Attorneys are sometimes asked to assist with tax due diligence in business acquisitions, which involves investigating a target business to assess potential tax exposure that could affect a purchaser. Details of diligence engagements vary depending on the size and complexity of the target business, transaction budget, and the sophistication of accountants and other advisers, but they are usually intricate and time-sensitive. Errors can result in substantial tax liability and exposure. This article focuses on federal income tax aspects of tax due diligence from the perspective of purchasers’ attorneys.

Diligence Objectives

Tax diligence priorities and approaches differ considerably, just as acquisition structures vary. Attorneys must understand clients’ objectives and tailor diligence procedures to meet those objectives, taking into account deal-specific factors.