Offer in Compromise for Payroll Taxes Not Paid
I was recently asked whether you could file an offer in compromise for payroll taxes that have not been paid. Well, the short answer is, yes, you can file an offer in compromise with the IRS for unpaid payroll taxes. The sticky situation you run into with payroll taxes is that these are corporate taxes assessed against a business so “who” is filing the offer in compromise become an issue.
Business Operating as a Corporation or LLC or Other Corporate Form
If you are a corporation or limited liability company and you are still in business then the IRS will assess the payroll tax against the company for payment. Depending on the company’s financial status, an offer in compromise may be a viable alternative to full payment for the taxes. The IRS also has the opportunity to assess the Trust Fund Recovery Penalty against those people who are responsible for writing checks and making determinations for the company about which of the accounts payable gets paid. So, you as the business owner are liable to get stuck with that penalty and may need to negotiate a personal offer in compromise. If the business continues, the amount you pay with your offer in compromise would be deducted from the amount the business owes.
If the company is defunct and no longer in business it is extremely likely that the IRS will come after the owners and those responsible for the business’s finances to assess the trust fund penalty against them and consider the business to be “non collectible.”
Business Operating as a Sole Proprietorship
If you are a sole proprietor, you are always responsible for the entire amount of your company’s taxes. That means that you will not only be liable for the smaller “trust fund penalty amount.” You can still file an offer in compromise for this tax liability but there is no distinction between your personal and business tax liabilities because your business income is filed on your personal income tax return.