Virginia law may impose personal liability after corporate termination

Plain-English summary

Chief Counsel advised that Virginia law appeared to impose personal liability on a business owner who continued operating beyond ordinary winding-up activities after the corporation was terminated. The advice stated that later retroactive reinstatement would not erase that personal liability, although liabilities arising after reinstatement would belong to the corporation. It directed the recipient to Virginia statutes and federal cases for further review. The email noted that state law supplies the underlying liability in an IRC § 6901 transferee or successor liability matter.

Ruling snapshot

• Question: Could Virginia law make a business owner personally liable for operating during the period between corporate termination and reinstatement?
• Outcome: Advice given that personal liability appeared to apply and survive reinstatement
• Key authorities: IRC § 6901; Va. Code Ann. §§ 13.1-91 and 13.1-92; Flip, 841 F.2d 531; Moore, 591 F.2d 991; Hudgins, 967 F.2d 973

Full text (IRS public release)

ID: CCA_2014102213593411 [Third Party Communication:

UILC: 6901.00-00 Date of Communication: Month DD, YYYY]

Number: 201447038
Release Date: 11/21/2014
From:
Sent: Wednesday, October 22, 2014 1:59:34 PM
To:
Cc:
Bcc:
Subject: FW: Question

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I apologize--I have been sitting on this question for a while now and was finally able to turn to it this
week.

It looks to me as though Virginia law addresses the personal liability of a business owner that continues
to operate as a de facto sole proprietorship during the 5-year
period between termination and reinstatement. Specifically, Va. Code Ann. 13.1-91 and -92 provide for
personal liability of such owner if he continues to operate the business following termination beyond
just ordinary winding-up activities. The statue expressly provides that the personal liability survives
even if the corporation is subsequently (and retroactively) reinstated. The liability from the date of the
date of reinstatement going forward would, of course, be corporate liability. See these cases: Flip, 841
F.2d 531; Moore, 591 F.2d 991. See also Hudgins, 967 F.2d 973. There is also a law review article cited
in footnote 3 of the Flip case that may be worth reading.

Have a look at these cases/statutes and see if that helps you respond to the question from the RO. As
you know, state law provides the basis for collection under a section 6901/transferee/successor liability
scenario. I am not as familiar with the Virginia law as you are, but it looks to me as though it addresses
your question.

You may also want to consider adding something on this issue to your ------ local law guide.

Let me know if you have further questions.