Richardson TX – Top Strategies for Small Business Owners with Payroll Tax Debt

As we’ve covered in the past few blogs, Payroll Tax Debt can become a nightmare for a taxpayer who gets behind. In addition to the potential late filing and late deposit penalties to a corporation, LLC, or partnership for unpaid taxes, there is also the potential for personal liability, know as the TFRP.   When taxpayer’s come into our Richardson TX office with Payroll tax debt, we work to minimize personal exposure while effectively resolving the taxes.

 Today we will discuss three strategies to reduce liability, including personally liability, if faced with Payroll Tax Debt. How you will address the payroll tax debt is highly correlated with the taxpayer’s unique circumstances. Here’s three options for strategies.

Strategy 1

Fight responsibility for TFRP personal liability and keep the liability at the business level or with other individuals. It is to the benefit of the IRS to hold as many individuals responsible for the TFRP penalty as possible.  Your goal is to to show why you are not personally responsible.  Obtain and review pertinent information to determine if you, the taxpayer, is not responsible for the debt personally. Some of these methods will include:

  • Obtain copies of the interview forms. Is anything said that clears you or that the IRS is interpreting in an incorrect manner?
  • Obtain copies of cancelled check. Did you or another party sign the checks? Who controlled who was paid?
  • Interview former employees. If former employees validate your story that they taxpayer was not responsible, get affidavits from them.

Strategy 2

Close and liquidate the company. The goal here is to obtain tax relief at the business level by reducing the liability to just the trust fund penalty.

  • Cease operating and liquidate the entity.
  • Reduce the liability to just the TFRP.
  • Be careful when liquidating assets. Since there is a lien (silent or NTFL filing) already on the assets, the assets technically belong to the government.
  • Alter-ego issues are where you close your business only to open the same business with a new name. If you open a new business, separate it as much as possible from the old business to protect its assets.

Strategy 3

Properly designate payments to the IRS to reduce personal liability.

  • If you make a voluntary payment, make it either personally or thru a loan. Under Revenue Procedure 2002-26, you can designate it to the Trust fund portion versus the business taxes. Payments from the company can’t be designated.
  • Deferred payment offers can be applied against the TFRP until the offer is accepted.
  • If you do not designate, the IRS will simply apply against the oldest period first and likely the non-trust fund portion first.

 These are just a few strategies on a high level. Over the next few blogs, we’ll dig deeper and continue to discuss potential actions to take to effectively resolve tax liability related to Payroll Tax Debt. Stay Tuned!

 Do You Need Help?

If you need help with IRS Payroll Debt or other IRS Collection issue, I’d be happy to talk with you. Please give me a call at (972) 821-1991 or email me at