Corporations can have liabilities in two ways. First, the corporation may owe income taxes. This only applies to C Corporations, as S Corporations are pass-through entities and the taxable income generally flows through to the owners. The income from an S corporation is reflected and taxed on the owner’s individual income tax returns. A traditional C Corporation pays its own taxes.
The second and much more common way for a business to have a liability is due to unpaid payroll taxes. These taxes add up quickly and the penalties are very stiff. As discussed in depth previously, the IRS’s first thoughts when they show up is whether they can liquidate the business and get paid quickly. Payroll tax liabilities are very serious and the IRS moves speedily.
The first thing to keep in mind regarding corporate liabilities is to stop getting further behind. If the IRS can see that the business isn’t profitable enough to pay its current ongoing payroll tax obligations they will move as quickly as they can to stop the debt from snowballing. The IRS Revenue Officer will have to give an account to their manager if the liability grows right under their nose. They would much rather shut a business down than explain why they let the account escalate.
A corporate payroll tax liability is a little more complicated than an individual tax liability and the strategies are more complex for arranging a solution. When considering a corporate tax there is a balancing act between doing what’s best for the business and keeping it open versus protecting the individual owners and other responsible parties from personal liability.
It’s necessary to keep in the forefront of your mind this balancing of personal versus corporate liability as even how you write a check to pay for the debt has ramifications for both. Any questions asked by the IRS agent can have ramifications too as to potential exposure for personal liability and potential corporate liquidation.
Due to the complexity of taxes and business liabilities, the possible liquidation of the business, and the personal liability ramifications, it is best to have professional representation early on in the case. Damage control and a skilled plan for a solution are imperative from the very beginning!