I am in LOI on a deal which needed to be done as a stock sale. In due diligence, finding that the seller did massive amounts of personal expenses through the business. It amounts to about $250K/year for 3 years in a row.

My CPA and attorney both say that it is possible to limit liability and potential penalty from IRS for such a situation, however I'm not convinced. Again, it's a stock sale and it is a concern.

Obviously, there are potential liabilities for other aspects of the company which the lawyer working on checking.

What are everyone's thoughts on this?