Series 79 practice questionmediumDue Diligence
Why is tax diligence important even when a target reports strong EBITDA?
- ATaxes are ignored in valuation work
- BOnly public buyers need tax diligence
- CTax diligence replaces legal diligence
- DHistoric tax exposures can survive the closing and create cash liabilities for the buyer✓ Correct answer
Explanation
Why D — Historic tax exposures can survive the closing and create cash liabilities for the buyer
Historic tax exposures can survive the closing and create cash liabilities for the buyer Unpaid sales tax, nexus issues, transfer pricing errors, or uncertain tax positions can reduce value after closing. Strong operating performance does not eliminate contingent tax risk.
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