U.S. government creditors is more difficult because there are several federal laws that provide the government stronger collection remedies or laws that make it easier for the government to hold business owners liable for debts or transgressions of their business entities. An example is a client this month who was facing personal liability for customs duties owed by his importing business.
The client owned a successful import business. The business had a federal import license, and the business was obligated to pay customs fees when it imported product to the U.S. The owner did not personally apply for a license, and he signed no document guaranteeing import duties. Import forms and custom forms were completed by the business’s accounting department. The owner did not sign any custom forms or importing reports filed with the Department of Customs. Also, the client clearly operated the business as a separate entity from his personal affairs; there were no facts supporting an argument that the business was the owner-client’s alter ego.
The Department of Customs said the business underpaid over $1 million of import customs because it improperly imported goods in to the U.S. . The client stated that the government has a judgment against the business and the owner individually for the unpaid duties, plus penalties and interest.
I asked how was the government able to hold him personally liable for the custom duties when he did not hold the import license, did not guarantee payment, and when there were no facts supporting an action to pierce the corporate veil and make him personally liable for any corporate liabilities.
The client explained that there was a 2014 federal appellate court decision that held that business owners personally liable if their business illegally imports goods by fraud or with negligence. Even though a business entity is the importer of record the court said an owner may be jointly liable for wrongful imports if he personally participates in arranging the import. The facts of the court case are more complicated, but the point is that the court said the government does not have to pierce the corporate veil to hold the owner liable for the business entity’s corporate violations of the import laws.
In state court arena, a properly conducted corporation or LLC will shield business owners from debts and liabilities of their business in most cases. This was an interesting example why conducting business in compliance with federal rules and regulations is more risky, and why advanced asset protection planning is important when your business involves federal rules and regulations.
About the Author
Jon Alper is an expert in asset protection planning for individuals and small businesses.
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