Record Retention Guidelines for an Acquired Business

I recently received a question from a client about record retention after a business is closed or transferred to a new owner in an acquisition, and realized that there were some good resources out there that I should make available to clients and blog readers.

The first is a Small Business Administration checklist for buying an existing business, and the second is an SBA list of steps to closing a business.  Both excellent, to-the-point guides.

There seems to be a decent amount of argument out there regarding who should retain the prior records — the previous or new owner — and in part this depends on the contract language, in terms of who is liable for any issues that arise from prior-owner activities.  It also depends on whether or not the business issues financial statements to stakeholders — in which case Sarbanes-Oxley will apply.

Document retention requirements in the Sarbanes-Oxley Act apply to public, private and nonprofit businesses. While an acquisition agreement should clearly identify your level of liability with regard to past business records, you should fully address document management before merging the record-keeping system of an acquired business. Before getting started, review record retention requirements in the Code of Federal Regulations, the Internal Revenue Code and state and local government statutes.

In the world of employee record retention, if any of the employees remain at the company, then the new owner should absolutely retain those records, especially in case of any questions by the state unemployment bureau.

For larger companies, the question of record retention is much easier — the new owner should always retain records in a merger or acquisition.

One thing is clear, however: in the event that the previous owner disappears, the new owner is going to wish they had access to their records… so the safe approach is to retain them, even if technically, the liability for prior acts does not rest on the new owner’s shoulders.

In the case of the prior owner, same advice: if an agency comes knocking, better safe than sorry.  At the very least, keep copies of payroll, sales tax, and income tax returns.


2016 Tax Software Survey

Great article, as it is every year, from The Tax Adviser on the pros and cons of the top professional tax software packages.  Definitely worth a read if you are in the industry!  Check it out here.

Personally, I use ATX (the “MAX” package) and would have to say that the survey results are yet again spot-on.  It wins points for price and ease-of-use, but loses them for accuracy and support.

Let me know your thoughts about your own software package in the comments.

CPAs rated the tax preparation software they used in 2016 and how it handled common tasks.

Source: 2016 Tax Software Survey