Your Trusted Partner
in Tax Resolution
in Tax Resolution
Business Transaction Tax Attorney: Tax Issues in Business Deals
Quick answer: When you buy or sell a business, the tax risks are decided by the deal structure, the diligence, and the tax provisions in the purchase agreement. Problems found after closing are much harder to fix.
Kugelman Law reviews the tax side of business transactions for buyers and sellers, including tax due diligence and the tax terms of the deal documents. Call (415) 968-1780 for a paid, privileged consultation.
Who we help
We work with buyers and sellers of privately held businesses, alongside their M&A attorneys, brokers, and CPAs. We do not replace your deal counsel; we focus on the tax questions that can survive closing.
- Buyers acquiring a company or its assets who need tax due diligence on the target.
- Sellers preparing for a sale who want to find and fix tax problems before a buyer does.
- Owners and executives signing purchase agreements, earnouts, or equity terms with large tax consequences.
Tax due diligence: looking at the target like an IRS agent
Financial diligence asks whether the numbers are right. Tax diligence asks what the IRS and the states could still assess, and who will pay it after closing.
Our tax due diligence typically reviews:
- Filed returns and open years, including whether any statute of limitations is still open or was extended.
- Audits and notices already in progress with the IRS or any state.
- Payroll taxes, including deposits, worker classification, and trust fund exposure.
- Sales and use tax, including where the business has nexus but may not be collecting.
- Entity status, such as whether an S corporation election is valid and was maintained.
- Partnership issues, including how a partnership-level audit could affect a buyer.
- International reporting, such as foreign accounts, owners, or subsidiaries.
- Tax liens, unfiled returns, and information-return penalties.
Otto Bosch, a former IRS Revenue Agent, leads this work. The question he asks of every target is the one an examiner would ask: where is the exposure, and how would the government prove it?
Stock purchase vs. asset purchase: who inherits the tax problems
The structure of the deal largely decides which side carries historical tax risk. The table below is a general starting point.
| Issue | Stock purchase | Asset purchase |
|---|---|---|
| Historical tax liabilities | Stay with the company you now own. | Generally stay with the seller, with important exceptions. |
| Buyer’s tax basis | Generally carries over the company’s existing basis. | Generally a new basis equal to the price paid. |
| Main buyer protection | Diligence, indemnities, escrows, and insurance. | Diligence plus state clearance and withholding steps. |
| Seller’s tax result | Often capital gain on the shares. | Depends on how the price is allocated among the assets. |
Some deals use elections that treat a stock purchase as an asset purchase for tax purposes. Whether one fits your deal is part of our review.
Can you inherit the seller’s tax debt in an asset deal?
Yes, in some situations. Buying assets instead of stock does not always leave the seller’s taxes behind.
- State successor liability. Many states can collect a seller’s unpaid sales or payroll taxes from the buyer of the business. In California, for example, a buyer is generally expected to withhold enough of the purchase price to cover the seller’s sales tax until the seller obtains a tax clearance certificate.
- Tax liens. A federal or state tax lien that has already attached to the seller’s property can follow those assets.
- Transferee liability. If a seller is left unable to pay its taxes after transferring assets, the IRS may in some cases pursue the transferee.
These risks are manageable when they are found early and addressed in the agreement and the closing steps.
Tax provisions in the purchase agreement
The tax sections of a purchase agreement decide who pays for problems found later. We review and propose language for:
- Tax representations and warranties about filed returns, payments, audits, and entity status.
- Tax indemnities, escrows, and holdbacks for pre-closing tax periods.
- Purchase price allocation, which both sides generally report to the IRS on Form 8594 in an asset deal.
- Earnouts and seller financing, including when the seller is taxed on deferred payments.
- Tax gross-ups and withholding provisions.
- Straddle periods, cooperation on future audits, and control of tax disputes after closing.
For sellers: clean up before the buyer looks
Buyers increasingly run their own tax diligence. Issues they find become price reductions, larger escrows, or reasons to walk away.
A pre-sale review lets you find and resolve those issues on your own timeline, including unfiled returns, payroll and sales tax gaps, and entity problems. For founders, it is also the time to confirm whether stock qualifies for the QSBS exclusion and how a move out of California would affect the sale.
How our deal tax engagements work
- Privileged consultation. We discuss the deal, the timeline, and your role, under attorney-client privilege.
- Document review. We review the letter of intent, draft agreements, returns, notices, and the data room.
- Findings. We report the tax exposures we find, ranked by size and likelihood.
- Deal terms. We propose tax provisions, closing steps, and price or escrow protection for your deal counsel.
- After closing. If the IRS or a state later examines a pre-closing period, we can represent you.
Why clients choose Kugelman Law
An examiner’s eye on the target. Otto Bosch is a former IRS Revenue Agent from the Global High Wealth group of the IRS Large Business & International Division, with a focus on partnership and S corporation taxation.
Controversy experience if a dispute follows. Founder Alex Kugelman is a former judicial law clerk at the U.S. Tax Court with nearly two decades of federal tax controversy experience. Both attorneys are admitted to practice before the U.S. Tax Court.
Nationwide and remote. We are based in Marin County, with offices in San Rafael, San Francisco, and Irvine. We represent clients throughout California and, for federal tax matters, nationwide.
Related guides and services
- Qualified small business stock (QSBS): the complete guide
- California source income after you move, including business sales
- IRS tax collections and tax liens
- Unfiled tax returns
- IRS and FTB audit defense
Frequently asked questions
What is tax due diligence?
Tax due diligence is a review of a target company’s tax history before you buy it. It looks for unpaid taxes, open audits, filing gaps, and structural problems, so they can be priced, fixed, or covered in the purchase agreement.
If I buy a company’s assets, can I be liable for its taxes?
Sometimes. Many states impose successor liability for a seller’s unpaid sales and payroll taxes, and existing tax liens can follow the assets. Clearance certificates, withholding from the price, and indemnities are the usual protections.
Is a stock purchase or an asset purchase better for taxes?
It depends on which side you are on and on the business. Buyers often prefer asset deals for the new basis and cleaner liability picture, while sellers often prefer stock sales for capital gain treatment. The right answer is specific to the deal.
What is Form 8594?
In an asset acquisition, the buyer and seller generally each file Form 8594 to report how the purchase price was allocated among the assets. Consistent allocation, ideally agreed in the contract, avoids conflicting positions with the IRS.
How are earnouts taxed?
Earnout payments are often treated as additional purchase price, and sellers may be able to report them under the installment method as they are received. Some earnouts are taxed as compensation instead, depending on how they are structured.
Do you replace my M&A attorney or CPA?
No. We work alongside your deal team on the tax issues. Your M&A counsel runs the transaction; we focus on tax exposure and the tax terms.
What does a consultation cost?
We offer paid consultations fully protected by attorney-client privilege; we do not offer free consultations. A paid consultation gives you a real analysis of the deal’s tax risks. Call (415) 968-1780 to schedule.
About our attorneys
Otto Bosch is a tax controversy attorney at Kugelman Law and a former IRS Revenue Agent from the Global High Wealth group of the IRS Large Business & International (LB&I) Division. He is admitted to practice before the U.S. Tax Court and in Missouri, is an IRS Enrolled Agent, and holds an LL.M. in Taxation.
Otto was quoted in Tax Notes in 2026 on IRS examination training and the LB&I audit campaign targeting deferred legal fee structures. His practice focuses on IRS audit defense, partnership and S corporation taxation, high-net-worth examinations, and U.S. Tax Court litigation.
Alex Kugelman is the founder and managing attorney of Kugelman Law and a former judicial law clerk at the U.S. Tax Court. He has nearly two decades of federal tax controversy experience, including U.S. Tax Court and U.S. District Court litigation, and was quoted in the Financial Times and the New York Post in July 2026 on California tax policy.
Talk to a business transaction tax attorney
If you are buying or selling a business, bring us in before the purchase agreement is final. The tax terms are far easier to change before signing than after closing.
Schedule a paid, privileged consultation by calling (415) 968-1780 or visiting our contact page.
This page is attorney advertising and general information, not legal advice. Tax consequences of a business transaction depend on the deal structure, the parties’ facts, and federal and state law. Contacting Kugelman Law does not create an attorney-client relationship.