A common concern for a business owner who owes payroll taxes is whether the IRS will close their business or not. They want to know if the IRS can seize the business. The unfortunate answer is yes.
The rules for the IRS seizing a business, or its assets, is different than seizing a personal residence. As a matter of fact, the Internal Revenue Service’s own manual (I.R.M) states that for payroll tax cases the Revenue Officer should look at the value of the assets and if they are sufficient to pay the debt, liquidate them and get paid. The IRS’s first line of collections for a payroll tax case is the close the business.
Before the IRS can take any kind of collection action against the business for owing back payroll taxes they have to follow certain procedures. One of the most important is that they have to issue a notice called a Form 1058 “Final Notice of Intent to Levy and Notice of Your Right to A Hearing”. This letter is a big deal. Ignore it and the IRS can have their way with you. You have 30 days from the date of this letter to file an appeal to the collection actions. The appeal is called a Collection Due Process appeal (CDP). The 30 day term is set by law and if you miss it by even one day you have lost your appeal rights. This is the strongest appeal available in a collection case and it has the ability to have tax court oversight if you disagree with the IRS. Don’t ignore this notice as it is critical.
Can the IRS close my business?
If no appeal has been filed after the 30 day period, the IRS must wait 15 more days in case the appeal is in the mail. However, the 15 day period isn’t an extension of time to file the appeal, if you miss the 30 days you lost your rights to this important CDP appeal. After the final 15 days have passed the IRS has all power to seize assets, levy accounts receivable, garnish wages, etc. They can even show up and place a padlock on the door of the business and shut it down right there.
The IRS has the authority and power to padlock the door and shut the business down that way, but much more often it uses collection actions that make it financially impossible to remain open. They will almost always ask for a list of accounts receivable for the business. If the IRS levies the company bank account (takes all the money) and then levies the accounts receivable (takes all future money), then the business will have a hard time paying payroll, rent, and materials to continue in business. My experience has been that this is the most often used strategy to shut down a business. Then they can also seize inventory and any other assets and auction them off to get paid. At that point the business is doomed. I have never seen a business recover from this.
At any time during a payroll tax case and especially during a CDP appeal the goal is to offer an alternative solution to the liquidation of the business. There are a lot of things to consider as well such as personal liability of the “responsible party” and designating payments properly to avoid personal liability. But the goal is to offer some kind of a solution so the IRS doesn’t shut the business down. I believe that payroll tax cases are the most serious and difficult cases there are.