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

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Comments & Replies: 2     Views: 5686     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
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.

Shalonda Chappel-Pilgram: Escrow Services - Southern CA

Escrow services to brokers & agents, owner/sellers, & buyers. Established 43 years. Extraordinary service. Experienced with handling difficult transactions. One stop for all your escrow needs: Bulk sales, lien searches, UCC searches, liquor license transfers, publishing & recording services.

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.

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.

Rick Carlson, Business Broker - Southern California

You Will Never Feel Lost In The Shuffle. Many Brokers Simply Send Out An NDA And That's The End Of Communication. All Buyers Receive A Personal Meeting With An Ace Acquisition Specialist So They Can Recommend The Perfect Business For You. Phone Rick direct at 800-985-4939.

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.

Jack Oh, Business Broker - LA, Orange Counties

Business broker and real estate services in the Los Angeles and Orange County areas. 10 years experience with great negotiating skills. To sell a business or buy a business in the LA or Orange County Areas phone Jack and his team at 562-787-4989.

Steve Zimmerman: Restaurant Broker Specialist

Steve founded Restaurant Realty in 1996. He has personally sold/leased over 900 restaurants, bars & clubs, & completed over 3000 valuations. The author of "Restaurant Dealmaker - An Insider's Trade Secrets For Buying a Restaurant, Bar or Club" available on Amazon. Reach Steve direct at 415-945-9701.


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