The QoE tests the earnings.
Nobody reads the returns with a buyer's eye.

Tax exposure doesn't show up in EBITDA. It shows up after close.

A Quality of Earnings tells you whether the numbers are real. It usually doesn't tell you whether the seller owes sales tax in eleven states, whether the S election was valid in the first place, or whether half the crew should have been on W-2s.

On deals under $10M, a full tax diligence engagement from a national firm often costs more than the deal can carry, so the axis gets skipped. The seller's CPA has a good answer for every question. The buyer has nobody reading the filings.

The Tax Exposure Review is that read. The difference is scope, not rank: it sits beside your QoE and your attorneys, and it points to them where a finding needs their seat.

Three years of filings, read for what a buyer inherits.

• Sales and use tax nexusEconomic nexus since Wayfair means remote sales can create filing obligations the seller never registered for. In a stock deal, that liability transfers.
• Entity and electionS corporation eligibility, second-class-of-stock issues, and reasonable compensation. A broken election can cost the step-up you priced in.
• Payroll and worker classification941s and W-2s against the 1099 roster. Misclassification is a common, quiet, and expensive inherited problem.
• Returns against the booksWhere the filed returns and the financials the QoE relied on disagree, and whether the seller can explain why.
• Notices and open yearsIRS and state correspondence, payment plans, amended returns, and which years remain open to examination.
• Structure and allocationAsset vs. stock, and how a proposed purchase price allocation (Form 8594) plays out for the buyer after the deal.

Allocation stopped being a closing-day formality.

The One Big Beautiful Bill Act made 100% bonus depreciation permanent for qualified property acquired after January 19, 2025. In an asset deal, that gives buyers a reason to push more of the price toward equipment and other qualifying assets, and it makes the allocation a negotiating point worth reading early.

States don't all follow the federal rule, so the same allocation can look different on the state return. The review flags where the allocation in the LOI or draft agreement leaves value on the table, and refers the modeling to your CPA.

Kaufman Rossin, "One year of OBBBA: What we are seeing in mid-market deals"; Kutak Rock client alert, July 2025; Sikich on state conformity.

Not a tax opinion, not legal advice, and not a substitute for your CPA or attorney. It's a buyer's read of the record, built to tell you which questions to put to them and how much those answers matter.

It doesn't prepare or amend returns, and it holds no position in whether the deal closes.

Daniel N. Harris has prepared more than 700 individual and small business returns since 2005, at Liberty Tax and in independent practice, and completes the IRS Annual Filing Season Program each year. That's two decades of adversarial document review, where a missed inconsistency compounds and "we assumed" is not an accepted answer.

His doctoral research at Case Western Reserve's Weatherhead School of Management studies how lower middle market buyers misjudge deals. The Tax Exposure Review points both at the target's filings.