Business Tax Debt: Like Individual Tax Debt But With Much Sharper Edges
Tax debt is a nightmare for individuals. If you miss a filing or owe a large bill, the IRS will soon be pursuing you.
It's the same for businesses but more complex. On top of income taxes, payroll taxes can also become a problem—meaning they’re responsible not just for business income but also for income withheld from their employees’ paychecks, which then can become personal.
Like individuals, businesses' tax debt comes with many of the same issues and resolutions, including statutes of limitation, compliance rules, and resolutions like installment agreements and currently not collectible.
Debt from business payroll taxes can spill directly into owners’ personal finances, pull customers into the fight, and drag in employees.
For professionals—CPAs, bankruptcy attorneys, financial advisors, and more—understanding these parallels and differences matters. The wrong assumption can sink a deal or blow up a client relationship.
Why It Matters
When an individual client falls behind on taxes, the ripple effect doesn’t stay contained. It shows up in loan approvals, property transfers, bankruptcy cases, and even divorce settlements.
But business tax debt has an added layer: reputational damage, payroll trust fund penalties, and customers themselves being notified. These unique twists make it especially dangerous if you don’t spot them early.
So let's break down five things every professional should know about IRS business tax debt—and how they compare with the rules for individuals.
1. The 10-Year Clock Ticks for Both Individuals and Businesses
The 10 year statute of limitations applies to both individuals and businesses. A decade after the tax is assessed, it drops off.
Don't count on that happening, though. That 10 years will be filled with the IRS levying business bank accounts and even garnishing payments from clients. Also, remember, like individual tax debts, there are tolling events (like bankruptcies or OIC submissions) that pause the clock and extend the 10 years.
2. Relief Options Exist for Both—but Businesses Face More Scrutiny
Installment agreements, Offers in Compromise, and “currently not collectible” status apply to both individuals and businesses. That part’s the same.
The difference? The IRS doesn't give businesses as much leeway. Business applications often require more disclosure, stricter scrutiny, and ongoing compliance with payroll and filing obligations. Form 433-B is the business counterpart to the individual 433-A—but expect the IRS to dig deeper. Offer in compromise is even less successful for businesses than for individuals.
3. Six Years of Returns Restores Compliance—Same Policy, Different Stakes
IRS Policy Statement 5-133 applies broadly: whether you’re an individual or a corporation, filing the last six years of delinquent returns typically restores compliance. Meaning if the business hasn't filed in 10 years, only the last six are required to be filed.
Even so, when a Revenue Officer is assigned to the case, that officer has the discretion to go back further. Be prepared.
4. Payroll Taxes: The Big Divergence
A C Corporation can have income tax debt just like individuals, but S Corps, LLCs, and even sole props can have payroll tax debt owing if they pay employees.
And when those withheld taxes aren’t remitted, the IRS treats it as theft.
Through the Trust Fund Recovery Penalty (TFRP), the IRS can personally go after owners, officers, and even bookkeepers. IIt's one of the few areas where business debt morphs into an individual tax problem.
5. Accounts Receivable Levies: A Business-Only Weapon
The IRS may garnish wages from an individual's paychecks. Similarly, with businesses, the IRS will tell customers to send their payments directly to the government.
This can be a huge problem for the business. Cash flow evaporates, and the reputational damage spreads. For individuals, IRS enforcement is more private (although your boss knows); for businesses, it can become very public as your customers now become aware of your financial woes.
TL;DR (Too Long; Didn’t Read)
⏩ The 10-year statute applies to both businesses and individuals.
⏩ Relief options overlap, but businesses face more complex compliance burdens.
⏩ Six years of returns generally restores compliance for both—although a Revenue Officer has discretion.
⏩ Payroll trust fund taxes are unique to businesses and can create personal liability (TFRP).
⏩ Accounts receivable levies let the IRS involve customers, a business-only reputational risk.
➥ Contact Attorney Stephen A. Weisberg for a free Tax Debt Analysis.
Contact Me Here: https://www.weisberg.tax/contact-1
Email: sweisberg@wtaxattorney.com
Phone/Text: (248) 971-0885
Address: 300 Galleria Officentre, Suite 402, Southfield, MI 48034
