1. The Transaction

2. What Is Known About the Target's Tax Posture

Facts from the seller, the confidential information memorandum and two calls with Table Rock. Every item is "to confirm" until the returns and records are reviewed.

• Entity and election. An S corporation (reported as an LLC taxed as an S corporation). The founder owns the company. A related entity received substantial owner distributions in 2025, and the ownership history, including whether the European manufacturer or its principal ever held an interest, has not been established. S election validity since inception is an open question.
• Returns filed. Federal returns and Texas franchise returns. The seller has stated that it has done business in more than 40 states. No other state income, franchise, or sales and use tax filings have been identified.
• Customers. US state and local government agencies (corrections and law enforcement), sold largely through cooperative purchasing contracts. Systems are installed on site by the target's technicians, who travel across states. Service contracts and software licenses are billed annually or for multi-year terms, with cash collected upfront.
• Accounting basis and records. Cash basis. An outside CPA prepares the annual statements and the returns. A general ledger exists only from January 2026; before that the record is bank statements, an invoice register, and the CPA's annual statements and returns for 2022 to 2025. Revenue is recognized when invoiced, including multi-year prepaid service contracts, so the tax treatment of advance payments is a live question.
• Compensation. No officer salary runs through payroll; the owner is compensated by distributions. The company made owner distributions for income taxes of roughly $0.6 million in 2025. The mix of employees and contractors among the field and support staff is not yet known.
• Equipment. Systems and upgrade parts are purchased from the European manufacturer and resold. Whether the target or the manufacturer is the importer of record, and how duties are handled, has not been established. The target owns little fixed equipment.
• Cash. The target holds significant cash and a multi-million dollar investment balance; part of the cash was collected for service not yet performed.

3. Scope We Expect Table Rock to Need

Table Rock's words on the call: there will be a tax diligence stream; the target is an S corporation; it has filed federal and Texas franchise returns but has done business in 40-plus states; the questions are what the exposure is and how to structure around it. The workstreams below are Till's reading of what that requires. The partner should confirm, cut or add.

A. Federal income tax diligence

• S election validity from inception: eligibility of every historical holder, single class of stock, any period of ineligibility, and the consequences of an invalid election for the buyer in a stock deal.
• Method of accounting (cash) and the treatment of advance payments on multi-year service and software contracts; the method change and the inherited deferred income on conversion to a C corporation.
• Review of federal returns for the open years (2022 to 2025) and the 2026 stub: distributions against basis, related-party transactions, depreciation, and any positions that create exposure for a buyer.
• Reasonable compensation for the owner, given that no officer salary has been paid.

B. State and local tax diligence

• Income and franchise tax nexus in the states where the target has sold, installed or serviced systems, against filings only in Texas; exposure by state for the open years, with the statute of limitations position where no return was filed.
• Sales and use tax: taxability of equipment sales, installation, service contracts and software licenses to government customers by state; exemption certificate practice; use tax on the target's own purchases; exposure quantification by state.
• Voluntary disclosure strategy where exposure is material, and the choice between pre-closing remediation, escrow and indemnity.

C. Payroll and employment tax

• Multi-state withholding and unemployment registration for technicians working across states and for any remote staff.
• Worker classification (employee versus contractor) for field and support staff.
• Officer compensation as above.

D. Transaction structuring

• The F reorganization: step plan, timing before close, the entities involved, and the effect on the S election and the buyer's basis.
• Comparison with alternatives Table Rock should consider (for example a deemed asset purchase election) and the resulting basis step-up and its value to the buyer.
• Purchase agreement tax provisions: representations, pre-closing tax covenants, straddle period allocation, indemnity and escrow sizing for the exposures identified, transaction cost treatment, and the tax treatment of the seller's rollover if any.

E. Deliverables

• A tax diligence report with findings by workstream and exposure quantified by jurisdiction and year, ranked for the purchase agreement.
• A structuring memorandum on the F reorganization and the alternatives.
• Comments on the tax provisions of the draft purchase agreement.
• A consolidated data request list issued at kickoff.

4. What Is Available, and What Till Will Hand Over

From the seller, through Table Rock (requested; data room expected in November): federal and Texas franchise returns for 2022 to 2025; the outside CPA's annual statements and work papers for the same years; bank statements from January 2024; the customer invoice register with contract terms; the 2026 general ledger; payroll journals, quarterly payroll filings, the employee census and the contractor list; the operating agreement and ownership history; the distributor agreement; the top customer and cooperative contracts.

From Till CFO, as the financial QoE produces them, at no cost to the tax partner: the owner distribution history; the related-party map; the cash-to-accrual reconciliation by year; sales by ship-to state from the invoice register; the payroll census and contractor list by state; the deferred revenue schedule by contract and remaining term; the unit-level cost matching of systems sold to units purchased.

What Till is not doing: Till does not opine on S election validity, the F reorganization, nexus, sales and use tax or any exposure, and does not quantify tax exposure. Till flags the candidates it finds with the underlying data; the tax partner sizes them.

5. Calendar

A tax diligence draft in the same window as the financial QoE draft, by mid-December, would let both reports inform the purchase agreement together. Till will share its schedules with the tax partner as they are produced rather than at the end.

6. What We Need Back for the Fee Estimate

1. The scope you would propose against Sections 3A to 3E, including anything you would cut or add.
2. A fee, fixed or as a range, by workstream, and whether state exposure quantification and voluntary disclosure work are included or priced separately (and on what basis).
3. Your timeline from kickoff to draft and final, and whether a mid-December draft is achievable with a data room available in November.
4. The team you would assign and your experience with S corporation targets selling to government customers across many states.
5. Your data request, so Table Rock can combine it with Till's and issue one list to the seller.
6. Any conflict check requirements. The target's name is provided under NDA once Table Rock is ready to engage.

7. Contact

Tim Peters, Head of Growth, Till CFO · tpeters@tillcfo.com · (832) 712-6517

Till will introduce you to Table Rock's diligence lead once you have reviewed this brief.