There is no shortage of general information available about tax debts and how to go about resolving them. But what if you have a business tax debt? Does a business tax debt present challenges that surpass that of an individual tax debt? The short answer is a resounding “yes.” Business tax debts are often far more problematic than individual tax debts, and they should be treated accordingly.
Having dealt with a multitude of both personal and business tax liabilities, I can tell you that there are several very important differences between resolving a personal liability, versus resolving one that is owed by a business. In this article, I will address the common challenges that arise with a business debt to the IRS, as opposed to a personal one, as well as what you can do to neutralize the dangers inherent with a business tax liability.
In general, business liabilities are more difficult to resolve for
First, businesses with tax debts simply have fewer options for a quick, clean resolution to their IRS Collections case. For an individual, there are several low-effort options to resolve a debt. While those options still exist for a business, the IRS’s thresholds for eligibility are significantly higher, and the scrutiny closer.
Streamlined Installment Agreements are a great example of this divergence between business and personal negotiations. For an individual, the IRS will grant a Streamlined Installment Agreement when the total balance is $50,000 or less, and the taxpayer proposes to pay the debt in monthly installments over 72 months or less.
Contrast those criteria with the Guaranteed In-Business Trust Fund Installment Agreement, which is the business equivalent of a Streamlined Agreement. The Guaranteed Installment Agreement requires that the debt be $25,000 or less, and that the taxpayer propose to pay it over just 24 months. For the business, the threshold for the balance due is significantly lower, and it must be paid much more quickly than the IRS will allow for an individual.
This is a huge difference because it becomes far more difficult to negotiate installment agreements that don’t qualify for Streamlined or Guaranteed In-Business Trust Fund Installment Agreement. If an individual or business does not qualify for one of these programs, then the IRS is going to require detailed financial information which they will review under a microscope. Not only is this more than a bit unpleasant, it opens up a Pandora’s Box of potential difficulties. Suffice it to say that it will almost always be far more difficult to secure affordable monthly payments for those who don’t qualify for these programs.
Similarly, an individual faces fewer challenges when negotiating an Offer in Compromise (tax settlement) with the IRS than a business. This has a lot to do with the relative simplicity of most personal financial situations. Most individuals make their income via wages, making proof of income relatively easy. Then, they pay their relatively consistent monthly living expenses, so calculation of net disposable income is not especially complicated. Most individuals have a few major assets, the values of which can be determined by an internet search.
Businesses, on the other hand, often have large fluctuations in monthly revenues and expenses, and multiple specialized assets that are difficult to place a market value upon, especially when the business is in a highly specialized field. In the Offer in Compromise context, that means that the IRS has significantly more room for interpretation of a business’ financial information than they do with the average individual. And when the IRS has “room for interpretation,” you can expect they will interpret everything in a way that does maximum harm to the taxpayer. The end result is that a business has a much harder time convincing the IRS that it meets the criteria for an Offer in Compromise than an individual does.
The dearth of simple, easy, acceptable resolution strategies leads to the second major complication with resolving a business debt. Namely, that a business liability, even a small one, is more likely to see the involvement of a Revenue Officer (a local collection officer who deals directly with the indebted taxpayer). The first major problem businesses encounter with Revenue Officer involvement is the referral and assignment process. If a business receives a collection notice from the IRS, it is instructed to call IRS Automated Collections (the 800 number) about the notice. Then, the Automated Collections Agent will try to steer the taxpayer toward full payment, or a Guaranteed Installment Agreement. If the taxpayer cannot afford either of those options, there is little the Agent can do other than to refer the case to a Revenue Officer.
Although this has not always been the case and there is the occasional exception, my experience in the last several years has been that a business must be in compliance with all filing requirements before the Revenue Officer referral can even be initiated. Then, it takes the IRS at least three months, and often much longer, to actually assign the case. Between filing issues and delays in Revenue Officer assignments, I have seen one case sit in referral status for nearly two years. During this time, the case effectively cannot be resolved. This is more than a little frustrating for many business owners who want to resolve their tax debts and move on with life.
After the interminable wait for a Revenue Officer assignment, the problems are just beginning. While, in a Revenue Officer, it is nice to have one person, with one phone number, fax number, and address, with whom to negotiate, it is an understatement to say that Revenue Officers are a mixed bag. It is true that some Revenue Officers view their job as one of helping struggling taxpayers fix the problems that caused them to fall behind, and to find a mutually agreeable solution to the debt. However, this is only occasionally the case.
All Revenue Officers feel pressure from supervisors, managers, and superiors to collect on the debt, and move the case forward as quickly as possible. Even the most reasonable Revenue Officer must justify their decisions to other IRS employees (e.g. their supervisor). This leads to strict deadlines for taxpayers, and a very thorough review of a business’ financial information, with a view toward squeezing every penny out of the taxpayer to be paid toward the tax debt.
For better or worse, Revenue Officers tend to become personally invested in the cases they work. Sometimes, that may mean that they give a responsive taxpayer, who is working hard to fix the problem, some breaks that Automated Collections would not grant to an individual.
On the flip side, what if your Revenue Officer decides that they don’t like you? Many times, I have been hired by a business owner who, when speaking to me, is obviously doing everything in their power to make things right with the IRS. That same business owner’s Revenue Officer will, in our first conversation, explain to me that my client is an absolute deadbeat, and that their non-viable business needs to close its doors immediately. The truth may lie somewhere between those extremes, but that does not negate the fact that the Revenue Officer wields a tremendous amount of power over the situation, and the Revenue’s Officer’s opinion raises grave concerns.
One of the things I hate to see most in this profession is a business that is viable, if not successful, being rendered non-viable solely by the actions of a Revenue Officer with an axe to grind.
Another, similarly tragic situation that I encounter is an aggressive Revenue Officer convincing a business owner to sign up for an Installment Agreement that they can’t afford, because the Revenue Officer has picked apart their financial statements, and they feel like that is the only available option. Invariably, those cases end up right back in active collections after the agreement defaults, because the taxpayer could never realistically make the monthly payments to the IRS, while paying current taxes, and meeting all of the business’ other financial obligations.
Everything I have discussed so far leads us to the third major difference between a business and a personal collections case with the IRS: enforced collections (e.g. levies, liens, garnishments, and seizure of assets). In my experience, a business is many times more likely to experience enforced collections from the IRS than an individual. This has mostly to do with the fewer options for an easy resolution of the debt, and with the higher likelihood of Revenue Officer assignment.
It also has to do with the increased frequency of opportunities for a business to fall out of compliance with filing and deposit obligations to the IRS. While an individual has one federal tax return to file and pay per year, a business may have as many as ten returns to file, and sixty or seventy deposits to make in the same year between payroll taxes, income taxes, and other, more specialized taxes like 2290s. Couple those ample opportunities for a mistake with an individual, possibly aggressive, Revenue Officer, constantly watching for the business to slip up, and the chances of a levy or garnishment skyrocket.
Worse still, that aggressive Revenue Officer knows when the business issues payroll, meaning there will be funds in the bank account to cover that payroll, so the Revenue Officer issues a bank levy right before payroll. This wipes out the funds that were to be used to pay employees. Needless to say, the “levy-right-before-payroll” trick wreaks havoc on the already struggling business (and its employees), and, in some cases, it can be fatal to the business.
For a business, the situation can get even more aggravated than a levy on payday. Imagine a scenario where an aggressive Revenue Officer has decided that they don’t like a business and that the business is not viable. The Revenue Officer demands full payment of the debt, or an Installment Agreement that the business has no hope of affording, so the business owner pushes back. That failure to reach an agreement with the IRS opens the door to a death spiral for the business.
First, the IRS levies every day against bank accounts, accounts receivable, and any income-stream to the business that they can access, shutting off all business income. Having now rendered the business truly non-viable, they seize the business’ assets, and sell them at auction for payment toward the debt. If the IRS does not receive sufficient proceeds from auctioning the business’ seized assets to pay the debt off, they will continue to pursue the business owner, personally, for the Trust Fund Recovery Penalty (if they aren’t pursuing the owner already). The result is lack of employment for the employees and an absolute nightmare for the business owner.
The good news is that there is much you can do to avoid this nightmare scenario. For starters, focus on compliance. Although it can still happen, the IRS is much less likely to take aggressive enforcement action against a business that is in compliance with all filing and current deposit obligations. Instead of focusing on catching up on older unpaid taxes, focus on complying with current requirements. In other words, draw a line in the sand and start making all current deposits in full and on time. Stop incurring new liabilities.
If your books are in disarray or you need assistance figuring out how to comply with your tax requirements, get help. Once you are in collections with the IRS, you cannot afford to have inaccurate or incomplete bookkeeping. This I because the IRS is going to require financials from you before approving any agreement in most cases. If your books aren’t accurate, the IRS will almost always interpret them in the least favorable way possible, which very often results in them demanding far more than you can afford to pay.
For some business owners, hiring a payroll company to do payroll, make employer withholding tax deposits, and prepare quarterly 941 returns can be a big move in the right direction. Keep in mind that compliance is one of the biggest things you can do to minimize the chances of enforced collections. If you are struggling to comply with correct employer withholding deposits and returns, an outside payroll service provider is a small price to pay in comparison to the devastation that can come from continued lack of compliance.
As you can see, the stakes are particularly high when it comes to resolving a business tax liability—both in terms of the difficulties involved in resolving it and the truly horrendous consequences that can ensue if not properly addressed. To put it bluntly, unpaid business taxes can and do force businesses to shut their doors and put a lot of employees in the unemployment line. Consequently, business tax liabilities should be treated as an extremely high priority for business owners.
Perhaps the single most important thing a business owner can do when faced with a serious business tax liability that cannot be paid in full in short order is to consult with a tax relief attorney who has extensive experience resolving business tax liabilities. When shopping for a tax pro, I cannot overemphasize the importance of finding someone with experience resolving business tax liabilities. There are a lot of tax relief pros who are experienced resolving individual tax debts, but who have not gotten much experience resolving business tax debts. Do not hire them. The future of your business is at stake, and this is not the time to put that future in the hands of someone who is trying to learn how to resolve business tax debts.
A TAX ATTORNEY WITH RESOLVING BUSINESS TAX DEBTS CAN:
- Help you prioritize how to use your limited resources with regard to paying your current and past tax obligations.
- Minimize or eliminate the chances of enforced collections.
- Devise a plan that works with the realities of your business. For example, you may be struggling with poor cash flow and need some time with the IRS or state off your back to improve your business before you are in position to start repaying your tax debt. A tax relief attorney experienced with businesses can help you with this.
- Reduce your stress and provide you with the peace of mind that comes from knowing that you have someone who knows what they are doing fighting on your behalf.
- Utilize appeals when necessary to help protect your rights, accomplish your objectives, and ensure that you are getting fair treatment.
- Ensure that you secure the best resolution agreement for which you qualify (e.g. lowest possible monthly payments, maximum reduction in penalties, settlement for a fraction of what you owe, etc.).
Although Fortress Tax Relief accepts individuals as clients, its emphasis since its inception in 2003 has always been representing businesses with tax liabilities. As the only significant tax relief company in the United States where every case is handled personally by an attorney with extensive experience resolving business tax debts, Fortress is among the strongest choices a business owner could make for assistance with tackling unpaid business taxes.
We have caring and knowledgeable professionals on staff who would be happy to evaluate your business tax situation and outline a solution at no charge.
Please pick up the phone and give us a call.