One of the Many Changes in Tax Administration: Liability of Successor Businesses

June 12, 2014

The end of 2014 and the beginning of 2014 have resulted in a number of changes in tax administration. One of the many areas of change is liability for taxes of successor businesses. If your company purchases all the assets of another business, it may be held liable for the unpaid taxes of the predecessor corporation. However, until February of this year, the prior corporate officers were also liable for unpaid taxes. There were no rules governing whether the Michigan Department of Treasury had to look to the prior corporate officers or the successor business first and the extent of each party’s respective liability. Now, under newly a newly enacted law, the Department of Treasury is required to look to the purchaser of the business first for payment of the outstanding taxes.  

The new law provides greater notice to a purchasing business of the potential tax liabilities. A business purchasing another business may request a written statement of the prior owner’s known or estimated tax liability, with the owner’s consent. The Department is required to produce this statement within 60 days of request. If the tax statement is not produced by the Department within 60 days, the purchaser may not be held liable for unpaid taxes. When the Department does produce the notice within 60 days, the purchaser's liability for taxes of the prior business is limited to the amount disclosed by the Department. This allows a purchasing business to understand the tax liabilities that it may be responsible for upon purchase. The business owner can, prior to acquisition, request the liability information and then withhold an amount of the purchase price to be placed in escrow to ensure that the purchaser will not be held liable for unpaid taxes.  ny purchaser who fails to follow these procedures may be liable for unpaid taxes.  

Contributed by June Summers Haas, Partner with Honigman Miller Schwartz and Cohn LLP.

Join us for the "Michigan Corporate Taxes: Mid-Year Check-Up" webinar on June 18, 2014 with June Haas and Brian Quinn of Honigman Miller Schwartz and Cohn LLP.