If I want to take over a business but the current owner is in debt to the IRS, who is responsible for that debt?

UPDATED: Nov 6, 2011

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If I want to take over a business but the current owner is in debt to the IRS, who is responsible for that debt?

Asked on November 6, 2011 under Bankruptcy Law, Wisconsin


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 11 years ago | Contributor

Speak with an attorney about this situation, since it depends on the specific facts. Some principles:

1) If business is a corporation or an LLC and the tax debt is the business's debt, not the owner's personal debt, then if you buy the corporation or LLC, the debt would travel with the corporation or LLC--i.e. the business would still owe it. It would seem to not be your personal debt, except as set out in 2), below:

2) Certain kinds of tax debts, such as for not having paid withholding or sales tax, can become the personal debts of responsible persons at the business in some circumstances--you may not want to buy a corporation or LLC with these kinds of tax debts without first making sure that it will not, if not paid, become your obligation.

3) If the business was a sole proprietorship, then the tax debt should be the owner's own debt, and if  you buy the business's assets, you should be ok.

4) Similarly, if it was a corporation or LLC but you don't buy the business itself, just its assets, you should be ok.

Tax debts are serious business; you want to discuss this situation in detail with a lawyer to check your personal exposure before doing anything.

IMPORTANT NOTICE: The Answer(s) provided above are for general information only. The attorney providing the answer was not serving as the attorney for the person submitting the question or in any attorney-client relationship with such person. Laws may vary from state to state, and sometimes change. Tiny variations in the facts, or a fact not set forth in a question, often can change a legal outcome or an attorney's conclusion. Although AttorneyPages.com has verified the attorney was admitted to practice law in at least one jurisdiction, he or she may not be authorized to practice law in the jurisdiction referred to in the question, nor is he or she necessarily experienced in the area of the law involved. Unlike the information in the Answer(s) above, upon which you should NOT rely, for personal advice you can rely upon we suggest you retain an attorney to represent you.

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