Businesses that fall behind with payroll taxes are the number one source of new clients for most tax rep professionals. The first three issues that must be dealt with are:
- Can the business get into and maintain tax compliance?
- Is this business viable in its current form?
- If the business is not viable in its current form, can it be restructured to be a viable ongoing concern?
Tax Compliance
In order for the business to have any chance of surviving the tax debt issue is being able to get back into tax compliance, meaning it is filing and paying the payroll taxes on time. If the business is unable to do this, then it needs to shut down, or the IRS will force the issue by levying the bank accounts and effectively making it impossible to operate. The reason is that, if the business is not in compliance then it simply keeps stealing the government taxes to fund its operations, and the IRS will not allow that to continue.
Assuming the business can get into compliance and remain there, then next issue is whether the business is viable?
Is the Business Viable?
The owner of the business needs to make money. That is the whole point of owning the business. If the business is going to remain in tax compliance can it generate enough money for the owner to make a living? If the answer is yes, then that is great and they should go forward and be profitable. If the answer is no, then the issue is whether this business is worth saving? Can the business be restructured to make it profitable?
Can the Business Be Restructured to Become Viable
I had a painting contractor that had 15 crews, and was running up payroll tax debt. After working with their new accountant we explained to the owner that the amount of overhead to service 15 crews is what was killing him. Bigger is not always better. If he reduced his company to just three crews, he would actually make more money and not have the stress of all the overhead – a payroll person, an HR person, less admin staff, etc.
If the business in its current form is not a viable, going concern, then can we rework the business to make it more profitable? If the answer is yes then that is what needs to be done. If the answer is negative, then its time to close up shop, stop running up tax debt, resolve the outstanding personal tax liability issues, and move on to the next venture.
If you or someone you know has a tax issue and needs help, please feel free to contact me either at egreen@gs-lawfirm.com or at (203) 285-8545.
1 Audubon Street, 3rd Floor
New Haven, CT 06511
(203) 285-8545
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