Business Tax Problems and Solutions

Key Takeaways

• Business tax problems can include staying compliant with income taxes, payroll taxes, sales taxes, filing tax returns, and making estimated tax payments.
• Business tax issues can lead to collection actions, audits, and even personal liability in the form of civil penalties or criminal charges.
• Because many business tax problems are complex, it’s usually a good idea to hire a tax attorney for assistance. 

Common Business Tax Problems 

Business tax obligations vary depending on the business structure and operations. That being said, many businesses are responsible for collecting and/or paying the following taxes:

• Income taxes: All businesses must file an annual income tax return (though the form of that return varies) and are subject to potential income tax liability. 
• Estimated quarterly tax: Because federal income taxes are a pay-as-you-go tax, some businesses are required to make estimated tax payments regularly throughout the year.
• Payroll taxes: Employers must withhold and pay payroll taxes on behalf of their employees. 
• Unemployment tax: Employers must also pay federal unemployment tax and state unemployment tax if applicable.
• Sales tax: Businesses that sell taxable goods or services must file sales tax returns.
• Excise taxes: Depending on what your business does, it may have to pay one or more excise taxes, such as environmental taxes or fuel taxes.

Businesses may face the following types of tax problems if they don’t pay or file taxes or if they use poor bookkeeping practices. 

• Inaccurate or late tax returns.
• Insufficient estimated tax payments.
• Improperly processed employment taxes.
• Being unable to differentiate between personal and business expenses as a result of poor recordkeeping.
• Incorrectly claiming certain expenses as deductible business costs.
• Misclassifying a worker as an independent contractor instead of an employee.
• Personal liability for certain penalties, through the Trust Fund Recovery Penalty (TFRP) or Responsible Person Assessment (RPA).
• Sales tax issues.
• Criminal charges. 

What Happens to Unresolved Business Tax Problems? 

You must act quickly to address potential or existing tax problems. If you don’t, there are numerous potential problems that could jeopardize your business’ continued existence and place your personal assets at risk.

First, there could be tax collection actions. This can include the IRS filing a Notice of Federal Tax Lien that encumbers your business property and the IRS and/or NYS DTF issuing a levy to seize one or more business assets. If the IRS or NYS DTF levies a bank account or equipment critical to business operations, it could result in the business shutting down.

Second, any unpaid tax balances could continue to grow because of increasing penalties and accruing interest.

Third, the NYS DTF or IRS could audit one or more of your business’ tax returns if there are irregularities or the tax authority believes your business incorrectly claimed a credit or deduction.

Fourth, you and/or your fellow business owners or managers could be personally liable for your business tax problems. One example of this is the TFRP. The IRS will hold an individual in the business personally liable for this penalty if they were responsible for the failure of the business to pay the employees’ portions of the payroll taxes. The IRS is not limited to just one responsible person, and often defines the term broadly.

Fifth, there could be criminal charges or hefty civil penalties if the IRS or other taxing authority believes tax evasion and or tax fraud has occurred. 

Getting Professional Tax Help With Business Tax Issues 

Due to the seriousness of these problems, it’s strongly recommended that if your business faces any of them, you hire a tax attorney to help. The key is getting legal tax help sooner rather than later as acting quickly can minimize the damage these tax issues could cause. Here are some signs or red flags that indicate it might be time to hire a tax lawyer for your business:

• You need to make a business decision that relies on an interpretation of tax law.
• Your business is subject to a tax audit.
• The NYS DTF or IRS files a lien or garnishment.
• You have one or more unfiled tax returns.
• Your business collected a tax (like a sales or payroll tax) but did not remit it to the proper tax authority.
• There are pending criminal charges or someone could be personally liable for a tax penalty.
• You disagree with a tax liability involving a significant amount of money.
• The IRS sends you a Notice of Deficiency. 

How McLaud Law Can Help With Business Tax Problems 

If you believe your business could be in tax trouble, McLaud Law P.C. can help. Our tax professionals have experience handling complex business tax matters, including audits, tax litigation, appeals, and IRS enforcement actions. Because McLaud Law P.C. is headed by a tax attorney, we can offer tax-related legal advice and represent you or your business in civil or criminal tax litigation.

If your business faces unresolved tax bills, we can negotiate on behalf of your business when trying to settle a tax debt with a payment plan. Our firm can also obtain other forms of tax relief, such as an offer in compromise, Currently Not Collectible (CNC) status, and penalty abatement. To learn more, contact McLaud Law P.C. for a free consultation.

Business Tax Problems FAQs 

What if my business can’t pay its taxes? 

The IRS offers payment plans to qualifying businesses, but if the IRS requests a collection information statement and sees that you cannot pay taxes and operating expenses, the agency may move forward with levying your assets. 

In some cases, you may be able to qualify for an offer in compromise on business taxes, but typically, only if the business is out of operation. 

Can I be personally liable for my business tax debt? 

It’s possible, but it depends on the type of tax debt and the legal form or structure of your business. For instance, TFRP penalty is usually assessed on individuals even if the business is its own taxable entity. 

Also, some state taxing authorities, such as the New York State Department of Taxation and Finance, can sometimes force individuals to pay unpaid sales taxes by piercing the corporate veil even though the business is a corporation. 

Will my business qualify for an offer in compromise? 

An offer in compromise is available to businesses in addition to individuals, although there are some differences, such as requiring different paperwork (Form 433-A for individuals and Form 433-B for businesses). 

What happens if I ignore the IRS tax notices sent to my business? 

You may get a few more reminder letters and warnings from the IRS. Eventually, the IRS will stop sending notices and start taking actions such as filing a Notice of Federal Tax Lien or using a tax levy to seize business property, including bank accounts.

Can the IRS shut down my business for unpaid taxes? 

Yes and no. In the vast majority of cases involving unpaid taxes, the most the IRS can do is seize your business assets. The taking of business property doesn’t explicitly mean your business isn’t allowed to operate. However, from a practical perspective, losing key assets could mean your business is forced to shut down.

This communication is Attorney Advertising. It is presented for informational purposes only and does not constitute legal advice. Every legal situation is different, and prior results do not guarantee a similar outcome. This communication does not create an attorney-client relationship between McLaud Law P.C. and the recipient.