BANKRUPTCY & INSOLVENCY TAXATION
Financial Restructuring of Distressed Business Enterprises
Very frequently, tax issues emerge in the context of businesses that have hit bumps in the road of the most serious form, requiring dealing with creditors other that taxing authorities. These businesses include individuals as well as entities. For example, most businesses stop paying payroll taxes when cash gets tight, and find it difficult to get back in compliance. Continuing down that road exposes owners and officers to individual liability for taxes that would have otherwise been the sole liability of an entity like a corporation or a limited liability company (the “Trust Fund Penalty”).
TAX, LITIGATION, BANKRUPTCY & A TRANSACTIONAL PROCESS:
The restructuring process can take many shapes and involve a variety of processes. Finding a way to preserve a business enterprise fighting cash “troubles” can begin with lenders bringing their special asset people to examine the borrower’s actions and move to the engagement of some very sophisticated restructuring businesses. Most assuredly, the tax piece often takes a back seat until the IRS shows up.
Working with a business, the lender or the restructuring specialist, I interact with the IRS and the state taxing authorities, all of their lawyers – The United States Attorney, the Tax Division at the United States Department of Justice and the Tennessee Attorney General to develop solutions, before the Courts have to be engaged. When no longer able to unwind without a judicial proceeding, whether a Chapter 11, debtor-in-possession or a trustee, to state court receiverships, the tax piece has to be addressed.