As important as it is for a company to have its financials in order, the same can be said when it comes to taxes. When contemplating the sale of a business, a seller should consider the value that a Tax Factbook can bring.
What Is a Tax Factbook?
It’s a comprehensive report that summarizes the tax profile of a business, typically prepared before a sale or merger. It includes detailed information about the company’s tax structure, historical tax filings, audit history, and tax attributes.
Benefits of a Tax Factbook
By investing in a Tax Factbook, a seller may benefit in many ways. One such benefit is the ability to identify tax issues or red flags ahead of a planned sale/merger so that the seller can correct the issues before they arise in due diligence. For example, if a company has not historically filed sales tax returns in states where it should have, the company may consider entering into voluntary disclosure agreements with the states prior to the start of due diligence. By doing so, the company strengthens its tax profile and eliminates potentially thorny tax issues that may cause a buyer to become hesitant during the due diligence process or delay the closing.
Another notable benefit of a Tax Factbook for the seller is that it can reveal or highlight a company’s tax attributes that enable it to obtain a higher selling price. For example, a company may discover that it has larger NOLs or tax credits than anticipated, or that its tax profile favors one type of transaction structure over another – such an asset sale instead of a stock sale.
Ultimately, a Tax Factbook has many benefits. It can enable a seller to command an increased sale price, it can eliminate tax “problems,” and it can help streamline the sale process by bringing to light all material tax matters that a buyer would care about when conducting tax diligence on a target company.
Author: Boris Pogil | [email protected]
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For more information on this topic, please contact a member of Withum’s Transaction Advisory Team.
