Due diligence is an essential element of tax return preparation. It’s not just a good practice; it’s also an ethical obligation to protect you and your client from costly penalties and liabilities. Tax due diligence is a complex and requires a good amount of attention. This includes reviewing the client’s information to ensure accuracy.
A thorough examination of tax records is essential to an effective M&A deal. It can aid a business negotiate a fair deal, and also reduce post-deal integration costs. It also helps identify concerns regarding compliance that could impact the structure of the deal or the valuation.
For example A recent IRS ruling highlighted the importance of examining documentation to support entertainment expense claims. Rev. Rul. 80-266 provides that “a preparer is not able to meet the standard of due diligence merely by reviewing the taxpayer’s organizer and confirming that all of the entries for income and expenses are accurately recorded in the taxpayer’s supporting documents.”
Also, it’s important to look over the reporting requirements for both domestic and foreign companies. These are subjects that are increasingly under scrutiny by the IRS and other tax authorities. It is important to also look at a company’s position within the market and be aware of changes that could impact the performance of financial metrics and valuation. For instance, if the petroleum retailer was operating at a high margin in the marketplace its performance metrics could decrease when the market returns to normal pricing. Tax due diligence can help prevent these unexpected surprises, and provide the buyer with confidence that the deal is going to https://allywifismart.com/what-are-the-most-secure-virtual-data-room-solutions-in-the-market/ succeed.