S Corp Liability Question

[JohnDoughBakery]

What is the name of your state (only U.S. law)? Illinois

Under an S Corp with one owner at 100% ownership, all IRS taxes have been paid (late) and the balance remaining to the IRS is just penalties and interest.

If the S Corp is closed because the business is closed, can and will the IRS pursue the personal assets of the owner?

Or since the Corp no longer has any assets, is the debt written off? The business has been losing money so there are truly no assets.

Has anyone gone through this?

Thanks

 

[LdiJ]

What is the name of your state (only U.S. law)? Illinois

Under an S Corp with one owner at 100% ownership, all IRS taxes have been paid (late) and the balance remaining to the IRS is just penalties and interest.

If the S Corp is closed because the business is closed, can and will the IRS pursue the personal assets of the owner?

Or since the Corp no longer has any assets, is the debt written off? The business has been losing money so there are truly no assets.

Has anyone gone through this?

Thanks

Since an S-corp does not pay any income tax, (the income is passed through to the personal returns of the shareholders) I have to assume that you are talking about payroll tax liabilities, interest and penalties. If I am correct, then the IRS will continue to go after the single shareholder for the interest and penalties, unless those are waived (unlikely). The IRS can also go after bookkeepers or other management employees of the company who normally signed checks, as well.

 

[davew128]

Since an S-corp does not pay any income tax, (the income is passed through to the personal returns of the shareholders) I have to assume that you are talking about payroll tax liabilities, interest and penalties. If I am correct, then the IRS will continue to go after the single shareholder for the interest and penalties, unless those are waived (unlikely). The IRS can also go after bookkeepers or other management employees of the company who normally signed checks, as well.

This answer is incorrect. A responsible person penalty is only imposed upon the responsible person for the unpaid trust fund tax. Any penalty and interest is the responsibility of the corporation only.

 

[LdiJ]

This answer is incorrect. A responsible person penalty is only imposed upon the responsible person for the unpaid trust fund tax. Any penalty and interest is the responsibility of the corporation only.

Citation please. I hope you are correct but your answer is not my experience.

 

[davew128]

Citation please. I hope you are correct but your answer is not my experience.

Then your experience is flawed.

IRM 8.2.5.1
IRC 6672

The penalty is the amount of trust fund tax not any additional penalty or interest for nonpayment. It's a VERY common collections technique to close a corporation and have the shareholder pay the trust fund penalty since the shareholder cannot be held responsible for the remaining corporate balance after the tax has been paid.

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. "

You'll notice that nowhere in the statute does it refer to anything but the amount of actual tax. More to the point, the penalty and interest are imposed on the TAXPAYER not the responsible person(s).

 

[LdiJ]

Then your experience is flawed.

IRM 8.2.5.1
IRC 6672

The penalty is the amount of trust fund tax not any additional penalty or interest for nonpayment. It's a VERY common collections technique to close a corporation and have the shareholder pay the trust fund penalty since the shareholder cannot be held responsible for the remaining corporate balance after the tax has been paid.

"Any person required to collect, truthfully account for, and pay over any tax imposed by this title who willfully fails to collect such tax, or truthfully account for and pay over such tax, or willfully attempts in any manner to evade or defeat any such tax or the payment thereof, shall, in addition to other penalties provided by law, be liable to a penalty equal to the total amount of the tax evaded, or not collected, or not accounted for and paid over. "

You'll notice that nowhere in the statute does it refer to anything but the amount of actual tax. More to the point, the penalty and interest are imposed on the TAXPAYER not the responsible person(s).

Interesting...I am going to have to send a couple of people to a tax attorney...because the IRS is certainly trying to collect interest and penalties from them.

 

[davew128]

Are you sure the persons involved weren't the employer? A non-corporate employer could be on the hook for the debt because its not a corporation. In a situation where the employer is a corporation (or presumably an LLC as well), the responsible person was held accountable for the unpaid tax. Anything that person pays is a direct reduction of what the corporation owes, which if paid in full will still owe penalty and late payment penalty on the original trust fund tax.