless board meetings guide positions.
