A BUSINESS ENTITY MUST BE PROPERLY DISSOLVED OR THE PRINCIPALS FACE TAX MAJOR IMPLICATIONS
While it may seem reasonable that ceasing to operate a business entity will allow the principals to move on with their lives, the failure to go through the formalities of dissolving a business entity can leave the principals open to further liabilities. Part of the process can be completed online; however, a tax clearance certificate must be requested from the Division of Taxation and the business must be in good standing. It should be noted that obtaining a Tax Clearance Certificate can take several months. Once the information has been entered online, all necessary payments have been received, and the tax clearance certificate has been received, then the dissolution of the business entity will be complete. Without properly dissolving a business entity, the entity will still be required to file corporate tax returns and pay a minimum yearly Corporate Business Tax, despite no longer engaging in business. The principals, or in the case of a corporation the responsible corporate officers, will be held personally liable for the business entity's outstanding tax debt. The minimum annual Corporate Business Tax is five hundred dollars.
When full payment of tax liabilities are not received, the Special Procedures Branch, Judgment Section of the New Jersey Division of Taxation will have the case forwarded to its department to begin pursing collection action. The docketed judgment amount will be increased by ten percent to account for cost of recovery. Further costs associated with the outstanding tax liability include a five percent late payment penalty, a five percent per month up to twenty five percent late filing penalty, a one hundred dollar per month late filing penalty, and in certain years a five percent amnesty penalty. The interest for outstanding tax debt is compounded annually at a rate of three percent above prime rate. Therefore, the dissolution process should be completed as soon as possible after the decision to no longer operate a business entity is made.
Please Note that information for this paragraph was obtained from the State of New Jersey, Department of Treasury, Division of Taxation though the following websites:
Information required to dissolve a business entity can be entered online through the following website:
The form for obtaining a Tax Clearance Certificate: http://www.state.nj.us/treasury/taxation/pdf/busasstTaxClear.pdf
STEPS TO BE TAKEN IF YOU DID NOT PROPERLY DISSOLVE A BUSINESS ENTITY
If you have failed to properly dissolve a prior business, it is important to take immediate action to be able to minimize the damage and end the buildup of debt. One option to consider is bankruptcy, since a tax debt may be dischargeable if it is unsecured and was not assessed within two hundred and forty days prior to the filing of a bankruptcy petition pursuant to 11 USC § 507(a)(8)(A)(ii). However, entering bankruptcy has many implications that should be considered carefully with the consultation of an attorney, if this is an avenue that you want to explore.
Should you wish to avoid bankruptcy, immediately contact whoever prepared your entity's tax returns while you were operating your business, because it is important to file past due tax returns as soon as possible. The past due tax amount may decline by filing tax returns showing no income.
TALK TO A LAWYER
If you have questions concerning how to minimize your current and future liabilities, or whether bankruptcy is the right path for you to take, talk to a lawyer. A lawyer will be able to analyze your situation on an individual basis and help to guide you on the best path based on your situation.