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

When it comes to the preparation for a sale of a business, tax due diligence may appear to be an afterthought. Tax due diligence results can be crucial to the success or failure of a business deal.

A thorough analysis of tax laws and regulations can help identify possible deal-breaking issues before they become a major issue. They could range from the fundamental complexity of a business’s tax situation to the nuances of international compliance.

Tax due diligence can also determine whether a business can establish a taxable presence abroad. For instance, a place of business in a foreign jurisdiction can trigger local country taxation on income and excise however, despite the fact that an agreement between the US and the foreign country could mitigate this impact, it’s important to recognize the tax risk and opportunities proactively.

We look at the proposed transaction, the company’s acquisition and disposal activities in the past, and review any international compliance issues. (Including FBAR filings) As part of our tax due diligence process, we also examine the transfer pricing documentation along with the company’s documents relating to the transfer price. This includes assessing assets and liabilities’ underlying tax basis and identifying tax attributes that can be used to maximize value.

Net operating losses (NOLs) can occur when a company’s deductions exceed its taxable income. Due diligence can be used to determine if these NOLs can be realized, and if they can either be transferred to an owner who is tax-free carryforwards or used to reduce the tax burden following a sale. Unclaimed property compliance is another tax due diligence item. Although not a importance of digital rooms in due diligence strictly topic of tax taxes, tax authorities in states are being scrutinized more in this regard.