Client won't pay

C corp client had return prepared.
Return was filed before they paid (yeah....)
C corp dissolves.
They argue they don't have to pay the bill because it was a debt of the corporation and the corporation is now dissolved and has no assets.
I thought in a dissolution all the creditors had to be paid before corporate assets were distributed to shareholders (2 in this case) but it sounds like they distributed everything and now tell creditors to pound sand.

Has anyone dealt with something like this? I would hope there has to be some kind of liability placed on the shareholders since they knew of the debt and didn't pay it.

(This corp return was the only one we did for them - no personal returns or anything to try to hang over their heads to get them to pay).

My understanding (I'm neither an attorney, nor do I play one on TV) is that the liability is similarly distributed to the recipients of the assets on dissolution.
Depending on the amount, it might not be worth pursuing very far.

Could send a demand letter to try to scare them. Something tells me that might not work though. It's low investment on your end and worth a shot.

Hire an attorney if the fee warrants it, otherwise let it go.

FWIW, if one of the owner's names pops up in casual conversation, I wouldn't hesitate to mention what happened and how you were treated. Just stick to the objective facts and leave emotion (mostly) out of it. What goes around comes around. They might find their business community is smaller than they think.

Bob Smith? "Bob better-get-a-retainer Smith"?

Lol. Good posts.

The current unpaid bill is like $2,000. So we don't want to go overboard on hiring an attorney and end up paying them everything we recoup. But maybe a demand letter citing the code that says liabilities are also distributed in a dissolution might work... I wasn't thinking about the liabilities also being distributed.

Collection agency?

When we asked the collections agency the rep seemed to think the (ex-)client was right.
But it just doesn't sound right.

EDIT:
I found this article and it says the debts are passed to the shareholders and you can typically go after them for up to the amount of assets that they received in the liquidation.

https://www.stimmel-law.com/en/articles ... orporation

ANOTHER EDIT: We were able to get ahold of the dissolution paperwork and it says they agree to be liable for the debts of the corporation. So with this in hand I think we'll be able to get that payment after all and the collection agency seems onboard with this now.

Interesting.

Where would you file against them? Small claims court? It's my understanding if they don't respond you'd get automatic judgement right?

Getting a judgment is one thing.
Collecting on it is another.

What a bunch of low lifes.

Someone is going to have to file a final return. Not OP. And CA will haunt/hound them.

One shareholder was on good terms with us and already paid his half. He sent the dissolution paperwork showing they signed off on guaranteeing the corp liabilities. We sent this to the other shareholder (that was the holdout) and threatened if he didn't pay by Friday we'd send him to collections. He had a complete change of attitude realizing this and really doesn't want that on his credit.

Some more backstory - the "good" shareholder helped us out by sending the paperwork because the reason they dissolved the corp was because the "bad" shareholder was allegedly stealing from him and the business so they split and went their own ways.

What am I missing, Myles? You first post was just a little over two hours before your final post today. How did the circumstances change so dramatically in such a short time.

I'm glad that this worked out in a timely manner. Another good reason to be sure to obtain / retain organization documents and keep in a permanent file.

What am I missing, Myles? You first post was just a little over two hours before your final post today. How did the circumstances change so dramatically in such a short time.

It had been going on for a little while. After posting I realized the dissolution should have said something about it. Called the other shareholder who emailed the paperwork right away. We then called the collection agency, sent this to the "bad" shareholder, explained he was wrong and we could collect. He called his attorney who told him he was wrong and we could collect. He immediately called back and pleaded not to be sent to collections and that he'd pay. So luckily it all was resolved pretty quickly after getting on the right track.

Given that our unpaid invoices over the years has equated to about 0.1% of our revenue, and also that it takes more time and effort to collect as it does to do another tax return for $2000, I tend to disregard these situations and give up pretty quickly.

Good thing my clients don't know that, I guess.

Also, we collect retainers sometimes, but even that is a time cost that exceeds losses from non-payment.

If it was a C corporation then they would have to file with the Secretary of State (or other agency in your state) to get the dissolution of the corporation approved. In my state they must list all the liabilities. Also that document is public records. If this was me I would start there and file a complaint that the corporation may have hidden the debt before assets were distributed to the owners. If you get somewhere with the Govt. you can create real legal trouble for the owners.

Write it off and get payment in full prior to filing any more tax returns for all clients.

Learn when to take a payment up front. I've learned to take upfront payment on 3 types of clients:

1) potential bankruptcy
2) new client that found us on the internet (not referred)
3) client that needs back taxes filed

I've been burned on all 3.

Learn when to take a payment up front. I've learned to take upfront payment on 3 types of clients:

1) potential bankruptcy
2) new client that found us on the internet (not referred)
3) client that needs back taxes filed

I've been burned on all 3.

+1

Mimicking (but not mocking) Taxman40:

I've learned to take upfront payment on 3 types of clients:
1) E-V-E-R-Y
2) S-I-N-G-L-E
3) E-N-G-A-G-E-M-E-N-T

Find a tool like GoProposal or PandaDoc, get paid before work begins and never look back...

*RINGGGGG* "Hello?"

"Uh, yeah, Guido? This is Jeff. Got one for ya."

"On it." *Click*