A US appeals court decision in September is a warning that shareholders may be held accountable for federal income taxes that corporations fail to pay. A waste hauling company in Minnesota failed to report all its income over a three-year period. The company sold its assets at the end of the three years to Browning Ferris Industries in exchange for stock in BFI and the assumption by BFI of the
company’s debts. The company then liquidated and distributed the BFI stock to its shareholders. The IRS went after the president of the company for back taxes under section 6901 of the US tax code, which imposes “transferee liability” on persons who receive a company’s assets when the company liquidates. The president owned 49% of the company. The court said whether the IRS can collect from shareholders turns on state law. In Minnesota, where the company was located, the state law let it do so. The case is McGraw v. Commissioner.