Legal Question in Business Law in California

Re: Who is responsible for the errors?

The corporation is primarily liable, but there are numerous theories under which the IRS can assert claims against the directors, officers and shareholders.

For example, under certain circumstances the corporate veil can be pierced. This happens when the corporation operated as its owners' alter ego, where it was inadequately capitalized, where fraud or deception was practiced, and/or the corporation failed to observe corporate formalities such as holding meetings, adopting and observing bylaws, etc.

Further, before a corporation is liquidated and assets returned to shareholders, the persons carrying out the liquidation (officers and directors) must take steps to see that known and possible creditor claims are satisfied or provision made for their future payment--otherwise it is a fraud on these creditors to pay or receive a liquidating distribution or dividend.

The Internal Revenue Code makes shareholders liable for a dissolved corporation's unpaid taxes. See IRC section 6901(h).

Since the amount of taxes plus penalties and interest may exceed one million dollars, you should find the best tax attorney available and start settlement discussions through that attorney. I also recommend making no (further) distributions or liquidating dividends until you can get a tax attorney's advice on them.