What happens if you don’t pay taxes for your business

What if I can’t pay my taxes? What if I owe back taxes?

If you file your business tax return and can’t pay (or if your company still owes taxes from a past business tax 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 experiencing serious financial hardship.

A tax professional can help you evaluate which option works best for your business. Your tax pro can even help work with the IRS to set up the agreement. Wondering what happens if you don’t pay taxes can be stressful. But you don’t have to address the problem alone.

One option that is NOT a good idea is to ignore the issue. If you don’t make some type of arrangement with the IRS, they 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.

Steps to take when your business can’t pay taxes

1. Confirm you are in filing and payment compliance.

• Before creating a payment agreement with the IRS, you must file all the business’s required tax returns. You must also 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 must be current with your federal tax deposits.
• Call the IRS to research your account if you’re unsure whether you’ve filed all your required business returns. Understanding your current status is important to help you avoid discovering first-hand what happens if you don’t pay taxes you owe for your business.

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 you think the business can pay with existing assets or in monthly payments
• The impact of any potential tax liens
• The impact of any additional penalties and interest

Based on your situation, choose the best payment arrangement for you. The IRS offers several options to help your business when it can’t pay taxes, including:

• 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

After deciding on the payment arrangement that works best for you, gather the personal and financial information necessary to request your option from the IRS.

Bonus: Bring these five items to your appointment if your business can’t pay taxes

1. IRS Notices: A copy of your business’s IRS notices, especially the most recent notices, on the tax years and balances owed.
2. Business Documentation: If your business faces significant financial hardship and can’t pay the full amount in six years, you must back it up with documentation. Bring your business’s financial information, such as bank statements, profit and loss statements, and balance sheets showing assets. It’s helpful to complete IRS Form 433-B, Collection Information Statement for Businesses, before your Block Advisors appointment.
3. Owner Financial Info: The owner(s) financial information if the business is closely held (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.
4. Financial Institution Contact Info: If you have a levy, bring your financial institution’s contact information (name, address, phone and fax number).
5. Business Tax Returns: A copy of your business tax returns for the years that you owe.

4. Obtain an agreement with the IRS.

Contact the correct IRS function before any regular business tax deadlines to request the payment arrangement you’ve chosen. Provide the IRS with the necessary information to complete the agreement. Remember that 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

Don’t forget – you can appeal the IRS’ decision if they deny you an option you are entitled to based on your facts.

Get help when your small business can’t pay taxes

If you think you can’t pay your taxes for your business but then find a way to pay your 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. This way, you avoid finding out in an unpleasant way what happens if you don’t pay taxes.

Get help from a tax pro near you.

This article is for informational purposes only and should not be construed as legal advice. You may want to seek the advice of an attorney to evaluate all relevant considerations.