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90 Second Lesson: Personal Liability for Unpaid Taxes in Insolvency Cases

Editors’ Note: this is part of our irregular series in which we answer readers’ questions. If you have a question, submit it to info@dailydac.com and we will try to answer it.

90 Second Lesson: Personal Liability for Unpaid Taxes in Insolvency Cases

QUESTION:

Who can be liable for a chapter 11 debtor’s unpaid taxes?

ANSWER:

One or more persons, including a fiduciary, may be subject to personal liability for a debtor’s unpaid federal, state and/or local tax liability. As David Alger explains in greater detail here, personal liability can arise from the application of:

(1) Federal or state corporate, LLC or partnership laws including insolvency distribution or payment laws, preference laws, fraudulent conveyance laws, business or reassignment or succession laws;

(2) Federal or state tax laws imposing responsible person, assignee, or successor liability;

(3) Federal or state debt (including tax debt) priority laws, such as the federal priority status, 31 U.S.C.A. § 3713; or

(4) A combination of these laws.

Note: This 90 Second Lesson is based, in substantial part, in material reprinted from Commercial Bankruptcy Litigation 2d and Strategic Alternatives for and Against Distressed Businesses, with permission of Thomson Reuters. For more information about these publications, please visit www.legalsolutions.com.

About The DailyDAC Editors

The editors and editorial board of DailyDAC include preeminent restructuring and insolvency professionals, journalists, and editors. They are devoted to providing reliable and plain English education and deal intelligence about assignments, corporate bankruptcy, receiverships, out-of-court workouts an similar topics.

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