Due diligence is a crucial part of tax preparation. It’s much more than a logical practice; it’s also an ethical necessity to safeguard you and your client from the hefty penalties and liabilities. Tax due diligence can be a complicated and requires a large amount of diligence. This includes reviewing client information to ensure its accuracy.

A thorough review of tax documents is crucial to a successful M&A transaction. It can help a business negotiate an equitable deal and cut down on the costs of integration after the deal. Furthermore, it helps to identify concerns with compliance that could affect the structure of the deal and its valuation.

A recent IRS ruling, for example it stressed the importance of reviewing documents to justify entertainment expense claims. Rev. Rul. 80-266 states that „a preparer cannot meet the general standard of due diligence by simply inspecting the organizer of the taxpayer and confirming that all of the expense and income entries are accurately reported in the document supporting the taxpayer’s claim.“

It’s also important to examine unclaimed property compliance and other reporting requirements for both domestic and foreign organizations. These are areas that are subject to increasing scrutiny by the IRS and other tax authorities. It is also important to look at a company’s position within the market, and keep track of trends that may affect the valuation of financial performance and other metrics. For example a petroleum retailer who was selling at inflated industry margins may be able to see its performance indicators decrease after the market returns to normal what are the most secure virtual data room solutions in the market pricing activity. Tax due diligence can help prevent these unexpected surprises, and give the buyer confidence that the deal is likely to be successful.