All businesses are required to pay federal taxes. These taxes are collected by the Internal Revenue Service and must generally be paid on an annual basis. If a business fails to pay taxes, it may be assessed additional penalties or fees. Even if the business closes, the owners of the business may be held liable for these fees and penalties in certain cases, as well as back taxes.
Fees and Penalties
Businesses, like individuals, must file federal taxes once per year. The IRS will then review these returns and determine whether the business has paid the right amount of taxes. If the business has not, the IRS may assess interest on the amount of money that the business still owes. In addition, the IRS may charge the business a flat fee as an additional penalty. The business is as legally obligated to pay these fees as it is the original tax burden.
If a business closes, this does not mean that the business is not required to pay back taxes or the attendant penalties. Even if the business declares bankruptcy, the tax burden will likely not be dismissed. While many private debts are dismissed in bankruptcy, taxes owed to the IRS are not one of them. If the business mere decides to close, the debt will not go away either.
The IRS has a legal right to collect taxes on businesses, even if the business has gone bankrupt. However, exactly who will be required to pay these taxes will depend on the legal structure of the business. For example, if a company is structured as an LLC, or limited liability corporation, shareholders in the company will not be responsible for paying back taxes. However, sole proprietors and partnerships will.
The only way that a business required to pay penalties could get out of it would be to reach a settlement with the IRS. Under a settlement, the business would not be required to pay the full amount that it owed. The exact circumstances under which an IRS will agree to a settlement are unclear -- the IRS chooses not to publish them, so as not to compromise its ability to collect taxes -- but the agency has been known to accept partial payment.
- "J.K. Lasser's Small Business Taxes 2011"; Barbara Weltman; 2010
Michael Wolfe has been writing and editing since 2005, with a background including both business and creative writing. He has worked as a reporter for a community newspaper in New York City and a federal policy newsletter in Washington, D.C. Wolfe holds a B.A. in art history and is a resident of Brooklyn, N.Y.