Taxation & Estate Planning

How does the IRS approach collecting unpaid employment taxes from a closed business and its officers?

By howardlevy

I received this question from a reader about a closed business that owes employment taxes to the IRS, and her personal liability for the taxes:

The IRS is trying to collect on employment taxes from a company that has been out of business for several years. As an officer, I have already been held liable.  Can the IRS continue to go after a company that has no assets even though it has already filed for the same tax liability against an officer?

First, it is unlikely the IRS has much interest in the business.  It is closed, and in the world of the IRS, the account is probably deemed not collectible.  If the business closed in an orderly fashion and did not transfer any of its assets to nominees to continue its operations as a sham, there is probably little interest from the IRS.  If the IRS is sending notices, they are probably computer generated.  

The IRS has assessed a trust fund recovery penalty against you the employment taxes that were withheld from employee paychecks.  The IRS can come after those that were in charge of the decisions not to pay the IRS employment taxes - the IRS had some belief that included you.  

The IRS can collect these “trust fund” taxes from both you and the business, but probably has no ability to collect from a business that is closed and uncollectible.  For practical purposes, it is just you, and any other owners, officer or managers of the business that were tagged with personal liability. 

It is a joint and several liability, so if the IRS collects 100% of the liability from someone else, you are relieved of the obligation.  It can be collected from the individuals in any manner the IRS deems fit, not to exceed 100% of what is owed.   

For what its worth, the IRS Taxpayer Advocate reported that from 2002-2007, the IRS collected only 13.5% of the trust fund assessments it made against owners, officer and managers.  That percentage is to your advantage.

Full post as published by IRS and the Law on February 14, 2009 (boomark / email).