Tax due diligence (TDD) is among the least studied - but yet one of the most important aspects of M&A. The IRS cannot audit every business in the United States. Therefore, mistakes and oversights made in the M&A processes could result in massive penalties. Fortunately, a thorough preparation and meticulous documentation can prevent these penalties.

Tax due diligence is typically the examination of tax returns, as well as informational filings from current and historic periods. The scope of the review is dependent on the type of transaction. For instance, acquisitions of entities are more likely to expose the company's assets than asset acquisitions because targets that are tax-exempt may be jointly and jointly liable for the tax liabilities of participating corporations. Moreover, whether a taxable target has been listed on the consolidated federal income tax returns as well as the quality of documentation regarding transfer pricing related to intercompany transactions, are additional factors that can be scrutinized.

Examining tax returns from prior years can also reveal if the company is complying with regulations as well as some red flags that may indicate allywifismart.com click for tech reads tax evasion. These red flags include but are not limited to:

Interviews with top management are the final step in tax due diligence. These interviews are designed to answer any questions a buyer might have, and to identify any issues that could affect the purchase. This is particularly important when purchasing companies with complex structures or uncertain tax positions.