I-9 Audits in M&A Transactions

Key Takeaways

• I-9 audits are no longer a routine HR checkbox. In today's enforcement environment, they have become a deal-critical diligence item.

• In January 2025, DHS announced new civil penalties for Form I-9 violations. I-9 paperwork violations now range from $288 to $2,861 per Form I-9 violation, with penalties for knowingly employing unauthorized workers reaching as high as $28,619 per violation for repeat offenses.

• In March 2026, ICE quietly reclassified numerous errors that had historically been treated as correctable technical violations as substantive violations now subject to monetary penalties, significantly increasing exposure for routine compliance errors.

• Unresolved I-9 exposure can affect your closing timeline, purchase price, and deal terms.

• Buyers are scrutinizing I-9 compliance harder than ever. Sellers who prepare early hold a distinct negotiating advantage.

PCE’s Perspective on I-9 Compliance in M&A

"We've seen deals slow down, face renegotiation, and in rare cases, fall apart because I-9 issues surfaced late in diligence. This is no longer an HR problem, it's a transaction problem. Business owners who treat I-9 compliance as a deal-readiness issue, not just an employment law obligation, protect both their closing timeline and their valuation."

— Michael W. Poole, Managing Director, PCE Investment Bankers

Why I-9 Audits Are Now a Deal-Critical Issue

If you're preparing your business for a sale or recapitalization, your to-do list probably includes resolving any issues related to your financials, tax planning, and environmental matters. I-9 compliance likely sits much lower on that list, if it's there at all.

For broader sale preparation, see Tips for Pre-Sale Due Diligence; Why You Need a Preliminary M&A Valuation.

That's a mistake that is costing middle-market business owners real money.

The regulatory environment around employment eligibility verification has shifted dramatically. ICE and other authorized agencies are initiating more administrative inspections of Form I-9 and worksite enforcement actions, particularly targeting industries that rely on migrant workforces. At the same time, ICE's March 2026 guidance marks a significant departure from the long-standing framework that distinguished between correctable technical errors and substantive violations subject to penalties.

For a seller running a business with dozens or hundreds of employees, that shift matters enormously. Because fines are assessed per employee or per violation, even a mid-sized company can face multimillion-dollar liability.

For more on protecting enterprise value before a transaction, see Beyond the Bottom Line: 8 Key Drivers to Maximize Your Business Valuation; How the Financial Value Driver Enhances Your Business.

Buyers know this, and their counsel is trained to find it. And when they do, they use it.

What Is an I-9 Audit, and What Triggers One?

A Form I-9 audit is either an internal self-review of your employment eligibility verification records or a government-initiated inspection. Every U.S. employer is required to complete a Form I-9 for each employee to verify their identity and authorization to work.

The administrative inspection process is initiated with the service of a Notice of Inspection (NOI) upon an employer, who must then produce Forms I-9 and employment records for review. Officers will give you a minimum of three business days' notice before starting an inspection. That is not much time to get your house in order if you haven't already.

The Immigration and Nationality Act (INA) authorizes DHS (including ICE), the Department of Justice Civil Rights Division's Immigrant and Employee Rights Section, and the Department of Labor to inspect an employer's I-9 forms and supporting documentation.

In an M&A context, an internal I-9 audit, conducted confidentially under attorney-client privilege, is the standard best practice for sellers before going to market and for buyers during diligence.

How I-9 Exposure Affects Your M&A Transaction

This is where I-9 compliance moves from HR compliance into investment banking territory. Here is how unresolved I-9 issues flow through a deal.

When a buyer's counsel identifies material I-9 deficiencies during diligence, the likely outcome is a quantified liability estimate, and that number flows directly into purchase price negotiations. During due diligence, the acquiring employer typically reviews a representative sample of the acquired company's Forms I-9s to confirm they were correctly and timely completed and retained in compliance with immigration laws. If I-9 issues surface in diligence, they do not disappear. They can result in a reduced valuation, increased escrows, additional indemnifications, and delays in the closing timeline.

For buyer diligence and valuation context, see How a Buyer Values My Business; How to Close the Valuation Gap.

If you are preparing for a sale, start your internal I-9 review now, before a buyer's counsel does it for you.

A Real-World I-9 Diligence Example from PCE

In a recent sell-side process, closing was pushed out by several months as the buyer worked through I-9 compliance issues during due diligence. The buyer required the seller to go through two separate I-9 audits to confirm that the seller’s employees were eligible for employment. Fortunately, it didn’t derail the transaction—but it could have.

I-9 Audit Checklist for Business Owners Preparing for an M&A Transaction

Use this checklist to assess your I-9 readiness before going to market. We recommend conducting this review under the supervision of qualified immigration counsel to preserve attorney-client privilege.

For adjacent pre-market cleanup items, see Close Out the Year With Recast Financial Statements.

Phase 1: Records Inventory and Retention

• • Confirm that a Form I-9 exists on file for every current employee hired after November 1986

  • Confirm that former employee Forms I-9 have been retained for at least three years from the first day of employment or one year from the date employment ended, whichever is longer

  • Verify that all I-9 records are stored in a consistent, accessible format (paper or compliant electronic system)

  • If using an electronic Form I-9 platform, confirm compliance with DHS requirements governing audit trails, indexing, electronic signatures, record retention, and data security

Phase 2: Section-by-Section Completeness Review

Using ICE's March 2026 fact sheet as your guide, review all forms for the following:

• • Employee's legal name and date of birth are present

  • Employee has not checked more than one citizenship or immigration status box

  • Alien Registration Number (A-Number) or USCIS number is present for lawful permanent residents

  • Acceptable List A or List B/C documents were physically examined within three business days of hire

  • Document title, issuing authority, document number, and expiration date are fully and accurately recorded

  • Name, title, and signature of the employer or authorized representative are present

  • Date of hire is accurately recorded

  • Section 1 and 2 are both signed and dated

Phase 3: Deal Readiness Actions

• • Evaluate the I-9 processes and procedures of the business, including its I-9 compliance policy and any steps taken to address past I-9 issues

  • Engage immigration counsel to conduct a privileged internal audit and document remediation steps

  • Conduct an internal audit to identify and correct curable violations before they become deal liabilities

  • Prepare a schedule of I-9 exceptions to be disclosed to buyers, proactive disclosure is far better than a buyer discovering issues independently
    
    

    For buyer outreach and positioning strategy, see Why You Need an Investment Banker to Build Your Buyers List; How to Identify the Best Buyers for Your Business Transition.

  • Consider enrolling in E-Verify, DHS's online system for employment eligibility verification, if not already enrolled, E-Verify enrollment is increasingly seen as a good-faith compliance indicator

What Should You Do If You Find Problems During Your Internal Audit?

Finding issues during a privileged internal audit is far better than having a buyer find them. Here is how to respond:

Correct what is correctable. Conducting an internal I-9 audit and correcting curable violations reduces potential penalties. Work with counsel to document corrections properly, improper corrections can create additional exposure.

Do not rely on document copies to fix form errors. Retaining copies of identity or work authorization documents does not cure missing or incomplete information on Form I-9. This is now explicit ICE policy.

Document your good faith. A good faith attempt to comply with the paperwork requirements may be adequate, notwithstanding a technical or procedural failure to comply, unless you fail to correct a violation within 10 days of DHS notifying you. Your internal audit records, training logs, and corrective action documentation are your evidence of good faith.

Disclose strategically. Work with your M&A advisor and legal counsel to decide what to disclose in your data room, how to frame it, and whether to negotiate a specific indemnity structure that contains the buyer's exposure concerns.

For negotiation strategy and process design, see Winning the M&A Race: A Business Owner's Guide to Successful Negotiations

The Bottom Line: I-9 Readiness Is a Seller's Competitive Advantage

At PCE Investment Bankers, we advise middle-market business owners every day on what it takes to run a clean, competitive sale process. The businesses that achieve the best outcomes, strongest valuations, cleanest closings, fewest surprises in diligence, are the ones that take deal preparation seriously on every front, including the ones that feel administrative.

By conducting thorough due diligence and carefully planning for Form I-9 compliance, employers can mitigate risks, ensure a smooth transition, and position the transaction for long-term success.

I-9 compliance is no longer just an HR obligation. It is a tangible component of your enterprise value, one that a well-prepared seller can control, and a poorly prepared seller will pay for at the closing table.

If you are considering a sale or recapitalization in the next one to three years, the best time to address your I-9 posture is now, before a buyer's diligence team makes the discovery for you.

PCE Investment Bankers is a middle-market investment banking firm advising business owners on mergers and acquisitions, capital raises, and strategic transactions. For a confidential conversation about your transaction readiness, contact our team.

FAQs About I-9 Audits in M&A Transactions

What is an I-9 audit in an M&A transaction?

An I-9 audit in an M&A transaction is a review of employment eligibility verification records, often conducted by sellers before going to market and by buyers during diligence.

Why do buyers review Form I-9 compliance during due diligence?

Buyers review Form I-9 compliance because deficiencies can create potential monetary exposure, operational risk, and post-closing responsibility for employment eligibility records.

How can I-9 violations affect purchase price or closing?

I-9 violations can affect purchase price, escrows, indemnities, and closing timelines when buyer diligence identifies material deficiencies.

When should a seller conduct an internal I-9 audit?

A seller should conduct an internal I-9 audit before a buyer’s counsel reviews the records, ideally as part of pre-sale or recapitalization readiness.

What should business owners review before going to market?

Business owners should review records inventory and retention, section-by-section completeness, electronic Form I-9 system requirements, remediation steps, and disclosure strategy with qualified counsel and advisors.

This article is for informational purposes only and does not constitute legal advice. Employers should consult qualified immigration counsel before conducting or remediating an I-9 audit. 

Bradley Scharfenberg

Bradley Scharfenberg is a Vice President in PCE’s M&A practice, bringing more than 10 years of investment banking and corporate finance experience. With a strong background in healthcare, Bradley leverages his deep expertise to help business owners achieve their goals through thoughtful, tailored solutions.

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