tax treatment for individual paying a corporation's tax liability

[taxedtothemax]

tax treatment for individual paying a corporation's tax liability

Good Morning Bees Knees and thank you for the follow up post. Interesting that you're from MN as that is the state that pursued the former exec. Wouldn't state statute allowing them to collect corporate liabilities from individual taxpayers and the demand letter be proof enough for the IRS that the individual was personally liable?

[Bees Knees]

Wouldn't state statute allowing them to collect corporate liabilities from individual taxpayers and the demand letter be proof enough for the IRS that the individual was personally liable?

I don't know. From your previous posts, there is nothing that indicates the state had the legal right to collect corporate liabilities from your client. In fact, it seems to me the bankruptcy court said your client was off the hook, thus allowing all records to be destroyed. I would think the bankruptcy court null and void any and all creditor claims against the corporation, including the state. That is what bankruptcy is all about.

If the state had the legal right to collect the corporate liabilities from the shareholder, then the deduction should be OK. If your client settled merely to avoid having the issue go to court, that is another matter.

Regardless, since I’m not an attorney, I would want to protect myself if it were my client. I would advise him of the facts, the possible position the IRS could take, and then say if he still wants to deduct the expense, I would have to disclose the position on the tax return so that I was protected from the IRS imposing preparer penalties.