A Tax Warning for Buyers, Sellers and Investors in Businesses

I was talking to a friend at a Private Equity Group today who found out that a company they own a portion of is behind on federal withholding taxes. He does not know how big the problem is, but he his worried because as an officer and board member he might be PERSONALLY responsible (gulp).

How can investors, part owners, lenders (seller back note holders) and other affected parties stay informed and protect themselves from tax problems in companies that they are involved with? By using IRS Form 8821 (Tax Information Authorization).

Form 8821 can make sure you are notified of any notice (negative or otherwise) from the IRS. When I was in Asset Based Lending, form 8821 was always included in the loan documents to be executed by new clients. If as a seller you take back a note from the buyer make sure this form is executed. If you invest in or buy a percentage of a company you need to know.

Tax issues are usually a symptom of greater problems. This simple tool can act as an early warning system.

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