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How to Verify Tax Status of a Business

Verify Tax Status Before Buying or Selling a Business in Florida

Before buying an existing business in Florida, the buyer should ask the seller for documentation of any tax, penalty or interest due to the IRS, since the purchaser could be liable for any tax, penalty, and interest owed by the seller. The buyer can then withhold enough of the purchase money to cover the tax liability until the seller pays the amount due. While the sale is pending, the purchaser should have the seller hold an amount in escrow equal to any potential tax liability.

How to Get a Clearance Letter

A seller can ask the IRS for a certificate of compliance or clearance letter as proof that the IRS has not issued a Notice of Intent to Audit Books and Records and there are no outstanding tax liabilities on the seller’s account. The seller can provide this certificate to the buyer as proof of good standing when selling a business or business interest.

A buyer can also request a clearance letter (status of account) to be used when applying for certain federal grants or loans. While this letter provides the status of an account, it does not exempt the business from future IRS audits that may cover periods before the business was sold.

Both documents represent a snapshot in time and show that the seller does not currently have outstanding audit assessment notices, tax delinquencies and/or bills. If a significant amount of time lapses between issuance of the certificate and the sale, the buyer may wish to request a new certificate. Your Florida Business Broker can assist you with requesting a clearance letter from the IRS.

The request must include all of the following information:

  • The business name, name of the requester (including signature), business address, telephone number, fax number and email address.
  • An identification number (such as Business Partner Number, Federal Employer Identification Number or Certificate of Registration Number, etc.)
  • A copy of the driver license for the Power of Attorney or authorized agent registered with the Department of State. The picture ID must be readable or processing will be delayed.
  • A properly executed Power of Attorney (Form DR-835), if you want a qualified party to represent you.

How to Request a Transferee Liability Audit

When a business is sold, the unpaid sales tax liability (if any) of the former owner may transfer to the buyer, unless the IRS issues a certificate of compliance or conducts a transferee liability audit.

Either the buyer or the seller can ask for the audit.

  • The seller can submit Form DR-842Seller’s Application for Transferee Liability Certificate.
  • The purchaser can submit Form DR-843Purchaser’s Application for Transferee Liability Certificate. Attach a signed sales agreement to the request. Because tax information is confidential, the Department will provide only the seller with the audit results and transferee liability certificate.

Generally, the Department of Revenue conducts the audit. However, for sales tax, you can hire a Certified Public Accountant (CPA) who is qualified to conduct sales and use tax audits for the Department.

Hiring a CPA for Sales Tax Audits

You can hire a qualified CPA to conduct your transferee liability audit. Qualified CPA practitioners are certified in sales and use tax through the Certified Audit Program.

The Florida Institute of Certified Public Accountants has a list of CPA practitioners who are certified to conduct sales and use tax audits for the Department of Revenue. When you select a CPA, he or she will tell you what information is needed to conduct the audit. You are responsible for negotiating and paying the fee to the auditor you select.

When the audit is complete, the Department will notify the current owner of the business of tax, penalty and interest due (if any). If there is a delay in the sale of the business, you may want to request a certificate of compliance for the periods not covered by the audit.

Note: Sales tax is the only tax for which a Certified Audit may be completed.