How essential is tax diligence for an asset deal?

by a searcher

3 weeks ago

Currently in discussions to acquire a ~$5M business with $10M in revenue, have legal diligence and accounting diligence (QofE) covered, but was wondering how often others use tax diligence for their transactions especially at this small of a size pre-close. Deal is structured as an asset purchase and I am trying to be mindful of fees, but don't want to be penny wise pound foolish. 

If I do require tax diligence, what is the minimum type of scope that should be covered? 

The target has accountant reviewed financials and has a CPA file their tax returns.

0 likes
95 views
7 comments

professional from Walsh College of Accountancy and Business Administration

Tax due diligence is important in a pure asset deal because of successor liability laws. The scope and fee can be right-sized based on deal size, industry, and your risk tolerance.

6 days ago | like reply | 0 likes

professional from American University

At a minimum, you will want to undertake a tax lien search, to make sure that the assets you are acquiring are not subject to any federal or state tax lien. Typically, we advise clients to search UCC and judgment liens, together with the tax liens, in each jurisdiction where the target is incorporated, where it is otherwise qualified to do business as a foreign entity, and where any of its material assets are held. These are especially important in the context of an asset deal, because that is what you are purchasing.

2 weeks ago | like reply | 1 like

More on Searchfunder

Just Closed on My First Deal! Reflections and Takeaways for other Searchers

45,152 transactions are available on Searchfunder (now searchable by keyword)

Now everyone has unlimited IBISWorld access

Family office looking for traditional searchers

Self Funded Acquisition: A few Things I Learned

Examples of self-funded searcher websites

2 Best Ways To Find Motivated Sellers, Off-Market Deals

6-7x for a Self-funded Search Deal?

Searchfunder is an online community and toolkit for searchfunds. Over 80% of those involved in searchfunds maintain a Searchfunder.com account to help them network, problem solve challenges, and keep up with the industry.

We maintain partnerships with database providers that make searching more effective, efficient and affordable along with features that help searchers find deals and investors and vice versa.