Due diligence is an important part of preparing your tax return. It’s not just a good practice, it is an ethical obligation that protects both you and your clients from the cost of penalties and liabilities. Tax due diligence is complex, and requires a great amount of care. This includes reviewing client information to ensure its accuracy.
A thorough examination of tax records is essential for the success of an M&A deal. It can aid a data room and its support for modern businesses business negotiate a fair deal, and also reduce post-deal integration costs. It can also reveal compliance issues which could impact the structure of the deal or even the valuation.
A recent IRS ruling, for example highlighted the importance of reviewing documents to justify entertainment expense claims. Rev. Rul. Rul.
It’s also important to consider the compliance of unclaimed property and other reporting requirements for domestic and foreign entities. IRS and other tax authorities are constantly reviewing these areas. It is also essential to evaluate a company’s standing on the market and identify changes that could impact the financial performance of the company and its valuation. For instance, a petroleum retailer that was selling at inflated industry margins may be able to see its performance indicators decrease when the market returns to normal pricing. Doing tax due diligence could assist in avoiding these unexpected surprises and provide the buyer with the assurance that the transaction will be successful.