We closed our business due to sickness and now we’re deep in debt
My husband owned an ATV dealership for 17 years. It was an S Corporation. We put 2 kids thru college, we’re now in our 50’s. After 911 – business declined, but he struggled anyway and kept it open. I knew he had been sick for a while, but wouldn’t go to a doctor. Finally I got him there and his blood pressure was extremely high. The next day he suffered a stroke. While in the hospital they did other tests discovering lung cancer and heart failure. This month his disability started. I am still employed. Never worked with him.
After closing the business – which I knew nothing about – I discovered he owed over $30,000 in taxes to the state and IRS. Are we or he liable for those taxes since we have dissolved the corporation? I recently received papers stating judgements have been taken against the business. Does this affect us personally? I’m thinking about bankruptcy due to the store’s debt and medical bills we have incurred. Thanks for your help.
Wanda
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There are two primary ways that corporate tax debt can follow an individual (there are others, but these are the most often found ways):
1. You owe back payroll taxes and the IRS has assessed you the Civil Trust Fund Penalty
2. You have a “corporate” tax liability and you did not “close” the corporation properly (i.e. you distributed any remaining assets to yourself rather than to pay taxes).
Because your corporation is an “S” corporation, situation #2 is not likely- but possible.
What you need to do is contact the IRS and find out exactly what type of liability is owed. Based on that information, you will know how to proceed. I would not immediately consider bankruptcy without consulting a good bankruptcy attorney as certain facts have to exist in order for taxes to remove taxes in bankruptcy (among other rules, the taxes must generally be more than 3 years old). Also, I caution about bankruptcy because of what it does to your credit. Also, most do not qualify for Chapter 7 bankruptcy after the means test requirement was made. Chapter 11 bankruptcy may not do you much good. In any event, solving your tax debt with the IRS should be an option you should explore.
I hope this helps- specific facts would help me help you better. My prayers are with you and your husband as you persevere through his illness and your financial struggles. Let me know if I can help further.
Thanks
Jim
There are two primary ways that corporate tax debt can follow an individual (there are others, but these are the most often found ways):
1. You owe back payroll taxes and the IRS has assessed you the Civil Trust Fund Penalty
2. You have a “corporate” tax liability and you did not “close” the corporation properly (i.e. you distributed any remaining assets to yourself rather than to pay taxes).
Because your corporation is an “S” corporation, situation #2 is not likely- but possible.
What you need to do is contact the IRS and find out exactly what type of liability is owed. Based on that information, you will know how to proceed. I would not immediately consider bankruptcy without consulting a good bankruptcy attorney as certain facts have to exist in order for taxes to remove taxes in bankruptcy (among other rules, the taxes must generally be more than 3 years old). Also, I caution about bankruptcy because of what it does to your credit. Also, most do not qualify for Chapter 7 bankruptcy after the means test requirement was made. Chapter 11 bankruptcy may not do you much good. In any event, solving your tax debt with the IRS should be an option you should explore.
I hope this helps- specific facts would help me help you better. My prayers are with you and your husband as you persevere through his illness and your financial struggles. Let me know if I can help further.
Thanks
Jim