Tax Due Diligence – Tax Due Diligence Is Crucial to the Success of a Business Sale

Tax due diligence is often omitted when planning to sell a business. Tax due diligence results can be critical to the success or failure of a business deal.

A thorough examination of tax regulations and rules can reveal potential issues that could cause a breach before they become a problem. These can be anything from the fundamental complexity of a company’s tax structure to the specifics of international reimagining business with quantum computing compliance.

The tax due diligence process also examines whether a business could create tax-paying presence in other countries. A foreign office, for example can trigger local income and excise tax. Even though treaties can mitigate the impact, it’s crucial to be proactive and be aware of the potential risks and opportunities.

We look at the proposed transaction, the company’s acquisition and disposal practices in the past, and look into any international compliance issues. (Including FBAR filings) As part of our tax due diligence process, we also look over the documentation on transfer pricing and the company’s transfer price documentation. This includes assessing assets and liabilities’ underlying tax basis and identifying tax attributes that could be used to increase the value.

For instance, a company’s tax deductions could exceed its taxable income, resulting in net operating losses (NOLs). Due diligence can help to determine whether the NOLs can be realized, and also if they can be transferred to the new owner as an option to carry forward or reduce tax burdens following the sale. Unclaimed property compliance is a different tax due diligence issue. While not strictly a subject of taxation taxes, tax authorities in states are increasingly scrutinized in this field.