Tax due diligence is often overlooked when making preparations for the sale of a business. Tax due diligence results can be crucial to the success or failure of a business transaction.

A thorough examination of tax laws and regulations can identify potential deal-breaking issues well before they become a real problem. This could be from the basic complexity of the financials of a company, to the nuances involved with international compliance.

Tax due diligence can also determine the possibility that a company could create a an overseas tax-paying presence. A foreign office, for instance, can trigger local tax on excise and income. While an agreement may reduce the impact, it’s crucial to be proactive and fully understand the potential risks and opportunities.

As part of the tax due diligence process, we analyze the contemplated transaction and the company’s past disposal and acquisition activities as well as look over the documentation for transfer pricing and any international compliance issues (including FBAR filings). This includes assessing the assets and liabilities’ tax basis and identifying tax attributes that could be utilized to maximize value.

For instance, a company’s tax deductions may exceed its income taxable, leading to net operating losses (NOLs). Due diligence can be used to determine if these NOLs can be realized, and if they are transferable to a new owner as tax carryforwards or utilized to reduce the tax burden after a sale. Unclaimed property compliance is another tax due diligence item. Although not a strictly subject of taxation the state, tax authorities are becoming more scrutinized in this area.

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