IRS Law Blog

You worked your whole life to get to this point, a business that belongs to you, making your own decisions, working your trade and sharing expertise.

But then things suddenly got a little out of control, and you got behind paying the IRS.

Maybe it started with one bad year, and you thought you could get a handle on it and get caught up soon.  But tomorrow never came, and the damage continued to snowball year after year.

Now the IRS is owed more than you can ever pay.

And you fear losing your business and all that you worked for, and having nothing for retirement.

Fear not, it does not have to be as bad as you think.

To begin with, the IRS rarely shuts down a business.  It is just bad policy – they do not want to be responsible for putting taxpayers and their employees out of work.

Closing your business is an extreme measure, and the IRS usually needs extreme reasons to do so.

To lower the risk of the IRS from shutting you down, start by taking the following steps:

1.    Get into compliance with the IRS.  If you have unfiled tax returns, get them in, promptly.  And no more money owed to the IRS going forward – all current and future taxes must be paid on time.

2.    Stop pyramiding unpaid taxes.  What’s in the past is done, but the IRS takes a failure to stop the failure to pay them very seriously.  They call this “pyramiding” – every year, you owe them again and again, piling it on.  The IRS does not like the piling on – it smells of bad faith to them.

If you continue to owe them, the likelihood increases that they will take matters into their own hands and shut you down.  The shut down is to do what you did not do on your own:  stop the bleeding.  In many cases, not paying future taxes is the top reason for any IRS aggression against you.  This is a no tolerance rule.

3.    Adhere to all IRS collection deadlines.  If the IRS has assigned a Revenue Officer to your case or has you in its Automated Collection Service, meet all deadlines given to you.

The Revenue Officer’s job is to secure any unfiled tax returns, ensure that you do not pyramid taxes, and determine how the taxes can be repaid.  The Revenue Officer has many case files to work, and a manager that requires continued updates on the status of her files.

The Revenue Officer will give us deadlines, usually using Form 9297, Summary of Taxpayer Contact, to provide any unfiled returns and a financial statement (IRS Form 433A) to negotiate repayment options.  Meet these deadlines – do not make the Revenue Officer’s job harder or give her an excuse to discuss you with her manager.

Lack of cooperation incites the bear in the IRS; saying nice bear is better.

4.   Negotiate case resolution.  Now that you have filed all past due returns, are paying your taxes on time, and have provided a financial statement to the IRS, it is time to negotiate resolution.  To be clear, resolution equals IRS case closure.  Resolution can be a payment plan, offer in compromise, or currently uncollectible (yes, the IRS can close your case without you making any payments if you cannot afford it).

While we are negotiating case resolution with the IRS, we know the following about the IRS process of seizing your business:

• By law, the IRS could be prevented from seizing your business assets. Internal Revenue Code 6334 currently protects up to $4,560 of your business assets from the IRS.  If you have simple office furnishing or tools and equipment with minimal value, it is likely the IRS cannot take it even if they wanted to.

• The IRS can only seize your business property that has equity.  Do you have heavy equipment, or real estate, with a bank loan?  Is the loan approximately equal to the value of the asset?  If so, the IRS cannot seize it from you. There has to be a net recovery to the IRS; they cannot seize property if they don’t get paid.

• Unless you give them permission, the IRS cannot enter you facilities without a court-ordered warrant to take your business assets.  The IRS agent is not going to just show up without doing a substantial amount of homework to refer the case to IRS attorneys for the approval to enter and seize.  It is a violation of the Fourth Amendment for the IRS to enter the private areas of your residence or business without permission or a warrant. G.M. Leasing Corp. vs. United States, 429 U.S. 338 (1977).

• Internal Revenue Code 6331(j) requires the IRS to consider alternative collection methods before seizing your property.  This means they have to fully analyze better options than seizure first – including offers of payment plans or an offer in compromise.  Clearly, if the IRS is threatening to shut you down, we want to formulate a better plan, which they are required by law to consider.

It is a good deal of work for an IRS collection agent to conduct a seizure – gathering the facts, the case write-up, managerial approval, referral out to an IRS Property Liquidation Specialist. The IRS agent will do this work if you give her the reasons to do so. After all, it’s her job.

We want to take the reasons for the seizure off the table, all the while knowing the rules of engagement and what the IRS can and cannot do.  Any IRS threat of shutting you down needs to be taken seriously.  But at the same time, it is important to understand not only the reasons why the IRS is in an aggressive posture, but how to relax that standing to get to firmer ground.