Tax Returns During Due Diligence

by a searcher from The Pennsylvania State University - Smeal College of Business

4 years ago

During due diligence are you accepting the tax returns provided by the seller/ broker? I've seen that some people are and some are requiring that the seller allow them to get the returns direct from the IRS. Just looking to see which direction is most taken.

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5 comments

searcher

If your financing through SBA, the bank will base the valuation off the tax returns, not seller provided financials

1 month ago | like reply | 0 likes

intermediary from Wake Forest University - Schools of Business

As Lisa mentions, if an SBA lender is involved, they will order the transcript (using the form known as the 4506-T). This allows them to compare the numbers from tax returns provided to the buyer with the ones submitted to the IRS by the seller. A seller should not object to this, and if they balk, remind them that if they have gotten a mortgage in the last 10 years, they signed a 4506-T for the mortgage lender. If you are not using a bank, the IRS just made it a lot harder for an individual to obtain a 4506-T. Starting in July 2019, it stopped sending the transcript to third parities, unless they go through an Income Verification Express Service (IVES). Otherwise it is mailed to the taxpayer (seller), and that sort of defeats the purpose.

4 years ago | like reply | 1 like

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