Tax Structuring and Due Diligence

Due Diligence and Tax Structuring for Deals

When a good deal seems to come along, everyone wants to do what it takes to get it done. We advise businesses through every stage of the transaction from assessing business partners to structuring and negotiating the terms of the agreement to maximize tax and other benefits.

Due Diligence

Before you get too far into negotiations, you must conduct due diligence. Due diligence on your counterpart, due diligence on the transaction. You want to take the time to gather and evaluate information about your potential business partners and the transaction itself so you can feel confident that you will get the benefits you want out of the transaction.

We analyze documentation from the company you want to buy or contract with to assess their strengths and weaknesses, including their finances, operations, growth potential, and liability risks. We also provide records to the other company for their due diligence. Good organization is key to efficiently completing due diligence examinations and making sure all parties have the information they need to feel comfortable proceeding with the transaction.

Tax Structuring

A deal must be good for the company without considering tax benefits. Once you move forward, however, you want to structure the transaction to take advantage of favorable tax laws. Different tactics can be used to make a transaction tax-free to the seller depending on the entity (Limited Liability Company, S Corp, C Corp, partnership, etc.) and federal and state laws that apply to the specific deal.

Since a tax advantage to one side is usually a disadvantage to the other, the ability to implement tax strategies depends on the bargaining power of the parties. Tax benefits are a negotiating point to trade for other benefits.

While it may seem desirable to find every tax loophole in structuring the deal, it is critical to avoid drawing Internal Revenue Service scrutiny. Under the step-transaction doctrine, you cannot take unnecessary steps in a transaction to avoid the tax consequences that would occur without those steps. The purpose of the rule is to prevent tax abuse and fraudulent transactions.

How We Help

We want to get deals done for clients that help them meet their goals in an efficient and effective manner. If your business is considering a merger, acquisition, sale, or other transaction, contact us for a consultation.