Can You Buy or Sell a Business Subject to Tax Liens?
This is the first 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 cash-flow troubled 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 seller might consider. The first concern will be addressed in this article. We will cover the following concerns in our next two articles.
For a full discussion about Removing Tax Liens, see the related video below. It addresses withdrawing liens by using IRS Form 12277.
1. Liens are a clear indication to a buyer of a troubled cash-flow business.
Liens for unpaid taxes, especially for payroll taxes, are a symptom of businesses that are not able to meet their financial obligations.
For example, An employer that has enough cash to pay its employee’s net paychecks, but not enough cash to send the employee’s withheld taxes to the IRS. After multiple pay periods with the same fact pattern, the company often amasses significant payroll tax liability to the IRS. The company did not seek resolution for the payroll taxes. At some point, the uncollected taxes are revealed to the public by the Notice of Tax Lien.
The tax lien represents taxes that were required to be paid but were not actually paid. The failure to pay is costly. The failure to pay these payroll back taxes can create liability for expensive penalties, invasive governmental inquiries, and even criminal tax prosecution for the owners. And even with that motivation, the business often does not, or cannot, meet this financial obligation.
This quality makes the business less valuable, less marketable, and certainly less attractive.
See this related video:
Stay tuned for next week’s article, and be sure to share this article with anyone you know who is considering buying or selling their business.