Corporate acquisitions and hidden tax liabilities: avoiding the 100% penalty

Article Abstract:

The new owner of a business can be held liable for failing to pay tax obligations that accrued prior to the acquisition. The IRS can also assess a 100% penalty for willful failure to pay these taxes. Two requirements must be met before the penalty can be assessed. The entity charged with the violation must be a 'responsible person', and the entity must have 'willfully' committed the violation. The most effective means of protection against incurring this liability is to ensure that all withholding and trust funds have been paid prior to the acquisition. The entity acquiring the corporation should also seek indemnification from the previous owners.

Acquisitions and mergers, Corporate taxes, Corporations

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Distribution of a subsidiary's stock is not a dividend

Article Abstract:

The Tax Court has ruled that shareholders of a corporation who exchange their stock in a parent corporation for the stock of one of the parent's subsidiary corporations must recognize capital gains, rather than dividends. The property received is not considered 'property'. Two recent court cases on this question are discussed.

Cases, Subsidiary corporations, Subsidiaries, Corporate distributions

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