Owing money to the IRS is overwhelming, especially when the continued success of your business is dependent on your ability to pay it. Many business owners aren’t aware of how quickly the IRS escalates enforcement when business taxes go unpaid, especially if payroll taxes make up part of that debt.
You may receive multiple IRS notices over a period of months, and if your debt becomes seriously delinquent, the IRS may even assign a Revenue Officer to your account. The good news is that the IRS does offer business payment plans for tax debt. But approval isn’t automatic, and depending on how much you owe, you may need to submit a fairly in-depth account of your finances.
Learn more about business tax payment plans and what options are available. When you’re ready to discuss your concerns in greater detail, call 20/20 Tax Resolution at 1-877-369-5420.
Key Takeaways:
- The IRS has payment plans for business tax debt, including payroll tax liabilities.
- Payment plans can give businesses up to 10 years to pay, in some cases.
- The options depend on how much you owe and the type of taxes.
- If you set up payments, you’ll go into default if you miss payments or incur new tax debt.
- Alternatives may be available if you cannot afford monthly payments.
- Acting early improves your odds of avoiding enforcement and personal liability.
Types of Business Tax Debt Eligible for Payment Plans
The IRS offers installment agreements, often referred to as payment plans, for many forms of business tax debt. But not all types of business tax debt are treated the same, and not all businesses automatically qualify for a payment plan.
Common types of business tax debt that qualify for payment plans include:
- Income taxes owed by the business
- Payroll tax liabilities
- Penalties and interest associated with tax liabilities
If you are a sole proprietor or independent contractor, you generally need to apply as an individual, unless you owe payroll taxes and are still operating.
Overview of IRS Payment Plans for Business Tax Debt
The IRS offers the following payment plans for businesses that are behind on payments:
Simple Payment Plan
Businesses can get up to 10 years (or until the Collection Statute Expiration Date if sooner) to make payments on:
- Up to $50,000 in non-trust fund tax debt
- Up to $25,000 in business tax debt, which may include trust-fund tax debt
- Up to $50,000 in business tax debt, which may include trust-fund tax debt, for out-of-business sole proprietors
In-Operation Trust Fund Express Installment Agreement
Businesses can get up to two years to pay up to $25,000 in trust fund taxes, including the trust fund portion of payroll taxes and excise taxes.
Non-Streamlined Installment Agreement for Businesses
If you exceed the above limits, that doesn’t mean you can’t qualify for a payment plan – it just means you’ll need to reach out to the IRS directly, and in most cases, you’ll need to submit a Collection Information Statement (Form 433-B) to prove your ability to pay.
How IRS Business Payment Plans Work
The rules for payment plans on corporate income tax, payroll taxes, and other business taxes are similar to the rules on individual payment plans in some ways but significantly different in others. Here’s how business payment plans work.
Application process
Businesses can apply for an express agreement online, but otherwise, they’ll need to call the IRS directly or work with a tax professional. Although individuals can request a Simple Payment Plan online, the IRS doesn’t offer that option to businesses.
The application process also depends on where you are in the collections process. If you are still in the Automated Collection System, you may be able to request assistance by responding to one of the automated notices you receive. However, if your case has been referred to a Revenue Officer, you may need to negotiate with them directly.
Pre-qualification eligibility
The IRS won’t even consider your request if you don’t meet the basic eligibility requirements. That means filing all required returns and being up to date on tax payments, including payroll deposits.
Financial information
If you do not qualify for a Simple Payment Plan, you’ll need to submit financial information as noted above. Depending on the structure of your business, the owners may also have to submit collection information statements, using Form 433-A.
Lien determinations and penalty assessments
Per the IRS, Simple Payment Plans do not require a lien determination or TFRP assessment. However, if you don’t qualify for that option, the IRS may file a Notice of Federal Tax Lien on your business assets to protect what they are owed before letting you set up another type of payment plan.
Additionally, the IRS won’t necessarily assess the TFRP with other business payment plans, but if you owe a sizable balance, they may have you sign a form to extend the TFRP assessment deadline. That way, if you default, the IRS can look into assessing that penalty.
Ongoing compliance
Throughout the duration of your payment plan, your tax compliance will be monitored by the IRS. They want to ensure that you are:
- Making every payment on time and in full
- Filing new tax returns on time
- Paying new tax liabilities on time
Failing to meet these requirements may lead to a defaulted arrangement. When this occurs, the full balance is due immediately, the IRS has the right to resume collection actions, and you may be unable to request a new payment plan in the future.
What Happens If the Business Can’t Afford Payments?
If the minimum monthly payment on a business payment plan is unrealistic, there are options that may be available to you.
Partial Payment Installment Agreements
This payment arrangement is similar to an installment agreement in that it requires monthly payments. However, the monthly amount is smaller and in line with what you can realistically afford. The IRS may allow you to pursue this option if your Collection Information Statement shows financial need. They will also periodically review your financial situation to see if you are able to resume regular payments.
Currently Not Collectible Status
If your business is experiencing significant financial hardship, you may not be able to make any progress on your tax debt. In this case, the IRS may temporarily deem you not collectible. This means a halt to collection activity. They will periodically review your finances to determine when you can resume payments. Note that in currently not collectible status, penalties and interest continue to accrue.
Offer in Compromise
An offer in compromise allows qualifying taxpayers to settle their tax debt for less than what they owe. While this is an appealing option, few taxpayers qualify. The IRS requires an in-depth financial disclosure that allows them to look at the business’s ability to pay, equity in assets, future income potential, and other liabilities.
Be aware that the above options can be extremely challenging, if not impossible to get, if you owe trust fund taxes, including payroll taxes, and are still operating. That’s why working with an experienced tax professional is critical.
If tax debt is mounting and there’s no way to continue operating, business closure may be necessary. This does not eliminate tax debt, but it may affect collection options while preventing more tax debt from accruing.
When Business Tax Debt Becomes Personal
In some cases, tax collection efforts don’t stop at the business level. If you owe payroll tax debt, the IRS may pursue personal liability so they can come after your personal assets.
When payroll taxes continue to go unpaid after multiple payment reminders and notices, the IRS can assess the Trust Fund Recovery Penalty against responsible parties. The penalty may apply to business owners, officers and directors, payroll managers, and anyone else with authority over financial decisions.
After conducting a responsible person investigation to identify all potential responsible parties, the IRS will send out notices regarding their decision, including Letter 1153 and Form 2751, that explain the penalty and your appeal options. After the appeal window closes, the IRS assesses the penalty and begins collection efforts.
Why Acting Early Protects the Business and Owners
Addressing payroll tax debt early may reduce your risk of personal exposure. After the IRS begins a TFRP investigation, your options shrink, and dodging personal liability may be significantly more difficult.
Early action also shows the IRS that you are attempting to resolve your unpaid tax debt, which may give you some leeway to pay the debt off through your business without risking personal liability. The longer your tax debt goes unpaid, the more likely it is that the IRS will begin looking into the Trust Fund Recovery Penalty as a way to recover their losses.
When to Consider Professional Help
While you can look into payment plans on your own, there are many situations where professional assistance can make the path to tax relief much easier.
You may want to seek help from a tax professional if:
- Your payroll tax balance is large or increasing faster than you can keep up.
- The IRS has assigned a Revenue Officer to your case.
- You are unable to keep up with new tax liabilities.
- The IRS is threatening levies or personal liability.
- You are considering closing your business.
A tax professional can help you evaluate all potential relief options, communicate with the IRS for you, structure a realistic payment plan, and protect you from personal exposure.
Taking action early can help you preserve your options, look into your tax and financial situation, and find a solution that meets your specific needs. That’s where we help. At 20/20 Tax Resolution, we’re committed to helping business owners keep their business running while staying compliant with their tax requirements.
Call us at 1-877-369-5420 or reach out online to find out how we can help you with your business’s tax debt or other business tax problems.
Frequently Asked Questions
Can an LLC set up an IRS payment plan for business taxes?
Yes. An LLC can request an IRS installment agreement for business tax debt. However, approval may depend on whether or not the business is current on filings and ongoing tax obligations.
Can businesses stay open while on an IRS payment plan?
In many cases, yes. Many businesses keep operating while making monthly payments toward their tax debt, as long as they can also stay current on new tax obligations.
How long do IRS payment plans last?
The length of a payment plan depends on the amount owed and how much the business can afford. Typically, the IRS can extend payments until the debt’s Collection Statute Expiration Date.
Will I have to submit financial statements?
You may have to submit financial information for a payment plan, especially if you owe a significant amount or trust fund taxes.
Resources:
https://www.irs.gov/payments/online-payment-agreement-application
https://www.irs.gov/newsroom/irs-payment-plan-options-fast-easy-and-secure
https://www.irs.gov/payments/payment-plans-installment-agreements
https://www.irs.gov/payments/simple-payment-plans-for-individuals-and-businesses
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