Dealing with unpaid employment taxes is often a nightmare for any business owner. You never meant for it to get to this point, but the financial strain, mounting stress, and potential legal repercussions can quickly spiral out of control.
As your business falls behind on employment taxes, a cascade of problems ensues: Cash flow interruptions, difficulties in managing receivables, and a barrage of IRS notices. And that’s just the beginning; soon bank levies, federal tax liens, and a tarnished credit score compound the situation.
We hear from clients and business owners who ask “Can’t I just shut down the business and start a new one?” This is what’s referred to as an alter ego or a successor in interest – and the IRS’ ability to pierce the corporate veil means an alter ego is not going to save you from the IRS.
How the IRS Views Business Alter Egos
Forming a new business that appears distinct on the surface but essentially mirrors the old one won’t get you far. In most cases, these alter egos operate from the same location, use the same equipment, and serve the same customers. To the IRS, this is a glaring red flag, and they are going to take action against the new entity just the same as the old one.
The same tax penalties that were applicable to the original business will be assessed to the new entity. In essence, attempting to evade tax liabilities through a business alter ego is a short-sighted strategy that can lead to even more significant financial woes. The IRS has a keen eye for such actions.
Consider a Corporate Flip Instead
Rather than resorting to desperate measures like creating a business alter ego, business owners facing substantial tax trouble with the IRS should consider a more strategic approach – a corporate flip. In a corporate flip, key elements from the old business, including assets worth saving, the former owner and/or founder, and potentially even old executives work with a new investor (often referred to as an “Angel”). The entity is sold to the Angel and the proceeds are used to pay the IRS. The Angel becomes the owner of the new entity, but you are able to continue your work in the industry as long as you don’t retain a significant ownership stake in the new entity.
It’s important to note that the old tax issues are not magically erased. The IRS is likely to still assess a Trust Fund Recovery Penalty against the original owner to recover a portion of the unpaid employment taxes. However, if the IRS approves, the new entity is given a clean slate and a chance to succeed as it works toward its goals. This strategic maneuver allows the business to continue operating without the crippling weight of past tax problems.
Rely on a Tax Attorney to Solve Your Employment Tax Issues
When you find yourself in dire straits with the IRS, it’s crucial to seek professional help. Doing this on your own is bound to result in even more headaches and won’t eliminate the tax bill you’re avoiding.Attorney Robert V. Boeshaar works with businesses in Washington to help them navigate the complicated nature of IRS tax problems and helps them resolve those issues legally. Don’t let the weight of unpaid employment taxes and IRS penalties crush your business dreams. Contact Attorney Robert V. Boeshaar today and take the first step toward regaining control of your business and your financial future.
Robert V. Boeshaar Attorney at Law, LL.M.,PLLC
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