Due diligence is an essential part of tax return preparation. It’s more than a best practice, but it’s an ethical imperative that protects both you and your clients from the hefty penalties and liabilities. Tax due diligence is a complex, and requires a great amount of attention. This includes reviewing the client’s information to ensure the accuracy of the information.
A thorough examination of tax records is crucial to a successful M&A deal. It can help a business negotiate an acceptable deal and decrease costs associated with integration after the deal. Additionally, it can help identify concerns with compliance that could affect the structure of the deal and its valuation.
A recent IRS ruling, for instance, stressed the importance of scrutinizing documents to dropbox virtual data room review provide evidence for entertainment expense claims. Rev. Rul. 80-266 provides that “a taxpayer’s tax preparer doesn’t meet the general requirement of due diligence simply by inspecting the organizer of the taxpayer and confirming that all of the income and expense entries are accurately recorded in the document supporting the taxpayer’s tax return.”
It is also crucial to look into the status of unclaimed property compliance as well as other reporting requirements for both domestic and foreign entities. These are areas of increasing scrutiny by the IRS and other tax authorities. It is also imperative to analyze a company’s performance in the marketplace, noting patterns that could affect the performance of its financials and valuation. For example an oil retailer that was selling at inflated margins to the industry may have its performance metrics decrease when the market returns to normal pricing activity. Doing tax due diligence could help to avoid these unexpected surprises and give the buyer the confidence that the transaction is successful.
