Client’s restaurant and brewery was losing money in 2017 and 2018, falling behind on bills and payroll taxes. The decision was made to close the business. Shortly after the business shuttered its door, the IRS came knocking. The client consulted with us about what he needed to do in light of the debts still owed by the corporation. We advised him on the proper ways to close the corporation so that the liabilities stayed inside the shell of the closed corporation. We followed the California Corporations Code to inform all shareholders and interested parties of the scheduled board meeting to close the corporation. A minority shareholder, requested a review of information and books, because he did not want to lose the ability to get a free beer when visiting the area, per his shareholder agreement; despite the fact that the restaurant was already shattered. We guided the board meeting to a successful resolution, resolving the concerned minority shareholder’s concerns.
We then sent notice to Wells Fargo Bank, which closed the $59,000 line of credit balance as uncollectible being inside the closed corporate shell. We sent notice to the IRS of the dissolution of the corporation prior to the time the case could be assigned for the interview that would allow a Trust Fund Recovery Penalty to be assessed against the owner of the corporation, locking the $195,000 payroll tax liability inside the closed corporate shell.
A year later, two staff members filed complaints to the California Department of Labor Relations for unpaid vacation pay at the time the business closed. The original California representative that worked with the claimants requested $12,500 for the pair and claimed that the liability could go out of the corporate shell to the owner of the business. We filed a request for a hearing before the Labor Commissioner regarding the claims and asserting the liability could not break out of the corporate shell. During the days leading up to the hearing, the client agreed to pay $2,000 to one of the claimants to settle the matter because of fond memories of the worker. The other claimant did not settle and went forward with the hearing. At the hearing, the remaining claimant admitted that he took items from the business, that he filed for penalties without understanding what he was clicking the buttons for, and that the owner of the business was not involved in the day-to-day activity. The Labor Commissioner ruled that the remaining claimant was entitled to $1,015 of the $4,186 requested…but that it was only the responsibility of the closed corporation to pay it and that it could not break out of the corporate shell based on the claimant’s testimony.
With our strategies of making sure that the corporation was properly closed and that all actions were properly followed; our client was able to successfully lock $264,500 of corporate debt into the shell of the dissolved corporation. While there were challenges to the situation, we guided the client through each bump in the road successfully.