Avoiding tax accrual when purchasing a business

When purchasing a business, buyers should review the tax liabilities to avoid acquiring costly tax debt.

From small business owners to owners of larger businesses, there are a host of issues to consider when selling or buying a company. From acquiring loans and funding to signing multiple contracts, handling business transactions can be daunting. People who acquire a business, however, do not want to take on the existing tax obligations of the seller. In certain states, people can become responsible for the existing taxes upon purchase of a business if that business is delinquent when the sale is made. This is referred to as successor tax liability and in some situations, it may be avoided.

Successor obligations

When purchasing a business, it is crucial to know that the buyer is responsible for withholding a certain amount of the purchase money designated for the payment of the sellers' outstanding tax debt. According to the American Bar Association, the buyer is not liable for the taxes if the seller provides a certificate showing that the taxes have been paid. If the buyer does not get this certificate showing payment of taxes, they are then responsible for all of the taxes, tax penalties and interest that the business owes at the time of purchase.

Giving proper notice

In order to avoid any unexpected tax notifications or need to cease business operations, the buyer should give notice to the proper taxing jurisdiction that a business sale is going to occur in the near future. By giving this notice, the buyer will not be responsible for any taxes that are acquired by the business while it remains in the possession of the seller. In Georgia, there is not a time period required to file this notice. However, it does take time for the Department of Revenue to review the case and determine who is liable so filing the notice as soon as possible is best.

Legal assistance may be essential to your case

Whether you have already purchased a business and are attempting to organize the taxes that you accrued with the business, or you are considering a purchase and need some legal assistance, you may want to seek counsel from an experienced attorney. A tax law attorney in Georgia may be able to help answer your questions and look at all of the details surrounding your purchase. A lawyer may be able to uncover the best route to take when purchasing a business and help you avoid pricey tax penalties as well.