Payroll Tax Debt in New York

The Internal Revenue Service (IRS) holds all business owners personally liable for unpaid payroll taxes, no matter the business structure.  This means partners of a limited liability company and corporation shareholders can be personally liable.  Payroll taxes include withheld New York and federal income taxes, Medicare and Social Security taxes.

Bankruptcy does not do much when the majority of business debt is taxes. Filing bankruptcy does not discharge payroll taxes.  Payroll taxes are like other dischargeable debt, including restitution and child support.  The entity may file bankruptcy to free up cash by not paying the debts discharged, but cannot get away with not paying payroll taxes.

Not paying payroll taxes could result in penalties.  If a business owner does nothing, the IRS may take personal assets to satisfy the debt.  To take care of payroll taxes, engage an experienced New York tax attorney, not an accountant, to negotiate a payment plan with the IRS or to make an offer in compromise.

An offer in compromise is proposing a payment to the IRS less than what’s owed.  The IRS unlikely accepts an offer if the IRS believes the liability can be paid in full as a lump sum or through a payment agreement.  The collection potential takes into account the business’ anticipated future income, less certain amounts for expenses.  The IRS evaluates the doubt on collecting by seeing if the taxpayer could ever pay the full amount of tax liability within the remainder of the statutory period for collection.  For example, if a New York taxpayer owes unpaid tax liabilities and agrees the tax owed is correct, and the taxpayer’s monthly income does not meet expenses, the taxpayer does not have the ability to fully pay the liability now or through monthly installment payments.

When filing an offer in compromise, the taxpayer must send a $150 application fee and an offer payment made payable to the United States Treasury.  The Form 656-PPV, Offer in Compromise Payment Voucher, included in the Form 656, should attach to any periodic payment. For offers originally sent to Holtsville, NY, send payments to:  P.O. Box 9011, Holtsville, NY 11742.  The application fee reduces the assessed tax or other amounts due.

IRS Publication 908 – Bankruptcy Tax Guide discusses the tax consequences of bankruptcy. Debtors continue to file appropriate tax forms and deposit payroll taxes withheld for employees.

Consult an experienced New York tax attorney for advice on an offer in compromise to the IRS when behind on tax debt.