machine learning: deciphering patterns for business success
Tax due diligence is often left out when planning for the sale of an enterprise. However the results of tax due diligence may be vital to the success of a deal.
A thorough review of tax regulations and tax rules can identify potentially deal-breaking issues before they become a problem. They can range from the underlying complexity of a business’s tax situation to the nuances of international compliance.
The tax due diligence process is also an opportunity to determine whether a company is likely to create taxable presence in other countries. For example, an office in a foreign location could cause local country taxation of excise and income taxes however, despite the fact that an agreement between the US and the foreign country could mitigate the impact, it’s crucial to know the tax risks and opportunities proactively.
As part of the tax due diligence process, we analyze the contemplated transaction and the company’s historical transactions in the areas of acquisition and disposal as well as look over the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes analyzing assets and liabilities’ underlying tax basis and identifying tax attributes that could be used to maximize value.
For instance, a business’s tax deductions could exceed its income taxable, leading to net operating losses (NOLs). Due diligence can help determine if these NOLs can be recouped and whether they are transferable to the new owner as a carryforward or used to reduce tax liabilities following the sale. Unclaimed property compliance is another tax due diligence issue. Although not a strictly topic of tax however, state tax authorities are being scrutinized more in this area.