Due diligence is an important part of preparing a tax return. It’s not only a best practice, but an ethical obligation that protects both you and your clients from costly penalties and liabilities. But tax due diligence is complex and click for more info about Paperless board meetings guide requires a significant amount of diligence, including looking over information from clients to ensure that it’s true.

A thorough examination of tax records is crucial to an effective M&A deal. It will help a company negotiate an appropriate price and cut the cost of integration after the deal. It can also identify issues regarding compliance that could affect the structure of the deal or even the valuation.

For example, a recent IRS decision highlighted the importance of examining documentation in support of entertainment expense claims. Rev. Rul. 80-266 states that « a preparer is not able to meet the standard of due diligence by simply looking over the organizer of the taxpayer and confirming that all the entries for expenses and income are accurately reported in the document supporting the taxpayer’s claim. »

It’s also essential to check the requirements for reporting for both foreign and domestic companies. IRS and other tax authorities are more and more scrutinizing these areas. It is crucial to examine a company’s position in the market, taking note of trends that may affect the financial performance of the company and its valuation. If, for example, the petroleum retailer was selling at an overpriced margin in the industry the performance metrics of its business could be inflated when the market returns to normal pricing. Tax due diligence can aid in avoiding these unexpected surprises and give the buyer the assurance that the transaction is successful.