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PDtax
PDtax, CPA firm owner
Category: Tax
Satisfied Customers: 1920
Experience:  32 years tax experience, including four years at a Big 4 firm.
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Tax Attorney Background Taxpayer purchased a Corporation

Customer Question

Tax Attorney

Background

Taxpayer purchased a Corporation which has MC for trucking purposes in March 2013. Taxpayer does not wish to assume any tax responsibilities of prior years which was not in his control. The previous owners revoked their S Corp status. The new owner cannot change the name of the company.

1. Can he apply for a new Tax Id for the same name so that all activities of prior years be separated?

2. Can he make a S Corp election for new owners starting this year?

3. How does taxpayer protect himself for any tax liabilities?

4. What other options he has as he wants to use the same name?
Submitted: 10 months ago.
Category: Tax
Expert:  Robin D. replied 10 months ago.

Robin D. :

Hello and thanks for trusting me to help you today. I am a tax adviser with over 15 years of experience.
When purchasing a business in NY you would need to advise the state about the bulk purchase. This would assist in your liability relief.
You have to notify the state 10 days before paying the money for the business.

Within five business days of receiving Form AU-196.10, the Tax Department will advise you as to whether the seller has unpaid sales and use taxes. If the seller has unpaid sales or use taxes or is selected for additional review or audit, the Tax Department will send you Form AU-196.2, Notice of Claim to Purchaser, which will require you to not release any consideration to the seller until authorized by the department.
If for some reason the state does not advise you of a withholding requirement and you have properly filed the form then you would not be held liable for tax liability.
You will need to register for sales tax but that alone would not protect from the liabilities of the previous owner if you do not inform the state and receive the OK to pay them. Most licenses and registrations held by the previous owner can’t be transferred to you. You’ll need to apply for new ones.


Robin D. :

If you are an S corp for federal then the state will acknowledge that as well.

Robin D. :

You may wish to go over the following
http://www.tax.ny.gov/bus/doingbus/buy.htm

Robin D. :

It should assist you with the purchase of the business in NY and what you are required to do for each possible area in New York.

Robin D. :

My goal is to give you excellent service. If you are satisfied, please rate me. If you have follow-up questions on this same topic, use the reply box below. To start a new conversation with me on a new topic request me again.

Customer :

I do not think you understood my question. I know the procedure for bulk sale. There are no sales subject to sales tax in the acquisition. Please read my questions again.

Robin D. :

I will opt out then and let another expert take over that would be able to assist you. They will contact you quickly.

Expert:  PDtax replied 10 months ago.
Welcome to the site. I'm PDtax, and saw your question. I'm not a tax attorney, but have worked with you before (in May 2013).

The transaction is already done, from the sounds of things. The assets of value are the business name, permits, vehicles, and client relationships/customer list.

A new tax ID number will not be required just because of the change of ownership. That would not isolate the prior years anyway. He purchased 100% of the entity, and that includes the potential tax liabilities.

Keep in mind there should be a short period final C return filed before the change of ownership anyway.

Since the company was a prior S, it should be able to elect S going forward with his consent for the short year ended 12/31/13.

You are asking how to protect your client from what sounds like a poor contract. Most contracts have indemnification clauses, or at a minimum, are specific to the liabilities included in the transaction. I assume yours does not.

If you are really concerned, you could use a new entity to claim the business assets, effectively stripping them out of the old entity. A name change (the New Eagle Truckers, or Eagle Trucking II), asset transfer as part of purchase (with bulk sale concerns). I have done these with an asset-for-asset transfer, for example. Exchange a note for the value of all the assets, and leave the note in Oldcorp. Establish guarantee terms that discount the value of the assets to compensate for the risk. Best to involve an attorney if you are extra concerned about the exposure.

Using the same name is easy, reformed. Eagle Transport II, Eagle Logistics, Inc., etc. are all similar to Eagle Trucking, Inc.

You might also be able to liquidate the old corp after asset transfer (likely eliminating any exposure to audits, since the entity will be liquidating/liquidated). Once liquidated, you could ask the Secretary of state for a dba to use the old name for your new corp.

Part of me wants to ask how bad the exposure is, since your client already signed his deal. Let me know if you want to cover any more specifics, or if this answered things for you.

PDtax

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