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How Do We Deal With the IRS and Our Failed Business?

Written by Jim Buttonnow

“Dear Jim,

My family owns a small restaurant that’s been struggling for years. We owe the IRS and the state back taxes and have been working with various payment plans but can never get caught up. My dad even took a second job in 2011 to aid in repayment. A lawyer advised him then to shut the business down but he couldn’t let it go then. Now my family is just tired.

The IRS is seizing funds regularly from the company bank account. The business has been for sale for about 10 months but hasn’t sold (obviously), so my dad lowered the price last month. He met with a lawyer again to find out what happens if he just closes the business. He was told that, no matter what, he would probably lose the house. But the lawyer couldn’t really tell him anything until he paid him $2500. Because we have that $$ just sitting around.

I’m just wondering what options my parents have other than working themselves to death or losing everything? How does one shut down a business when you owe back taxes? Is it even possible?!

Jessica”

Hi Jessica:

I am sorry to hear about the misfortunes of you parent’s business.

There are several potential solutions to your issue. It is possible to close the business and remove part of the payroll taxes (called the non-trust fund portion). However, if the IRS is doing its job, they would have assessed the trust fund portion (that is, the amount of FICA/Medicare and income taxes withheld from the employees) to be paid by your parent’s. Trust fund taxes can be assessed against responsible individuals who knowingly and willingly do not pay these taxes. The bottom line is that the closing of the business may only remove some of the taxes.

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Again, there are many factors that go into what is your best solution. You could close the business and likely remove the non-trust fund taxes. Your attorney, who is close to the facts, can make this determination. If there is a trust fund assessment against your parents, they can enter into several agreements to pay based on their financial circumstances. These options include payment plans, but can also include a settlement of the taxes (called an offer in compromise) or a payment deferral (called currently not collectible). In any event, an analysis of your parent’s financial situation is needed to assess which avenue(s) are best.

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On the brighter side, the IRS only has 10 years, from the date of assessment to collect back taxes. This situation will not last forever.

If you want to discuss your circumstances, I would be glad to point you in the right direction.

Stay well.

Jim

If you have a tax question you’d like to ask just use the online form. I’m happy to help you totally for free.




About the author

Jim Buttonnow

Jim Buttonow, CPA/CITP, practices in the area of IRS and State tax controversy. He has more than 29 years of experience in IRS practice and procedure. Reach Jim at [email protected] or through his website www.buttonowcpa.com

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