Editor's Note: At this point, you must think I am either dumb or have appalling luck to have almost the same thing happen to me, twice! Read on and enjoy. As always, you can find all my blog posts from 2013 to the present on my website at http://stevemarshallassociates.com/steves-blog/
I Think Having Leverage is a Great Thing
Last week we left off with me finding out how deeply I could be pulled into the former owner's tax mess if he didn't pay the back taxes to the state; I could lose the business if they seized it for his disregard for the tax system.
After I had spoken with my attorney, I called the former owner in Texas and laid out what he was facing, including me not making a scheduled payment to him at the end of April. I have heard engines sputter, but I have never listened to a person sputter, and it was almost funny, and he was furious until I told him to, "Shut Up!" Surprisingly, he did, and I followed with, "Listen." I had come up with a strategy with my attorney that got me out of this whole mess and left him with getting the business back and only having to deal with the department of revenue for back taxes.
He refused the proposal outright and said he was going to sue me in a civil action, at which point I laughed and replied, "For what? Because you tried to defraud me for $2 million under false premises?" I went on to say that I would be intrigued to see how this played out in the legal system and I might end up owning the business anyway. Then I dropped two bombs on him after he still refused my proposal. After operating the business for a few months, I realized that he had underreported the income on his federal income tax returns - remember - the revenue came in split into 60% credit card sales and 40% cash; he wasn't reporting the cash on his returns! Also, he had the four "employees" working as independent contractors and so, had paid no payroll taxes nor had any workmen's compensation in place for them. In our state, the Department of Labor is very attuned to this sort of activity and stick strictly to the rules that, if people spend all of their available working time at one job, they see them as employees.
A Whistleblower - Again?
He said, "You can't prove any of that." My response, "I don't have to; the burden of proof is on you, and if I call either of these two agencies, they will surely investigate, and you could not stand up to either an audit from the IRS and/or a review of your employment practices. So, your choice; I walk away at the end of April, keep any and all net profit since I took over, and I say nothing to anyone about anything." (Even better, for me, if they do find any wrongdoing, I could be eligible for a whistleblower reward!) I then hung up but left him with the thought that he had 24 hours to respond or I would make the calls.
He called me the next day and agreed to the proposal; his lawyer had convinced him to take the deal and get on with his life while I got on with mine. On April 30, 2017, with mixed emotions, I handed the keys to him and walked away.
Am I bitter? No, and I will still trust people until I find out otherwise. It was both a great life and business lesson, and I have no regrets whatsoever about engaging in this 5-month exercise. I will also stick by my promise to him about keeping quiet; I think he will be found out sooner or later anyway.
Next Week: Now What?