Successor Liability for Unpaid Taxes

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

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