Broker withholding Tax Returns for Non-SBA deal

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April 16, 2024

by a searcher from University of Maryland at College Park in New York, NY, USA

Are tax returns standard diligence items for non-SBA deals (~$1M purchase price)?

The seller's broker is pushing back on sending tax returns saying that it's atypical for a buyer to request tax returns for a non-SBA deal.

How would you handle a situation like this?

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commentor profile
Reply by an intermediary
from The University of Chicago in Chicago, IL, USA
I am an M&A Intermediary. I never ask the seller for tax returns. Financials give 5x more information than TR. I analyze financials and ask the seller thousand questions. Along the way I'll ask the seller if TR reasonably matches financials. By asking the TR early, sellers, like most buyers, think that they have given everything and hence do not respond later to real questions about the business, processes, people, etc..
So my take, focus on financials. Ask if TR will match financials. As a buyer, never let the other side tell you, 'Oh, we have given everything". In other words, by asking TR too early, you risk closing the door, partially or fully, for more information. TR is definitely needed during DD.
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Reply by a searcher
from Indian School of Business in Raleigh, NC, USA
Tax returns are important because you are usually dealing with unaudited financials and at least there is some incentive not to lie to the government (you might get audited). The broker flat out refusing is a clear sign that they have no idea what they are talking about. I've faced it a couple of times so it does happen. They are likely to be feeding the seller all kinds of other crazy advice along with this so it's probably not worth dealing with them.
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