When it comes to preparing for a business sale tax due diligence might seem like an afterthought. However, the results of tax due diligence may be vital to the success of any transaction.

A thorough examination of tax laws and regulations can reveal potential deal-breaking issues well before they become a major issue. They can range from the basic complexity of a business’s tax situation to the nuances of international compliance.

The tax due diligence process also examines whether a business could create tax-exempt presence in other nations. For instance, a place of business in a different country can result in local country income and excise taxes even though there is a treaty between US and the foreign jurisdiction could reduce the impact, it’s crucial to recognize the tax risk and opportunities.

We review the proposed transaction, as well as the company’s acquisition and disposal practices in the past, as well as review any international compliance issues. (Including FBAR filings) As part of our tax due diligence workstream we also review the transfer pricing documentation as well as the URL company’s documents relating to the transfer price. This includes assessing the underlying tax basis of assets and liabilities and identifying any tax-related attributes that could be used to increase the value.

Net operating losses (NOLs) may occur when a company’s deductions exceed its tax-deductible income. Due diligence can be used to determine if the NOLs are able to be realized and if they can either be transferred to a new owner as a tax carryforward or used to reduce tax liabilities after a sale. Other tax due diligence topics include unclaimed property compliance that, though not specifically a tax subject, is becoming an area of increasing scrutiny by tax authorities of the state.