Successor Liability
Generally, the purchaser of assets does not assume the liabilities of the seller. Successor liability, however, is an exception to the general rule. Under the successor-liability doctrine, the IRS may seek to recover unpaid taxes from a “successor”—often a purchaser of corporate assets.
Successor liability is generally determined under state law, although some courts have bolstered state law with a purported federal common law of successor liability.
When does Successor Liability Apply?
In most jurisdictions, successor liability imposes liability in the following circumstances:
- when the buyer or successor expressly assumes the liabilities;
- when the transaction amounts to a de facto merger;
- when the successor is a mere continuation of the seller corporation (e.g., the buyer continues essentially the same operations or product line of the seller); and
- when the transaction is entered into fraudulently to escape liability.
Express Assumption of Liabilities
Recent Comments