When I sell my LLC to another individual or LLC, am I correct in understanding that all my LLC's tax obligations are taken over by the buyer? I am thinking that I would file my 2023 taxes with you and leave them to deal with everything else.

Selling your LLC does not automatically absolve you of all its tax obligations. In fact, relying on the buyer to "deal with everything else" is a dangerous approach that could leave you personally liable for unpaid taxes, penalties, and interest long after the sale closes.

Standard tax rules and successor liability principles generally keep the seller on the hook for liabilities incurred prior to the closing date, regardless of what your contract with the buyer says.

1. Introduction

When you sell an LLC, you are effectively transferring ownership, but you cannot easily transfer your statutory responsibility for past tax acts-especially "trust fund" taxes like payroll and sales tax.

• Who this applies to: Any LLC member selling their interest (equity sale) or the LLC selling its operations (asset sale).
• The Risk: The IRS and state agencies are not bound by your private contract with the buyer. If the buyer fails to pay pre-closing taxes they "assumed," the government can and will come after you personally for certain debts.
• Key Concept: "Successor Liability" and "Responsible Person" rules often mean the seller remains liable until specific clearance certificates are issued by tax authorities.

2. Core Explanation

A. Asset Sale vs. Equity Sale

Your liability depends heavily on how the sale is structured.

1. Sale of Membership Interests (Equity Sale)

• What it is: You sell your 100% interest in the LLC to the buyer. The legal entity (the LLC) remains intact, just with a new owner.
• The Trap: While the LLC technically retains its liabilities, you generally remain personally liable for Trust Fund Recovery Penalties (see below) for any unpaid payroll or sales taxes from your time as owner.
• Tax Year Cutoff: You must "close the books" on the sale date. You are responsible for the income tax on the LLC's profits from January 1st up to the closing date. You cannot dump this partial-year tax liability onto the buyer.

2. Sale of Assets (Asset Sale)

• What it is: Your LLC sells its equipment, customer lists, and inventory to the buyer. You keep the LLC shell (and the cash from the sale).
• The Trap: Your LLC retains all liabilities not explicitly assumed by the buyer. Even if the buyer assumes them, you are secondarily liable.
• Liquidating: After the sale, if you distribute the cash to yourself and dissolve the LLC without paying its taxes, the IRS can use Transferee Liability (IRC § 6901) to claw that money back from you personally to satisfy the LLC's debts.

B. The "Trust Fund" Danger Zone

This is the most critical risk for sellers. "Trust fund taxes" are taxes you collected on behalf of the government but haven't remitted yet.

• Payroll Taxes (Employee Withholding): If your LLC owes unpaid withholding taxes, the IRS can assess the Trust Fund Recovery Penalty (TFRP) against you personally. This penalty is 100% of the unpaid tax. This liability does not go away when you sell the business.
• Sales Tax: Similar to payroll, states can hold former owners personally responsible for unremitted sales tax collected from customers.

C. State "Bulk Sale" Laws

Most states (e.g., California, New York, Florida) have "Bulk Sales" or "Successor Liability" laws.

• How it works: The buyer is required to withhold a portion of the purchase price to pay your final tax bills.
• If they don't: The buyer becomes liable for your taxes. Because of this, smart buyers will demand you prove all taxes are paid before they release the full funds to you.
• Clearance Certificates: You will likely need to request a "Tax Clearance Certificate" or "Certificate of Good Standing" from your state's Department of Revenue to prove you owe nothing.

D. 2023 vs. 2026 Filing Obligations

You mentioned filing "2023 taxes." Since today is February 11, 2026, there are important timing issues:

• Past Due: If you haven't filed 2023 yet, do so immediately. The penalties are compounding daily.
• Final Return: If you sold the LLC in 2026 (or late 2025), you must file a Final Return (marking the "Final Return" box on Form 1065 or Schedule C) for the short period ending on the sale date. You cannot wait until the end of the year if the LLC is dissolving.

Audit and Practitioner Considerations

3. Summary

• You generally cannot transfer personal liability for unpaid payroll (trust fund) taxes or sales taxes to a buyer.
• You are responsible for income tax on the business's profits up to the day of closing.
• Contracts don't bind the IRS. Even if the buyer agrees to pay, the IRS can pursue you if they default.
• State "Bulk Sale" rules may force the buyer to withhold money from you until the state confirms all your taxes are paid.

4. Suggested Next Steps

1. Request Tax Clearance: Immediately apply for a Tax Clearance Certificate from your state's Department of Revenue to confirm no past liabilities exist.
2. Review Payroll Records: Verify that all Form 941s and state unemployment returns were filed and paid in full up to the closing date.
3. File Form 8594: If you sold assets, coordinate with the buyer to ensure you both report the same allocation of the purchase price on Form 8594.
4. Indemnification Clause: Ensure your sales contract has a strong "indemnification" clause where the buyer agrees to reimburse you for any post-closing tax liabilities they cause, but remember this is only as good as the buyer's ability to pay.