Additional Information:
We had a C Corporation which we sold in 2009. The IRS wants to audit the corporation for tax year 2008. They contacted us. We explained we have given all paperwork to the new owner. It was an entity sale and the new owner took responsibility of all past liabilities. The IRS person said they could not get a hold of the new owner. He has disappeared. So they want all 2008 tax paperwork from us. How can the IRS expect us to have paperwork for a company we’ve sold? We gave it all to the new owner!!! What paperwork can we show the IRS proving the new owner takes responsibility of all past liabilities, including any possible tax problems? What can the IRS do to us if we can not present any 2008 paperwork? They are currently saying we are liable for $250,000!!!
ATTORNEY ANSWER:
The IRS mandates business records be retained for a minimum amount of time depending on the type of document. If you do not have the original records or copies of them you may have to do some detective work and see if you can recreate the records. Create a list of vendors and customers for the business from memory and start to contact them TODAY. Ask them to provide you with all the records for transactions with your business. Your bank should have these stored electronically so that would be my first stop. You should hire an attorney and have them work with the businesses accountant.
This question highlights an important point that, unfortunately, will not help the person posing the question. When selling a business ALWAYS keep your original documents from the business. It is perfectly acceptable to make copies of any documents for a prospective buyer, or to allow access to the documents with permission to copy any document. However, within the purchase and sale agreement there should be language stating that, if the purchase does not go through, the copies must be destroyed and the prospective purchaser cannot use the information gained in reviewing the documents to establish a competing business. This is also a good time to mention the basic document retention requirements. The IRS requires a company retain documents for up to six (6) years. Also, some documents, such as deeds and state or local license’s, should be retained indefinitely, even after the transfer of a business or real estate property.
Finally, paperwork needs to be filed with the Secretary of State and other State and Federal agencies to document and complete the transfer of the business. The purchase and sale of a business should never be undertaken without having a professional team in place consisting of at least an attorney and CPA, and should include an insurance agent and real estate professional if real estate property will be transferred.
The Beliveau Law Group: Massachusetts | Florida | New Hampshire
The Combination Tax attorneys and Certified Public Accountants (CPAs) at The Beliveau Law Group provides legal services for individuals and businesses in personal and business tax matters. The law firm has offices and attorneys in Naples, Florida; Boca Raton, Florida; Danvers, Massachusetts; Waltham, Massachusetts; Quincy, Massachusetts; Manchester, New Hampshire and Salem, New Hampshire.
