Tax due diligence is often left out when planning to sell an enterprise. However the results of tax due diligence could be vital to the success of a deal.

A thorough review of tax laws and regulations can help identify potential deal-breaking issues well before they become a major issue. These can be anything from the underlying complexity of a business’s tax situation to the nuances of international compliance.

Tax due diligence is also a way to determine the possibility that a company could create a an international tax-paying entity. A foreign https://allywifismart.com/the-role-of-data-room-due-diligence/ office, for instance could trigger local income and excise tax. While an agreement may reduce the consequences, it’s essential to be proactive and know the risks and opportunities.

As part of the tax due diligence workstream, we analyze the contemplated transaction and the company’s historical acquisition and disposition activities and review the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes analyzing the underlying tax basis of assets and liabilities and identifying tax-related attributes that could be used to maximize valuation.

For example, a company’s tax deductions may exceed its income taxable, leading to net operating losses (NOLs). Due diligence can be used to determine whether these NOLs can be realized, and if they can either be transferred to an owner who is tax carryforwards or utilized to lower the tax liability following a sale. Unclaimed property compliance is yet another tax due diligence issue. While it isn’t a tax subject, state tax authorities are increasingly scrutinized in this field.