Legal Question in Business Law in Massachusetts

Re: Breach of Contract

Not to be unduly formalistic, but I have to restate some of your facts to clarify the context of your inquiry.

(1) There was a company operated in the form of a partnership (implied by use of the term "Partner"). A dispute arose, and that dispute was in litigation.

(2) A settlement agreement was signed whereby A was to acquire B's interest in the company. Prior to Closing, B was to file state and federal tax returns and pay the taxes due with company funds. B filed inaccurate returns that A considers fraudulent, and which the IRS has indicated will be rejected.

(3) Because of the filing of allegedly-defective tax returns, A refuses to pay the purchase price; A either has or has not received B's ownership interest in the company.

Reaction:

The filing of an inaccurate partnership tax return is of serious concern to A because it is an informational return that will be the basis of A's own federal and state income tax returns. However, I see no reason that A could not consummate the sale and file amended (correct) returns. A would be justified in withholding from the purchase price any damages that he suffered as a consequence of the inaccurate tax returns. My sense is that the tax authorities would be only too glad to accept this course of action.

If my restatement is incorrect as to the form of the entity, then it is even less evident to me why A would not close the acquisition and then file amended returns. By so doing, A can avoid the obligation that he would otherwise have to file personal tax returns inconsistent with the K-1 and attach an explanation; by filing amended returns for the company, B would have to do this if he were inclined to file a personal return inconsistent with the amended company returns.

I see this as preferable to alleging breach and winding up before the judge in the original action to enforce the settlement agreement. That course would result in expense and delay, and quite possibly paralysis of the company.

Glad to expand upon this advice upon request.

Re: Breach of Contract

It would of course depend entirely upon what and how much was said in the contract.

Fax me a copy to (617) 527-1763.

Breach has several remedies, some of which are equitable. What are your goals? a) To save

money but still get the company, and to have backup reasons for doing so? b) To get out

of the deal entirely and go back to the previous battle? c) To get out and walk away from

the company and the money? d) To take the company and force B to correct the returns?

e) To get B to correct the returns for you? f) To save some money (punitive damages for B's

misbehavior) ? g) To keep the IRS off your back while you run the company? h) To keep

some cash reserves in case the IRS comes back at you and reassess the tax liability?

You need to know what you want and then plan a strategy around that, not just find a weakness

in an opponent and hope that if you keep moving the knife around something good will fall out.

Stuart Williams, Esq.

21 Walter St.

Newton, MA 02459

tel (617) 527-0050

e-mail: [email protected]

fax (617) 527-0050