Part 3 – Can you Buy or Sell a Business Subject to Tax Liens?
This is the third article in our 3-part series on selling a business with tax liens.
Federal Tax Liens can disrupt the sale of a business in multiple different ways. Sellers want a top-dollar sale price. Buyers want to invest in a solid, profitable operation, preferably at an advantageous price. Neither buyer nor seller wants the government entwined in the transaction or in the transaction-related funding.
We identified the Top 3 Concerns for either buying or selling a business that is subject to a Federal Tax Lien. They include:
1) Liens are a clear indication to a buyer of a troubled cash-flow business.
2) Tax liens give the government enforceable rights in the company’s assets, which takes control from any buyer.
3) Tax liens result in less sale proceeds to the seller.
Without being technical, this article covers these few top concerns that both buyers and sellers might consider. They are explained in detail below.
For a full discussion about Removing Tax Liens, see the related video below. It addresses withdrawing liens by using IRS Form 12277.
3. Tax liens result in less sale proceeds to the seller.
Tax liens are a company’s built-in liability, which decreases the overall value of the company assets.
Whatever the seller’s desired price, the resulting sale proceeds will be reduced by the amount of the lien once the seller first pays off the debt to the IRS. The other possibility is that the buyer will pay the liens at the closing and pay the seller the remaining proceeds.
Further, often the tax lien is only the “peak of the iceberg” regarding unpaid taxes. So frequently, there is still even more unpaid tax liability that must be paid but just is not made public by a Notice of Lien having been filed. Buyers of businesses will require that all the tax is paid before the seller gets a single $1 of the sale proceeds. Sincerely,
We hope this email might help someone you know. There is more info on our Lien Removal page.