Tax due diligence is a crucial aspect of M&A that is often left unnoticed. Because the IRS click for more info about Paperless board meetings guide can’t effectively conduct a tax audit of every company in the United States, mistakes or mistakes during the M&A process can lead to severe penalties. A well-planned preparation and detailed documentation can assist you in avoiding these penalties.
As a general rule, tax due diligence encompasses the examination of previously filed tax returns as well as the review of current and historical informational filings. The scope of the audit differs according to the type of transaction. For example, entity acquisitions generally carry a greater risk than asset purchases, due to the fact that taxable targets may be subject to joint and multiple liability for the taxes of all the participating corporations. Other factors include whether or not a tax-exempt entity has been included in the combined federal tax returns and the amount of documentation regarding the transfer pricing of intercompany transactions.
Examining tax returns from prior years can also reveal if the company is in compliance with the regulations and also a few red flags indicating possible tax abuse. These red flags could include, but not be restricted to:
The final stage of tax due diligence consists of interviews with top management. These interviews are designed to answer any questions that the buyer may have and to discuss any issues that could affect the transaction. This is especially important when purchasing companies with complex structures or tax positions that are unclear.