Health Law Highlights

Navigating Tax Due Diligence in Healthcare Acquisitions

Summary of article from VMG Health, by Grayson Terrell, CPA; Joe Scott, CPA; Lukas Recio, CPA; Wayne Prior, CPA; and the Baker Tilly team:

Healthcare M&A transactions require a collaborative approach between financial and tax due diligence experts to identify potential problems and their tax consequences, which can impact the deal structure and negotiation process. Tax considerations, such as whether a sale is taxable or tax-free, greatly influence the structure of a sale. The tax entity type of the target (S corporation, Partnership, or C corporation) is crucial to understand as it affects the arising tax issues. Common healthcare tax due diligence issues include improper independent contractor classification, unclaimed property, improper treatment of owner personal expenses, unreasonable owner compensation, related-party transactions, cash vs. accrual accounting method, pass-through entity tax, 20 percent deduction under Section 199A, built-in gains tax, and non-resident withholding. Each of these issues requires careful consideration and vetting to avoid potential adverse tax implications for the buyer.