Running a business comes with enough challenges — meeting payroll, managing cash flow, and staying competitive. But when tax problems arise, the consequences can threaten not just your profits, but the survival of your entire company. The IRS treats business tax debt and payroll tax issues as some of the most serious forms of noncompliance. Whether you missed a few quarterly 941 deposits, fell behind on income taxes, or received a federal tax lien notice, it’s critical to understand your exposure — and act before the IRS does.
📘 Official IRS References: Publication 583 — Starting a Business and Keeping Records
Common Business Tax Problems and How They Begin
Business tax problems often start small — a missed payroll deposit, a late quarterly filing, or using withheld employee taxes to cover temporary expenses. But when these issues aren’t corrected promptly, they escalate quickly into IRS enforcement action.
| Potential Issue | Potential IRS Concern | Potential Consequence |
|---|---|---|
| Failure to file payroll returns (Form 941) | Missing employee tax deposits | Trust Fund Recovery Penalty (TFRP) assessment |
| Unpaid payroll or employment taxes | Employer using withheld funds for other purposes | Civil and criminal enforcement |
| Unfiled income or excise tax returns | Repeated noncompliance | Substitute for Return (SFR), liens, levies |
| Misclassified workers (contractors vs. employees) | Loss of payroll tax revenue | Retroactive reclassification, penalties |
| Ignored IRS notices (CP504, LT11, Letter 1058) | Non-response to collection attempts | Asset seizure or bank levy |
| Federal tax lien filed | Secures government claim | Damaged business credit and financing issues |
Understanding IRS Collection Authority
The IRS has broad powers to collect unpaid business taxes. These powers are authorized under the Internal Revenue Code §6321 (liens) and §6331 (levies).
💡 Insight: A tax lien attaches automatically when the IRS assesses a balance due and sends a demand for payment that goes unanswered.
📘 Reference: Publication 594 — The IRS Collection Process
Payroll Tax Problems: The IRS’s #1 Business Enforcement Priority
Payroll tax noncompliance is one of the IRS’s most serious concerns — because it involves money withheld from employees. Anyone responsible for collecting and paying employment taxes can be held personally liable through the Trust Fund Recovery Penalty (TFRP).
💡 Key Point: These funds never belong to the business. Using them for operations, even temporarily, is viewed as willful misappropriation.
📘 Reference: IRM 5.7 — Trust Fund Compliance Handbook
Business Tax Liens and Levies
When business tax debt remains unpaid, the IRS files a Notice of Federal Tax Lien (NFTL) or issues a Notice of Intent to Levy (LT11/Letter 1058).
| Action | Description | Purpose | Public Record? |
|---|---|---|---|
| Notice of Federal Tax Lien (NFTL) | A legal claim to your current and future property (e.g., real estate, business assets, bank accounts). | Secures the government’s interest in your assets and alerts other creditors to the IRS’s priority claim. | Yes, it is filed in public records (e.g., county recording office) and can affect the ability to get credit or sell property. |
| Notice of Intent to Levy (LT11/Letter 1058) | A final warning that the IRS intends to seize your property or rights to property (e.g., garnishing wages, levying bank accounts). | Notifies you of imminent asset seizure and your right to a Collection Due Process (CDP) hearing. | No, the notice itself is not a public record, though the resulting levy is an enforced collection action. |
💡 Insight: Businesses can negotiate lien subordination or discharge to allow asset sales or refinancing even while paying down tax debt.
📘 Reference: Publication 1450 — Instructions on How to Request a Release of Federal Tax Lien
Options for Resolving Business Tax Problems
A skilled tax attorney can negotiate various resolution programs to help businesses regain compliance and keep operating.
| Resolution Type | Description |
|---|---|
| Installment Agreement | Monthly payments toward full debt |
| Offer in Compromise (OIC) | Settle for less than owed |
| Currently Not Collectible (CNC) | IRS suspends collection |
| Lien Withdrawal or Subordination | Remove or adjust lien |
| Penalty Abatement | Remove penalties |
Why Legal Representation Matters?
CPAs and enrolled agents can assist with bookkeeping — but only tax attorneys can assert privilege, negotiate with CI, and represent you before the U.S. Tax Court or DOJ.
| Situation | Attorney’s Role | Outcome |
|---|---|---|
| Received IRS collection notice | Intervene and handle communications | Prevents direct levy or lien |
| Facing payroll tax debt | Develop TFRP defense strategy | Avoids personal liability |
| Tax lien filed | File for withdrawal, subordination, or discharge | Restores credit and liquidity |
| Business audit or CI referral | Manage disclosure and defense | Prevents escalation |
| Financial hardship | Negotiate OIC or payment plan | Protects assets and keeps operations running |
Protect Your Business Before the IRS Acts.
Business tax problems can spiral quickly — from unfiled payroll returns to bank levies, asset seizures, and even personal liability. But with swift, strategic legal action, you can stop the damage, negotiate relief, and restore compliance before your business faces collapse.
At Pelham PLLC, our business tax attorneys represent companies nationwide in:
- Payroll and trust fund recovery cases
- Business tax liens and levies
- IRS collection defense and negotiations
- Offers in Compromise and penalty abatement
- Federal and state tax compliance restoration
Contact us today for a confidential consultation. We’ll help you protect your company, your income, and your future — before the IRS takes control of it.
FAQs
Am I personally liable for business taxes?
You can be, under the Trust Fund Recovery Penalty if you controlled payroll or payments.
Can I negotiate with the IRS myself?
Technically yes, but business cases involve complex statutes and procedures — legal representation is highly advised.
What happens if I ignore a Revenue Officer?
Ignoring field collection typically results in liens, levies, and possible summonses to appear in person.
