What are the implications of entering into a LLC partnership with a alleged tax evader?

UPDATED: Apr 8, 2016

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What are the implications of entering into a LLC partnership with a alleged tax evader?

I am in the beginning stages of forming a LLC with 4 partners; 1 of whom has allegedly not filed taxes for the last 5-10 years. Can this possibly harmthe business and how?

Asked on April 8, 2016 under Business Law, Michigan


SJZ, Member, New York Bar / FreeAdvice Contributing Attorney

Answered 6 years ago | Contributor

Don't do this: while you are not directly liable or responsible for the actions of another member:
1) If he uses the LLC to try to hide or avoid taxes, the authorities can go after the LLC's assets--and they do this even if they just reasonably suspect he's doing this (i.e. even if ulimately, they can't get any of the LLCs assets do you want your business to have to spend money and time fighting the IRS?).
2) If he does use the LLC to anything illegal and the authorities think you knowingly helped him do so, then they might go after you personally.
3) Even if the authorities never go after you or the LLC, if they go after him, they may need information from the LLC, and responding can cost time and money.
4) And let's face it--he's a financial criminal (that's what not filing taxes is, after all: a crime involving money and finances); do you really think that someone who cheats on taxes wouldn't also try to cheat his partners?

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