I Operate A Small Business And Failed To Pay Employment Taxes

Payment Options And Potential Penalties

Paying Over Time And Abatement Of Penalties

The IRS generally just wants their money paid in full and will let you pay over time usually in monthly installment payments. If you request an installment agreement however, the Internal Revenue Service will first carefully examine your books and records, and you will have to submit a fairly detailed financial statement. It might also be possible to abate the penalties for “reasonable cause.”


An offer-in-compromise is when there is a problem of collectibility and can be used to reduce or eliminate liability for employment taxes. However, to qualify for an offer-in-compromise based on doubt as to collectibility, the combined net value of your assets and future earnings above base expenses must be less than the outstanding liability. And the IRS will often require that the above-determined amount must be paid in a lump sum.

Offers are most effective when you have no assets or earnings. Thus, if you have already lost your business (perhaps even gone through a bankruptcy), an offer-in-compromise may be used to reduce or eliminate non-dischargeable employment tax obligations.

Bankruptcy Implications

If you meet various statutes of limitation, it is possible to discharge the non-trust fund portion of employment taxes in bankruptcy. However only the employer’s share of FICA and FUTA can be discharged in bankruptcy.

Trust Fund Taxes Not Dischargeable

Trust fund taxes cannot be discharged in bankruptcy. Bankruptcy can also be used to stave off the collection activities of the IRS and to essentially force the IRS to accept a payment plan. Thus, if you are faced with the prospect of losing your business to the aggressive collection efforts of the Internal Revenue Service seeking a qualified bankruptcy attorney should be at the top of your list.  This is not something you should not handle yourself.

Willful Evasion – Possible Criminal Exposure

If you have failed to collect or to pay your employment taxes, you only have a few options: You will be required to pay in full. Assuming there is no criminal prosecution. The IRS takes an employers failure to pay employment taxes very seriously and has the legal power to refer your case for criminal prosecution. This does not mean you are going to jail, usually just substantial fines and fees. Confer with your accountant, then if necessary, consider consulting with a criminal tax attorney.

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