Tax due diligence is often left out when planning for the sale of the business. Tax due diligence results can be crucial to the success or failure of a business deal.
A rigorous review of tax rules and regulations could reveal issues that could be a deal-breaker before they become an issue. It could be anything from the underlying complexity in the financial position of a company to the subtleties involved with international compliance.
Tax due diligence also considers the possibility of a business creating a taxable presence abroad. A foreign office, for instance could trigger local excise and income tax. While a treaty may mitigate the impact, it’s vital to be prepared and fully understand the risks and opportunities.
As part of the tax due diligence process We analyze the planned transaction as well as the company’s previous transactions in the areas of acquisition and disposal and review the company’s documentation on transfer pricing and any international compliance issues (including FBAR filings). This includes analyzing the assets and liabilities’ tax basis and identifying tax attributes that could be used to increase the value.
Net operating losses (NOLs) can occur when a company’s deductions exceed its taxable income. Due diligence can be used to determine if the NOLs can be realized and if they can either be transferred to an owner who is an income tax carryforward or used to reduce the tax burden following a sale. Unclaimed property compliance is yet another tax due diligence issue. Although not a strictly subject of taxation however, state tax authorities are increasingly scrutinized in this regard.
