If I buy a business and assume full legal responsibility for it - does that include tax violations?

Question

If I buy a business – having been paid in retrospect a full manager's wage (plus percentage of profits) thus assuming full legal responsibility for the business and its earnings from the time the business started - am I also legally responsible for tax violations?

(I am writing a short story for my class)

Answer 1

I do not know what the manager's wage has to do with anything, but the answer is "maybe."

If the biz is a corporation, you do not actually buy the business, you buy stock in the business. If it had tax problems prior to your purchase, the tax problems remain with the business. If the books failed to disclose the problem, you might have a case for fraud against the seller. If you do nothing to continue or aggravate the problem, you will not likely be held criminally responsible, but you can still lose the business to a tax foreclosure.

If the business is not a corporation, it is just another asset that can be transferred from one person to another. Depending on how that agreement is contracted, liabilities, including tax liabilities can transfer with the biz -- but normally not income tax liabilities. The contract can also place the liabilities with the seller. The biggest problem you need to acknowledge in a private sale is property tax liabilities. They will go after the property, not the owner (though the owner pays or loses). Individual income tax issues follow the taxpayer.

There is an exception to this. Any transaction undertaken to avoid taxation can be voided. This means that if a seller sells a biz to you and then jumps the country to avoid the results of an audit, the IRS could void the sale to you and take possession of the company. While that would not leave you criminally liable, your recourse at that point would be to sue the seller -- who is not around to be sued.

If significant sums are involved, be very careful of getting too far into anyone elses mess.

Answer 2

This question doesn't make sense from a tax perspective. If you are writing a story with this, at least make the business a corporation that has back taxes that you, the buyer, are assuming. Even then, it is not a realistic scenario, as there are regulatory disclosures at the state and federal levels that would keep this from happening to a knowledgable buyer.

There are types of businesses where the new owner would not owe any taxes. This would be in the case where the income of the business passes through to the owner, so that the business itself would not owe any tax.

Answer 3

Your question doesn't make sense. If you're being paid "a full manager's wage" then you're an employee, not the owner.

On the other hand, if you buy the business you get everything that goes with it. Assets, liabilities, the lot. So if there are tax deficiencies you'll be responsible for them as well.

(Hint: If you had performed your due diligence before buying the business you would have known of the tax deficiencies and all other debts and would have adjusted your purchase offer accordingly.)

Answer 4

Yes, you assume ALL debts owed to anyone.