Broker withholding Tax Returns for Non-SBA deal

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

2yrs ago

Broker withholding Tax Returns for Non-SBA deal

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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reply by a searcher 2yrs ago
from University of Michigan in Bay City, MI, USA

It's not crazy for a seller, who's likely never done this before, to push back on giving his or her tax returns. It's private information. I wouldn't construe a seller's initial reluctance as fraud.

That being said, the intermediary not coaching the seller about this being a normal part of diligence is worrisome. It may be indicative of something sketchy or just a bad / inexperienced broker.

I don't disagree that the returns are a necessary part of diligence. I also think OP should be on even higher alert for signs of malfeasance and/or incompetence while doing DD. I'm just saying that there are reasonable explanations for this behavior that aren't necessarily fraud or tax evasion.

reply by a searcher 2yrs ago
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.