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Discussions > Should Sellers Of Small Businesses Give Potential Buyers Their Tax Returns?
Should Sellers Of Small Businesses Give Potential Buyers Their Tax Returns?
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Comments & Replies: 2 Views: 5230
Posted By: Joe Ranieri 
Should small business owners/sellers give potential buyers direct access to their tax returns (and potentially to copies direct from the IRS) either before or during the due diligence process? Several business brokers and advisors discuss this topic on BizBen Discussions.
Topics: Buying A Business, Due Diligence, Selling A Business Tags: buying a business, due diligence, selling a business
Should small business owners/sellers give potential buyers direct access to their tax returns (and potentially to copies direct from the IRS) either before or during the due diligence process? Several business brokers and advisors discuss this topic on BizBen Discussions.
Topics: Buying A Business, Due Diligence, Selling A Business Tags: buying a business, due diligence, selling a business
As a seller, with regards to due diligence, should I give a buyer "third party authorization" to inspect my tax returns directly from the Internal Revenue Service?
This issue recently came up in a transaction that I was working on. I was selling a mini-mart to a buyer who had been an accountant for 20 years, and he did his due diligence by way of visual observation, register tape, sales tax filings, and was about ready to open escrow when he demanded the seller give him authorization to receive the tax returns directly from the IRS. The buyer was convinced that the tax returns could be fraudulent or doctored from the ones that were officially filed with the IRS. The seller created a counter offer that they would not authorize the buyer to pull tax returns directly from a government agency. The buyer balked, and the deal died.
It's been my general rule that a seller should give as much information about the business as possible during the due diligence period, and a buyer should be completely satisfied. It has been my experience that the majority of buyers do not want "third party authorization" for tax returns directly from the IRS, and are usually satisfied with inspecting the seller's copies, but if the buyer does not feel comfortable and not proceed because of it then that is their choice.
This issue recently came up in a transaction that I was working on. I was selling a mini-mart to a buyer who had been an accountant for 20 years, and he did his due diligence by way of visual observation, register tape, sales tax filings, and was about ready to open escrow when he demanded the seller give him authorization to receive the tax returns directly from the IRS. The buyer was convinced that the tax returns could be fraudulent or doctored from the ones that were officially filed with the IRS. The seller created a counter offer that they would not authorize the buyer to pull tax returns directly from a government agency. The buyer balked, and the deal died.
It's been my general rule that a seller should give as much information about the business as possible during the due diligence period, and a buyer should be completely satisfied. It has been my experience that the majority of buyers do not want "third party authorization" for tax returns directly from the IRS, and are usually satisfied with inspecting the seller's copies, but if the buyer does not feel comfortable and not proceed because of it then that is their choice.
Contributor: Timothy Cunha JD: Business Broker, SF Bay Area
After a contract is in place and due diligence has begun, tax returns are fair game. And, the prudent buyer receives them directly from the IRS with seller approval. A seller who refuses to allow independent verification of his tax returns, does so at his peril -- the buyer quite rightly should be suspicious and may very justifiably kill the deal.
| Helpful Resources To Assist In Selling And Buying California Businesses |
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Helen Yoo: Escrow & Bulk Sale Services - Southern California New Century Escrow, Inc. is a fully licensed & bonded independent escrow company. Over 20 years combined experience in handling bulk escrow transactions. Multi-lingual staff that speaks your language, including Korean, Chinese, Vietnamese. Call Helen Yoo direct at 626-890-1151. |
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Diane Boudreau-Tschetter: Escrow And Bulk Sale Services California Business Escrow, Inc. is a full service independent escrow company serving all of California and has expertise in a wide range of escrows. Our team prides itself on providing an exceptional escrow experience. For more info phone Diane Boudreau-Tschetter at 888-383-3331 or 209-838-1100. |
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Mark Chatow, Esq.: Legal Services For Buying, Selling Businesses Mark has a broad range of small business purchase & sale experience from analyzing potential acquisition targets to successfully guiding buyers and sellers through the purchase & sale of small businesses. Mark can assist with contracts, negotiations, legal matters, etc. Reach Mark at 949-478-8393. |
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Willard Michlin, CPA, Certified Fraud Examiner, Due Diligence Services Willard Michlin, CPA #106752, offers buyers step by step training & assistance in doing Due Diligence Services when they are thinking of making an offer, or are in process of investigating a business purchase. He helps to determine the actual net profit even when there is cash. Call 805-428-2063. |
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Joanne Weber, Broker - Preschool Specialist - Southern California The Ryan Craig Company is in its 35th year as the recognized expert in Southern California, dealing exclusively in the sale of preschools, Montessori schools, day care centers, and private schools. Our extensive list of references speaks for itself. Phone Joanne at 818-760-3684 for more info. |
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George Lanza, Business Broker, At Plethora Business Sales Plethora Businesses, a division of A Premier In Services, Inc., is a Business Intermediary Consulting Firm headquartered in Orange, California. Plethora specializes in the listing and sale of small and medium sized private businesses. |
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Joe Ranieri, Business Broker, Orange & LA County Areas Having owned retail/restaurant businesses for over 20 years, my interest turned to listing and selling businesses rather than owning them. I specialize tend to specialize in Orange County high volume restaurants, fast food independents and chains, bars and liquor stores. Call 714-292-5448. |
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Ralph Santos, Business Broker Specialist - Health Care Related Businesses Using my MBA and my perseverance I will make things happen! I provide business brokerage niche services specializing in the hospice and home health care agency industry in the Los Angeles County or Ventura County areas. For either buying or selling assistance please phone or email me today. |
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