Due diligence is a critical part of tax return preparation. It’s not just a good practice, but an ethical imperative that protects both you and your clients from costly penalties and liabilities. Tax due diligence is complicated, and requires a great amount of diligence. This includes reviewing the client’s information to ensure that digital rooms’ role in contemporary business the information is accurate.

A thorough review of the tax records is vital to the success of an M&A deal. It will help a company negotiate a fair deal and reduce costs associated with integration after the deal. It can also identify compliance issues which could impact the deal structure or valuation.

A recent IRS ruling, for example it stressed the importance reviewing documents to back up entertainment expense claims. Rev. Rul. 80-266 provides that « a preparer is not able to meet the general standard of due diligence by simply inspecting the organizer of the taxpayer and confirming that all of the entries for expenses and income are accurately reported in the taxpayer’s supporting material. »

It is also important to look over the reporting requirements for both foreign and domestic organizations. These are areas that are under increasing scrutiny by the IRS and other tax authorities. It is also important to evaluate a company’s standing in the market, taking note of changes that could impact the financial performance of the company and its valuation. If, for instance, the petroleum retailer was selling at inflated margins in the marketplace the performance metrics of its business could deflate when the market returns to normal pricing. Conducting tax due diligence can aid in avoiding these unexpected surprises and provide the buyer with confidence that the deal will succeed.