What To Do If Your Business Owes Back Taxes

Staff Writer

Expert Contributor
Last Updated: December 9, 2021

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For the 27.9 million small businesses in this country, as well as the 16,000+ larger corporations, quarterly taxes are a normal part of life. If you ignore your tax burden the interest, fees, and debt will just continue to grow. And if your business owes back taxes, you may be afraid to face the situation. You might worry that the IRS will come after your business, your home, and your assets. Or worse, you may fear ending up in jail.

These things could happen, in theory—especially if your business owes back taxes. In most circumstances, however, the consequences are rarely as bad as you imagine. And the IRS is often slow to act.

You can get ahead of the situation by enlisting the help of a tax accountant, who will tell you the best steps to take, and will even reach out to the IRS on your behalf.

By acting now, you can potentially reduce your tax debt and pay off your back taxes in a reasonable time frame. Let’s look at some of the alternatives you have.

Make an Offer in Compromise

What To Do If Your Business Owes Back Taxes

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An offer in compromise permits you to settle if your business owes back taxes for less than the full amount. Exactly how much you can save depends on the ability of the business to pay.

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Steps to Take:

1. Make sure your business is currently compliant and up to date with all tax filings, because that’s the only way the IRS may accept an offer in compromise.

2. Be prepared to disclose a complete record of your business’ assets, liabilities, income, expenses, and operations.

3. Contact a tax attorney, because filing an offer in compromise can seem confusing and overwhelming. Your tax attorney will make the IRS an offer on your behalf, and negotiate until an agreement is reached.

Request an In-Business Trust Fund Express Installment Agreement

If you believe the business will be able to pay its back taxes in the near future, you can try to arrange an in-business trust fund express installment agreement.

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Steps to Take:

1. If your business owes back taxes less than $25,000 in payroll taxes and can pay off the debt in less than 24 months (2 years) you can apply online with no financial verification.

2. If the business owes back taxes more than $10,000, you must enroll in a Direct Debit Installment Agreement, where money will be deducted directly from the business bank account.

3. You may be able to make these arrangements yourself, but it’s worth it to contact a tax attorney to ensure accuracy.

Request an Installment Agreement

If the business owes back taxes more than $25,000 but less than $50,000 but does not owe any payroll taxes, you can request an installment agreement to pay off the tax debt in equal installments over the next 72 months (6 years). This will not reduce your back taxes.

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Steps to Take

1. Fill out and submit IRS form 9465 online to request an installment agreement.

2. If your business owes back taxes more than $50,000, owes any payroll taxes, or needs more than six years to pay, speak to a tax attorney for help filing an installment agreement by phone. You may have to show financial verification.

3. Your business must be current on all tax filings to submit an installment agreement. Contact a tax attorney if you need help with the process.

File for “Currently Not Collectible” Status

In rare cases when a business is not making any money, the business owner can file for “CNC” or Currently Not Collectible Status.

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Steps to Take:

1. Hire a tax attorney to help you submit the appropriate financial forms.
2. If your business shows expenses greater than income, the IRS will grant a temporary CNC.
3. Expect to be re-evaluated annually.

Try to Reduce Fines and Penalties

If this is the first time your business has ever paid its taxes late, you can call the IRS and ask to have any penalties waived. This works the same way you might ask a credit card company to waive a late fee as a courtesy.

Additionally, if your business recently had a fire, flood, or other financial hardship, you may call the IRS and ask for an abatement.

Steps to Take:
1. For a first offense, simply call the IRS with your payment information, and ask for a penalty abatement as you prepare to pay the outstanding tax bill.
2. Consider enlisting the help of a tax attorney to file an abatement request.

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Understand What Steps the IRS Can Take to Collect Business Back Taxes

A business that owes back taxes might face a levy or lien on its assets. If the IRS levies the business assets, it may dip into the business bank accounts or garnishes payments from customers.

If a lien is placed on the business, the IRS has a legal, priority claim on the company’s assets before they can be sold. A lien can hurt a company’s credit rating, too.

Keep the Lines of Communication Open

In rare situations, the IRS may seize a company’s assets, forcing it to close. In most cases, though, if you are willing to communicate with the IRS and use one of the options above to pay your taxes, the business will be safe.

Follow the proper steps and in time, you’ll pay off your business taxes and get the IRS off your back.

Staff Writer

Expert Contributor
Last Updated: December 9, 2021

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