We are under contract to purchase an apartment building. The seller has been doctoring his books for the past several years. Essentially he has been collecting rent in cash and then not reporting it on his corporate taxes. He's been reporting only 65% of actual revenue.
If we buy the building are we taking any risks on future tax liens after we close? I've been assuming that since we are only buying the building and not the corporation that we are in the clear but our lender is nervous. Thoughts?
Is this a question for a tax attorney or a title company?
Believe it or not, I partially agree with Nathan. No it cannot come to affect you after you have legally purchased the property. And in cases of fraud, you may actually be able to collect an award for turning in such a situation.
Once you own the property, they can't put a tax lien on it, if they ever go after the original owner, it won't have anything to do with you at that point.
Just make sure there isn't a lien on it now.
I have purchased houses with tax liens and it typically shows up in the title report/commitment. In Colorado the title company does not allow closing until the tax lien expires (bank owned properties), if you purchase with a tax lien in place you can wait out the expiration (I believe typically 120 days), if you bring it to attention they might settle with you, although that means paying at least some of it. Speaking from my own experience in Colorado, but a title company or tax attorney should be able to help answer questions.