Q: I am a small business owner and I have several employees. The IRS determined that I was a responsible party who willfully failed to pay my company’s trust fund (employment) taxes. As a result, the IRS assessed my company and me with the Trust Fund Recovery Penalty. The IRS is now aggressively attempting to collect this tax debt from the business and me personally. I am concerned that I am going to lose my business and my home. What do I do now?
A: By assessing the Trust Fund Recovery against the business owner, the IRS now has the legal authority to pursue both the business and the owner for the full balance of the trust fund taxes. If the tax debt exceeds $10,000, it is likely that the IRS will file tax liens against the business and the owner.
Before the IRS will consider collection alternatives, both the business and the owner need to be in current filing and payment compliance. The business and the owner need to ensure that all tax returns for all prior periods have been filed. Additionally, the business needs to make all required federal tax deposits for the current quarter. The owner needs to make all required estimated tax payments for the current year.
The IRS is less likely to shut down a business if it is in current filing and payment compliance.
Only in an egregious situation would a taxpayer be in a circumstance where the IRS would take his or her home. The IRS will release an IRS levy (i.e. wage garnishment or seizure of bank account) if it is causing an economic hardship.
The business needs to separately provide a collection alternative to the IRS. This typically involves an installment agreement. As long as the business abides by the terms of the installment agreement, the IRS will not pursue tax collection against the business owner.