The CPA Desk

A Thought Leader Production by PKFTexas

Three Tax Tips to Follow When Buying a Business

Jen: This is the PKF Texas Entrepreneur’s Playbook. I’m Jen Lemanski, this week’s guest host, and I’m here with Martin Euson, one of our Tax Directors on our Transaction Advisory Services team.  Welcome to the Playbook, Martin.

Martin: Thank you very much, Jen. It’s a pleasure to be here.

Jen: So, when we talk transaction advisory services I know there are some considerations, tax considerations to make when you’re advising, you know, a business owner on potentially buying another business. What types of things do you tell them?

Martin: Jen, I would say first and foremost it is critically important for any buyer to really understand the form of the transaction, the substance of the transaction, and the structure of the transaction that they are proposing to undertake.  As you might imagine, when you’re thinking about that, you have the legal form and then you also have how the transaction is going to be treated for tax purposes, and they are not always the same. So, it’s really important for buyers to understand where those two roads diverge because all of the future decisions after that really are going to be driven by that distinction.

Jen: And so, what else do you tend to tell people when you’re advising them on things to know about the buy side?

Martin: I would say another important factor is for buyers to really be able to manage and limit their exposure, manage their risk and limit their exposure when we’re talking about the historical tax liabilities of the business that they’re proposing to buy.

Jen: So, what does that mean?

Martin: What that really means is that there is a concept that’s referred to a successor liability, and when a buyer buys another business, depending on how they buy it, they may be assuming any historical tax liabilities that that business may or may not have. If there’s unpaid taxes, in other words, the buyer may step into the shoes of that former owner and then become liable for those taxes.

Jen: Ok, so that’s when they would call us so that we can take a look at the contracts, take a look and give them the proper advice?

Martin: Exactly. That is really going to unfold through a process of tax due diligence. You’re going to have a purchase and sale agreement, you’re going to want to make sure that you have the maximum protection that you can have in that agreement, yes.

Jen: Perfect. Well, it sounds like we need to get you back to talk a little bit more to talk about what buyers need to know.  Can we get you back?

Martin: Absolutely.

Jen: Perfect. To learn more about how we can assist you with potential transactions, visit pkftexas.com/transactionadivosryservices/. And this has been another Thought Leader Production brought to you by the PKF Texas Entrepreneur’s Playbook.