Performed tax due diligence on a target corporation

Performed tax due diligence on a target corporation

Jerry and his team were hired to perform tax due diligence on a target corporation that had converted from a C corporation to a partnership.

Given that the tax cost of conversion from corporate to partnership status generally outweighs the net present value benefit, the team focused on the taxes paid as a result of the conversion. The Company reported no tax cost to the conversion based on the CPA’s calculation that the amount of the cancelled debt equaled its insolvency, but the team determined that the CPA incorrectly determined the amount of insolvency. In addition to this, because the Company elected to recognize tax on cancellation of debt in future years under a special provision, our client would inherit the exposure.

As a result of this work, Jerry and his team were able to negotiate a material reduction in the purchase price.

Note: This work was performed prior to joining Stout.