When it comes to preparing for a business sale, tax due diligence may seem like an afterthought. However, the results of tax due diligence may be crucial to the success of a deal.

A thorough analysis of tax laws and regulations can identify potential deal-breaking issues well before they become a major issue. This can range from the complexity of a company’s financial situation to the nuances of international compliance.

Tax due diligence is also a way to determine the possibility that a company could create a taxable presence abroad. For instance, a place of business in a foreign jurisdiction can create local taxation on income and excise even though there is a treaty between US and the foreign country could mitigate the effect, it’s essential to recognize the tax risk and opportunities proactively.

As part of the tax due diligence process we look at the prospective transaction and the company’s historical operations in acquisition and disposal as well as review the documentation for transfer pricing and any international compliance issues (including FBAR filings). This includes analyzing assets and liabilities’ underlying tax basis and identifying tax attributes that can be used to increase the value.

Net operating losses (NOLs) can occur when a company’s deductions exceed its taxable income. Due diligence can be used to determine if these NOLs are able to be realized and if they are transferable to the new owner in the form of a tax carryforward or used to reduce the tax burden following a sale. Other tax due diligence issues ensuring data integrity in M&As with top-tier VDR solutions include unclaimed property compliance – which, although not strictly a tax topic, is becoming an area of increased scrutiny by tax authorities in the state.