What to do if you can’t pay your business taxes
5 min read
April 18, 2023 • Block Advisors
IRS business tax bills, at a glance:
- If you can’t pay your business taxes, the most important thing you can do to avoid enforced collection is get into an agreement with the IRS.
- The IRS offers several options, including extensions (see Form 7004) to pay and payment plans.
- Businesses that are in financial hardship should consider special IRS programs that offer deferred payment and settlement.
You can get help resolving the issue when you owe business taxes and can’t pay.
What you need to know when you can’t pay your taxes
If you file your business tax return and can’t pay (or if your business still owes taxes from a past return), you have several options.
Depending on your circumstances, the IRS offers payment options ranging from short extensions for businesses that just need a little more time to pay, to special agreements for businesses in financial hardship situations.
A tax professional can help you evaluate which option will work best for your business, and your tax pro can even help work with the IRS to set up the agreement.
One option that is not a good idea is to ignore the issue. If you don’t make any arrangements with the IRS, the IRS can eventually force you to pay. The IRS can file a lien that would harm your credit, and the IRS can levy your bank accounts and income sources, such as payments from customers.
How to address business taxes you can’t pay
1. Confirm that you’re in filing and payment compliance.
- Before you can get in any payment agreement with the IRS, you must file all the business’s required tax returns. You’re also required to make enough tax payments on the current year so that you won’t file and owe in the future. If your issue is unpaid employment taxes, you’ll need to be current with your federal tax deposits.
- If you’re unsure whether you’ve filed all your required business returns, call the IRS to research your account.
2. Make sure you actually owe the amount of back taxes the IRS says you do.
- Review your business’s tax returns for the year(s) you owe and the prior three years to see whether the tax balance is correct. If you don’t think the amount is correct, you may want to amend your return(s).
- You may also look at any penalties to see whether you can reduce or remove them through penalty abatement.
3. Evaluate the options – and choose the best one for your circumstances.
- Consider your facts, including:
- How much the business can pay with existing assets or in monthly payments
- The impact of any potential tax lien
- The impact of any additional penalties and interest
- Based on your facts, choose the best payment arrangement for you. IRS options include:
- A short-term extension of time to pay
- One of several types of monthly payment plans (called installment agreements), with different terms and conditions
- A temporary reprieve based on your documented financial hardship situation (called currently not collectible status)
- The offer in compromise, an IRS option for qualifying taxpayers in highly specific financial circumstances to pay less than the full amount they owe to settle the tax debt
- Gather the personal and financial information necessary to request your option from the IRS.
4. Obtain an agreement with the IRS.
- Contact the correct IRS function before any regular tax deadlines or to request the payment arrangement you’ve chosen. Provide the IRS with the necessary information to complete the agreement.
- It may take time for the IRS to set up your agreement or consider your option, especially if your business:
- Owes more than $50,000
- Is requesting currently not collectible status
- Is requesting an installment agreement that will not pay the entire balance within six years
- Is requesting an offer in compromise
- You may have to appeal an IRS decision if the IRS denies you an option that you are entitled to, based on your facts.
How to get help
If you find a way to pay your business taxes on time, you may be able to file small business taxes online. If not, your Block Advisors small business certified tax professional can help you investigate which of the above options is best for your business and request it from the IRS.
Bonus: Bring these five items to your appointment
- A copy of your business’s IRS notices, especially the most recent notices, on the tax years and balances owed.
- If you think your business is in a financial hardship situation and can’t pay the full amount in six years, you’ll need to bring in your business’s financial information, such as bank statements, profit and loss statements, and balance sheets showing assets. It’s helpful to complete a Form 433-B, Collection Information Statement for Businesses, before the office visit.
- The financial information of the owner or owners, if the business is closely held (that is, if the business has few shareholders or partners). It’s helpful for each owner to complete a Form 433-A, Collection Information Statement, before the office visit.
- If you have a levy in place, bring your financial institution’s contact information (name, address, phone and fax number).
- A copy of your business tax returns for the years that you owe.