When it comes to planning for a business sale tax due diligence could seem like a last-minute thought. Tax due diligence results can be critical to the success or failure of a business transaction.

A rigorous review of tax rules and regulations can identify potentially deal-breaking issues before they become a problem. This could range from the basic complexity of the financial position of a company to the specifics of international compliance.

Tax due diligence can also determine whether a business can establish a taxable presence abroad. For instance, a place of business in a foreign jurisdiction can cause local country taxation on income and excise and, even though an agreement between the US and the foreign jurisdiction might mitigate this impact, it’s important to recognize the tax risk and opportunities.

As part of the tax due diligence process, we analyze the contemplated deal and the company’s prior operations in acquisition and disposal as well as look over the company’s transfer pricing documentation and any international compliance issues (including FBAR filings). This includes assessing assets and liabilities’ underlying tax basis and identifying tax attributes that can be used to increase the value.

For example, a company’s tax deductions could exceed its income tax deductible, which results in net operating losses (NOLs). Due diligence can help determine the extent to which these NOLs can be recouped, and also if they can be transferred to the new owner as carryforwards or used to reduce tax liabilities following the sale. Other tax due diligence items include unclaimed property compliance – which, while not a tax issue is becoming a subject of increasing reimagining business with quantum computing scrutiny by tax authorities in the state.