Corporate Officer & Successor Entity Representation 

Comprehensive Guidance for Colorado Businesses

Navigating the complexities of corporate tax law is a daunting task for any business owner, especially when issues like alter ego determinations and successor liability arise. At The Harris Law Firm, our tax law team has extensive experience representing corporate officers and business owners facing a range of tax, transactional, and governance-related challenges.

Whether you’re dealing with alter ego determinations and potential liability issues or have needs involving a new or restructured business operating as a successor entity, our attorneys have the skills and knowledge to protect your interests.

If you have questions about our corporate officer representation services or wish to discuss a tax-related matter with a member of our team, we’re here to help. Call (303) 622-5502 or contact us online to request a FREE and confidential consultation.

Understanding Successor and Alter Ego Determinations

In the context of tax liabilities, understanding the concept of successorship and alter ego determinations is crucial. Business owners cannot simply dissolve a company with outstanding tax liabilities, form a new company with a different Employer Identification Number (EIN), and continue operations as usual. This approach is often seen as an attempt to evade tax responsibilities, and it doesn’t work. It’s akin to putting lipstick on a pig – while you may try to make it look otherwise, the core company remains unchanged.

The IRS keenly scrutinizes situations where a company changes its EIN but retains key operational elements such as the same owners, equipment, and client base. In these cases, the IRS may declare the new company an alter ego or successor entity, effectively transferring the old company's tax liabilities, penalties, and interest to the new one. In extreme cases, this can even trigger a criminal investigation.

Key Indicators of Alter Ego or Successor Entity

The IRS typically looks for specific indicators to determine whether a business is an alter ego or successor. These include:

• Similar assets, clientele, or operations between the two companies
• Use of the same or similar business name, phone number, or bank accounts
• Continuing the same business activities with minimal changes

If the IRS identifies such indicators, it may declare the new entity responsible for the tax liabilities of the old one.

The Impact of Successor and Alter Ego Determinations on Tax Liability

The primary function of forming separate business entities is to shield individuals from personal liability for the company’s debts and obligations. However, when an entity is used to evade tax payments, the IRS can intervene by determining an alter ego or successor relationship. This significantly alters the tax collection process, allowing the IRS to pursue unpaid taxes from the new or related entity.

When an IRS revenue officer suspects that a company might be a successor or alter ego, they will initiate a legal process to confirm their suspicions. This involves a comprehensive review by the IRS legal department. If your business structure is legitimate (such as in cases of parent companies and subsidiaries), our attorneys can help you clarify the situation and demonstrate that no alter ego or successor relationship exists.

However, addressing this matter aggressively and proactively is crucial because the determination process often happens discreetly. If a revenue officer informs you or your CPA that they are looking into successorship, it’s advisable to involve a tax attorney immediately to ensure you can mount a strong defense if there are valid reasons to do so.

Legal Protections and Strategies for Business Owners

For corporate officers and business owners, addressing potential successor or alter ego claims early and aggressively is essential. A proactive approach can prevent the IRS from making inaccurate or unjust determinations. If you or your CPA has been notified of an investigation into potential successorship, it is critical to involve a tax attorney immediately.

At The Harris Law Firm, we help corporate officers and business owners by providing:

• Representation in IRS and state tax disputes
• Defense against trust fund recovery penalties
• Business restructuring guidance to limit liability
• Due diligence for corporate restructuring

Strategies to Avoid Alter Ego or Successor Determinations

To prevent an alter ego or successor determination, it’s essential to ensure that the new entity is entirely separate from the old one. Here are some steps that can help maintain this separation:

• Dissolve the old entity formally, ensuring all paperwork is properly filed.
• Close all bank accounts associated with the old entity.
• Use different phone numbers and contact details for the new entity.
• Avoid any financial connections between the two entities, such as shared assets or client bases.

By taking these steps, business owners can better protect themselves from IRS scrutiny and avoid costly tax liabilities.

When Legal Protections and Liabilities Can Transfer to a Successor Entity

In cases where a business must close, and there are substantial tax liabilities, creating a new entity to continue operations may still be possible, but it requires careful planning. Forming a new company with the intent to evade old tax debts will result in an alter ego determination. Instead, a practical approach—such as negotiating a strategy known as a “third party assignee assignment” for the old entity’s tax debt—can allow the new company to move forward without inheriting these obligations, which in turn can make it easier to obtain loans and financing. 

At The Harris Law Firm, we work with clients to develop creative solutions, including third-party assignee agreements, that demonstrate compliance with tax laws while facilitating the continuation of business operations.

The Role of Due Diligence in Successor and Alter Ego Determinations

The IRS conducts a thorough investigation before determining an alter ego or successor entity. This includes examining:

• Similarities in assets and operations
• Financial connections between the old and new entities
• Business ownership structures and corporate governance

If you’ve legitimately transferred assets between two independent entities, such as in the sale of a struggling business, the situation may not warrant an alter ego determination. However, maintaining detailed documentation and ensuring that the entities are genuinely separate is critical.

Why Choose The Harris Law Firm?

At The Harris Law Firm, we offer experienced, client-focused insight to help individuals and companies of all sizes in complex tax matters, including successor entity and alter ego determinations. Our attorneys are skilled at providing proactive strategies to protect corporate officers and business owners from personal liability. We assist clients in defending against IRS claims, negotiating tax settlements, and developing structured solutions to complex business tax problems.

Here are a few reasons why clients and colleagues choose us:

• Decades of experience in tax law representation
• Successful defense in IRS audits and investigations
• Expert guidance in business restructuring and successorship
• Comprehensive solutions for avoiding personal liability

Call For a FREE Consultation: (303) 622-5502

The Harris Law Firm’s tax law practice is helmed by Steve Cizik, a trusted tax attorney with more than 15 years of experience providing proactive and reactive representation in complex taxation issues. Throughout his career, Steve has helped hundreds of businesses save millions of dollars through negotiations and creative, customized solutions. 

If you need assistance with any aspect of corporate taxation, including matters involving successor entities and alter ego determinations, The Harris Law Firm can help. Contact us today to schedule a consultation with a member of our team.