Tax accountants help an organization stay compliant by keeping up with legislative
changes. You save money if you have a thorough understanding of how to increase
deductions and decrease tax obligations. A competent tax professionals can more than
pay for themselves. Additionally, they stand by your side in the event of an audit or
disagreement. Even the IRS workforce has tax compliance responsibilities to the public.
According to 5 CFR 2635.809 of the Office of Government Ethics, federal employees
are required to "satisfy in good faith their obligations as citizens, including all just
financial obligations, especially those such as federal, state, or local taxes that are
imposed by law." All federal workers are required to appropriately and timely file and
pay their income taxes. Federal agency leaders can assist staff in preventing tax law
infractions and preserving public trust in government by boosting awareness. The same
for a company (taxpayer), to make sure its compliance with tax laws is maintained while
taking advantage of tax savings.
So, it is important to hire and maintain adequate tax staff in order to have good tax
planning in place. Tax planning specifically during a sale or acquisition of another
company plays a vital role in how the sale is going to be accomplished while in
compliance with the tax laws. While strategic growth can benefit from acquisitions in
uncertain economic times, the execution of an acquisition can be difficult, particularly in
terms of tax compliance. Certain tax issues within each important area of an acquisition
(due diligence, integration, accounting/financial reporting, and post-acquisition
compliance) can seriously impede the execution of the entire combination if not
discovered early and effectively addressed, and therefore tax planning is a must by the
adequate competent tax professionals, Douglas M. (2012).
Just to give a specific topic in the world of acquisition and taxes, I would like to mention
one of the most important to-dos lists in the acquisition is “Due Diligence.” Before
attempting to structure the transaction, an acquiring business must fully comprehend the
tax ramifications of an acquisition. The acquiring business has few options to reduce
associated tax liabilities if the transaction is set up as a stock purchase other than
through contractual indemnifications. This is so that all liabilities, regardless of whether
they are shown on the books of the target company, are assumed by the purchasing
company. On the other side, the purchasing business may try to eliminate related tax
liabilities from the purchase if the transaction is set up as an asset acquisition. Where
tax exposures may be assumed, it is crucial that the acquiring firm start its due diligence
early because it may be difficult to identify and estimate the extent of such tax
liabilities, Douglas M. (2012). More information about acquisitions to avoid tax can also
be found in Sec. 269.
It is very important for companies to hire and maintain adequate tax staff. By having tax
staff already settled in the company, it makes it easier for the company when more
complicated matters like mergers and acquisitions come up. If a company doesn’t already
have tax staff when these situations arise, they would have to have tax professionals
contracted in to help. These contracted staff would then have to learn the ins and outs
of the business, while working through the current situation the business is in the
process of. Tax laws are also changing so often, so with staff already on hand knowing
the business, they can evaluate quicker how these tax law changes may affect the
company’s business.
With mergers and acquisitions, even if a company has tax staff, they may still need to
hire additional tax professionals who are knowledgeable in mergers and acquisitions. In
this case, the companies tax staff who are knowledgeable on the company’s tax
practices will be able to answer questions to help the other tax professionals figure out
the best courses of action.
Having a tax plan in place can be crucial during the sale or acquisition of another
company. By having a tax plan already in place before the letter of intent is signed, the
company could already be aware of the beneficial tax results and the timing of these
requests that would come up through this process. Depending on the type of company
being acquired, the tax benefits would differ. The buyer and seller will negotiate several
topics prior to a letter of intent being signed, so it is very beneficial for a company to be
aware of these early in the process (Sheffield, 2020).
References:
Sheffield, J. (2020, July 10). Tax Considerations for Today’s Mergers & Acquisitions.
Bartlett, Pringle & Wolf, LLP. https://www.bpw.com/blog/2020/07/10/tax-
considerations-for-todays-mergers-acquisitions/
IRS.gov Educating Your Employees About Tax Compliance | Internal Revenue Service
(irs.gov)
Journal of Accountancy Tax compliance for acquisitions: Prepare before purchasing
(journalofaccountancy.com)
