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

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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

Answers:

SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 10 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.


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