Tax due diligence (TDD) is one of the most overlooked – and yet one of the most important aspects of M&A. Because the IRS cannot practically conduct a tax audit of every company in the United States, mistakes or mistakes made during the M&A process can lead to costly penalties. A thorough and well-organized process can help you avoid these penalties.
Tax due diligence typically involves the review of previous tax returns and documents pertaining to information from current and historic periods. The scope of the audit depends on the nature of the transaction. For example, entity acquisitions generally have a greater risk of exposure than asset purchases due to the fact that taxable targets may be subject to joint and numerous liability for the taxes of all corporations participating. Other factors include whether a tax-exempt entity has been included on the unconsolidated federal tax returns as well as the amount of documentation that is related to the transfer pricing of intercompany transactions.
Reviewing tax returns from prior years will also reveal if the company is in compliance with the applicable regulations as well as a number of red flags that indicate possible reimagining business with quantum computing tax fraud. These red flags include, but aren't restricted to:
Interviews with top managers are the final step in tax due diligence. These meetings are designed to answer any questions the buyer might have and discuss any issues that could impact the deal. This is especially important when acquiring companies with complex structures or tax positions that are unclear.
