Letter of Intent Template for Acquiring a Tax Preparation Business

Identification of Parties and Practice Description

Clearly identifies the buyer, seller, and the legal entity or asset bundle being acquired. For tax practices, this section should specify whether the transaction is an asset purchase (client list, goodwill, equipment, software licenses) or a stock purchase of the operating entity, and should name any affiliated entities such as a payroll or bookkeeping division being included.

💡 Asset purchases are strongly preferred by buyers in tax practice acquisitions to avoid inheriting undisclosed IRS penalties, prior malpractice claims, or employer tax liabilities. Sellers often prefer stock sales for capital gains treatment. Negotiate this point early and reflect the structure explicitly in the LOI to avoid renegotiation at the purchase agreement stage.

Proposed Purchase Price and Valuation Basis

States the total proposed consideration and the valuation methodology used to arrive at the figure. Tax preparation businesses in the lower middle market typically trade at 2.5x–4.5x EBITDA or 0.8x–1.5x annual gross revenue, depending on client retention rates, revenue diversification, and owner dependency. The LOI should anchor the price to verified financials.

💡 Sellers of seasonal tax practices often attempt to present peak-season revenue as representative of annual performance. Require trailing twelve-month revenue breakdowns by month and by service line (1040 individual, business returns, bookkeeping, payroll, IRS representation). Push for a price adjustment mechanism if client revenue falls below a defined threshold at close.

Deal Structure and Payment Terms

Defines how the purchase price will be paid, including any SBA financing, seller note, earnout component, or combination thereof. This is one of the most negotiated sections in a tax practice LOI because client retention risk directly informs how much of the price should be deferred versus paid at close.

💡 Earnouts are standard and appropriate in tax practice acquisitions given client loyalty risk. Structure earnout measurements around retained client revenue, not headcount, since individual client revenue varies significantly. Sellers should negotiate for a minimum base payout even if retention thresholds are partially missed, and for clear definitions of what constitutes a 'retained client' versus one who left due to buyer service failures rather than seller departure.

Client Retention and Transition Obligations

Specifies the seller's obligations to support client retention during and after the transition, including client introduction letters, in-person handoffs, and a defined transition service period. This section is unique to professional services acquisitions and is especially critical in tax practices where clients follow the practitioner, not the brand.

💡 The non-solicitation period and geography are heavily negotiated. Buyers should insist on at minimum a 3-year non-solicitation covering the Practice's existing client base by name, not just geography, since tax clients follow their preparer and may move outside a radius. Sellers who plan to retire completely will accept tighter terms; those planning to continue working in any advisory capacity will push back hard.

Due Diligence Period and Access

Defines the length and scope of the buyer's due diligence investigation, including access to financial records, client files, staff information, software systems, and IRS correspondence history. For tax practices, due diligence should cover at least three full tax seasons of data.

💡 Sellers often resist providing unanonymized client lists prior to a signed LOI and closing. Use a tiered approach: request an anonymized client revenue summary for LOI pricing, then require full client detail under NDA during due diligence. Pay particular attention to IRS e-file provider status, EFIN transferability, and any Revenue Agent Reports or preparer penalties — these can create material post-close liability.

Exclusivity and No-Shop Provision

Prevents the seller from soliciting or entertaining competing offers during the due diligence and negotiation period. This is standard in LOIs and protects the buyer's investment of time and resources in conducting diligence on a tax practice.

💡 Sellers of in-demand tax practices with clean financials and strong retention rates may push for a shorter exclusivity window of 30–45 days. Buyers using SBA financing should be realistic that 60 days may not be sufficient given lender timelines and should request a mutual extension option in the LOI. If exclusivity expires before close, negotiate a right of first refusal on any competing offer.

Representations and Warranties Framework

Outlines the key representations the seller will be expected to make in the definitive purchase agreement, giving both parties a preview of the risk allocation. For tax practices, seller reps must cover IRS standing, client relationship ownership, staff credentials, and accuracy of financial statements.

💡 Sellers may resist broad reps around client intent to leave, as this is inherently unknowable. Negotiate a knowledge qualifier and tie material breaches of reps directly to the earnout mechanism rather than requiring post-close litigation. Buyers should require a survival period for reps of at least 24 months post-close to cover one full tax cycle.

Conditions to Closing

Lists the specific conditions that must be satisfied before the transaction can close, providing both parties with clear checkpoints. For tax practice acquisitions, conditions should include SBA loan approval, EFIN transfer or new EFIN registration, key staff retention commitments, and software license transferability confirmation.

💡 EFIN transferability is a frequently overlooked deal condition that can delay or kill a closing. The IRS issues EFINs to individuals or entities and transfer procedures can take 4–8 weeks. Plan closing timelines around the tax season — avoid scheduling close between January and April 15 unless you have bridge arrangements for the current filing season already in place.

Confidentiality

Establishes mutual obligations to keep the terms of the LOI and all due diligence materials strictly confidential. In small tax practices, even a rumor of a sale can trigger client attrition and staff departures before the transaction closes.

💡 Tax practice sellers are especially sensitive to pre-close disclosure because client relationships are personal. Agree on a communication plan before signing — who tells the staff, when, and what they say — and include the communication timeline and script framework as an exhibit to the definitive agreement. Pre-close leaks are the single most common cause of client attrition in professional services acquisitions.

Governing Law, Termination, and Non-Binding Nature

Clarifies which provisions of the LOI are binding (confidentiality, exclusivity, governing law) versus non-binding (price, structure, terms), and establishes how either party may terminate the LOI if negotiations fail.

💡 Make clear in writing which sections are binding and which are not. Courts have occasionally found non-binding LOIs to create enforceable obligations when language was ambiguous. Use 'non-binding' explicitly and repeatedly in the body of the document. The 90-day termination window should be extended for SBA transactions, which routinely take 90–120 days from LOI to close.