Tax Clearance Cerificate

[TAX]

Client (Seller) sold business to a Buyer (also my client) for a price. Seller owes $ 40,000 to IRS for payroll under his corporation.

(1) Would this cause an issue for Buyer?

(2) Is there a way buyer can get tax clearance certificate from IRS so that he would not owe any thing for past taxes (owed by seller)?

Thanks!

[taxmandan]

What did he buy?

Client (Seller) sold business to a Buyer (also my client) for a price. Seller owes $ 40,000 to IRS for payroll under his corporation.

(1) Would this cause an issue for Buyer?

(2) Is there a way buyer can get tax clearance certificate from IRS so that he would not owe any thing for past taxes (owed by seller)?

Thanks!

Look at the purchase agreement/sales contract. Did your client buy the assets of the business or 100% of the shares of outstanding corporate stock? If he bought the stock, he's got a problem, because he bought all the assets AND liabilities of the corporation in doing so, and that includes back taxes. Buyers of an incorporated business should always structure the purchase solely as an asset purchase to avoid any past liabilities of the company: product defects, back taxes, etc.