I have a client that closed down a C Corporation. They did not tell me about closing down the corp until it was already over. The corp sold all of its assets and the owners took all of the cash. I was notified about this in January following the tax year. To resolve the issue, I had the corp officers take all of the proceeds from the asset sale as W-2's. All was fine except the IRS decided to audit the corp for excessive compensation. After the audit was completed and the dun letters starting to arrive at the old office, I called the auditors manager and explained what had happened and that all of the taxes had been paid via W-2's. They agreed with me and did a 53 action (debt non-collectibe). The taxes that were assessed were income tax to the corp and not "trust fund, sales tax nor fraud". Also no penalities or interest was assessed. That being said, they still send the audit information to the Arizona Department of Revenue. The ADOR is now trying to get the Officers to pay the state part of the assessment. I have been fighting this for 3 years now and nothing seems to work. Does anyone know of any regulations or court citations that I might use. I know that I have read somewhere that the corporation officers can only be held liable for trust fund violations, non-payment of sales tax and fraud.