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Past Tax Liabilities

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CHAZ5

Junior Member
What is the name of your state? Arizona

In March 2007 we purchased 67% of an existing corporation (the remaining 33% is owned by additional business partners). Under the sales agreement, we included a stipulation that all existing liabilities and IRS issues remain with the previous majority owner. We received a letter from the IRS about past due taxes (under the corporation's EIN which we continued to use when we took over) for liabilties that existed prior to us taking over ownership. When we contacted the IRS we found out that there has been an ongoing case with the previous owner for tens of thousands of dollars owed from 2005 and 2006.

Will the IRS be able to separate our tax liability (which for us is current and paid) from the unpaid amounts of the previous owner under this same EIN?

Thank you.
 


tranquility

Senior Member
No. You bought an existing corporation. With that corporation came all the accompaning tax issues. While the IRS may find individuals responsible, especially for trust fund taxes, it is the corporation which owes the tax.

Think about it in reverse. I sell you something and say, "you are buying my tax liability as well." You agree. The IRS comes to me and asks for my taxes and I tell them you have bought my liability. Who are they going after? I assure you they don't care much what private agreements we have.

That does not mean you are out of luck. You have a contractual agreement with the prior owners to take care of the tax issues as their responsibility. If the IRS goes after the corporation, the corporation (perhaps you, depending on the contract) can go after the prior owners as a breach of contract. That does not affect the tax liability of the *corporation*, it just reflects the reality of the agreement.

I don't know what you bought, but many don't buy an entire corporation without due dilligence to find out about just this type of problem. Others may buy just the assets from the corporation recognizing that incorporating isn't that expensive.

More facts may have me change my opinion as the type of sale and the type of taxes are important. But, generally, I think you have a problem.
 

LdiJ

Senior Member
No. You bought an existing corporation. With that corporation came all the accompaning tax issues. While the IRS may find individuals responsible, especially for trust fund taxes, it is the corporation which owes the tax.

Think about it in reverse. I sell you something and say, "you are buying my tax liability as well." You agree. The IRS comes to me and asks for my taxes and I tell them you have bought my liability. Who are they going after? I assure you they don't care much what private agreements we have.

That does not mean you are out of luck. You have a contractual agreement with the prior owners to take care of the tax issues as their responsibility. If the IRS goes after the corporation, the corporation (perhaps you, depending on the contract) can go after the prior owners as a breach of contract. That does not affect the tax liability of the *corporation*, it just reflects the reality of the agreement.

I don't know what you bought, but many don't buy an entire corporation without due dilligence to find out about just this type of problem. Others may buy just the assets from the corporation recognizing that incorporating isn't that expensive.

More facts may have me change my opinion as the type of sale and the type of taxes are important. But, generally, I think you have a problem.
I agree...however, depending upon how you structured the sale, it may not be too late to treat the sale as an asset only purchase, which would mean starting a new corporation and transferring the assets to that corporation. That would leave the liabilities squarely with the previous owners.

Take your purchase documentation and go get a consult with a tax attorney.
 

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