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Should Sellers Of Small Businesses Give Potential Buyers Their Tax Returns?

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Comments & Replies: 2     Views: 4478     Posted By: Joe Ranieri  Joe Ranieri, Business Broker: LA, Orange County Areas

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.


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
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.

Hasan Abdullah, Esq. E-2, Immigration Legal Assistance

I have over 10 years experience with E-2's and immigration issues. E-2's approved for as little as $10,000. Let me assist you with E-2 visa strategies when buying and selling a small to mid-sized California business. Mention BizBen.com for a FREE consultation when phoning me direct at 510-500-1155.

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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.

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.

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.

William Park, Business Broker - Southern California

Highest Volume Broker in California, Simply Check our HUNDREDS of Listings! Over 25 Associates, Speaking Dozen Languages, Helping Buyers and Sellers of Small Business since 1982, Centrally Located between Los Angeles and Orange Counties, while Riverside & San Bernardino Counties are Very Accessible.

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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