Going Broke Owing Payroll Taxes  

Going broke—while owing the IRS for payroll taxes— may be a business owner’s worst mistake.

Why is this so bad? The IRS looks at your failure to pay payroll taxes withheld from employees as truly sinful. And from a practical angle, the tax agency has been whacked twice. Once, when you as the employer failed to pay the collected tax; and a second time when your employees filed their 1040s, expecting credit for the withheld income taxes. No ethical business owner collects payroll taxes with the intent of misusing the funds. But a desperate owner might be tempted to ‘borrow’ from tax funds to head off a financial crisis; then be unable to repay the money. If this situation comes close to describing your own, you’ll want to know how the IRS reacts to and collects payroll tax debt—and what you can do.

How the IRS Handles Payroll Tax Debt

The IRS has a very strong ‘payroll tax recovery’ weapon: They can assess the “trust fund” portion of the unpaid payroll tax onto any and all individuals “responsible” for paying the tax and who “willfully” did not.

This is called the 100% penalty and it is devastating to anyone who has just lost their business and source of income.  This penalty can also be assessed on non-owners such as accountants and bookkeepers who have made the mistake of having check signing authority for the business. Once this assessment takes place, the IRS has a minimum of 10 years to collect on the debt.

What Can You Do?

 First, Get a Tax Professional to Represent You. Do not do the interview with the IRS Revenue Officer yourself. How you answer his or her questions is extremely important to anybody who had any management input.

Second, if you are still in business, you need a new plan. A plan that will either turn it around so that it produces enough cash to pay the taxes, or a plan for shutting it down. Shutting it down is a hard step for most of us to take, but struggling on to the last breath will just produce a bigger tax debt to hang over your head.

I look forward to serving you, saving you money, and releasing you from much of the stress and anxiety of dealing with the IRS. Please call 352-317-5692 or email me for your free phone consult.