Due diligence is a crucial aspect of tax return preparation. It’s not just a good practice, but an ethical imperative that protects both you and your clients from the hefty penalties and liabilities. Tax due diligence is complex, and requires a great amount of care. This involves reviewing client data to ensure the accuracy of the information.

A thorough examination of tax records is crucial to an effective M&A deal. It can help a company negotiate a fair price, and also reduce the cost of integration after the deal. Furthermore, it helps to identify concerns with compliance that could affect the deal structure and valuation.

A recent IRS ruling, for instance it stressed the importance of looking over documents to support entertainment expense claims. Rev. Rul. Rul.

It is also crucial to look into unclaimed property compliance and other reporting requirements for domestic and foreign organizations. IRS and other tax authorities are more and more scrutinizing these areas. It is also important to examine a company’s position in the marketplace and observe changes that could impact the financial performance metrics and valuation. If, for instance, a petroleum retailer was selling at an overpriced margin in the marketplace and its performance indicators could deflate when the market returns to normal pricing. Conducting tax due diligence can help to avoid these unexpected surprises and give the buyer the confidence that the transaction will succeed.

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