Filing your taxes is never easy, and when you are preparing them for an LLC, the complexity can go up a great deal. You may have certain questions come taxes, with one of them likely being: Can the IRS come after an LLC for personal taxes?
Thankfully, The IRS cannot levy your corporation or LLC for your individual taxes. That is because, with your social security number, you are an entity separate from your corporation or LLC, which has its own federal identification number and is a separate entity.
Are there Businesses that the IRS Can Come After Personally?
Depending on how a business is structured and the type of offense, the IRS can come after the business personally for corporate income tax, sale and use taxes and employee income tax withholdings.
Another situation where the IRS can come after a business personally is when the business is not properly registered as an LLC or another type of corporation. In this case, the IRS may treat the business as if it is a sole proprietorship. Then, the owner will be personally responsible for any taxes that are owed.
One common reason that a business may not have been properly registered as an LLC or other type of corporation is due to a lack of knowledge on behalf of the owner.
It’s understandable if you didn’t know about these rules, so this mistake is usually not punishable by the IRS. However, if you received any sort of warning or letter from the IRS about your business filing status and did nothing to update it, then it can result in penalties.
Sole Proprietorships and Partnerships
What follows is how these tax laws and exceptions apply to sole proprietorship and partnership business structures.
Many small businesses are sole proprietorships, and the same tax bracket is used to file income taxes that an individual uses. In other words, the Internal Revenue Service views this type of business and the individual as the same.
Therefore, you are solely liable for any debts taken on by the sole proprietorship. As such, the IRS can come after you personally for any back taxes owed. Then, it will be your responsibility to pay them and any penalties and interest owed.
A general partnership is when two or more people own a business together. In ways of taxation, they are like a sole proprietorship. The partners are taxed on their income that comes in from the business, and each of them shares an equal, personal responsibility for any tax debts the company incurs.
In the same way that the IRS can come after sole proprietorship, they can come after the partners in the partnership for any back taxes that are owed, as well as penalties and interest.
In a limited partnership, the general partner is the one who assumes all the risk. The limited partners have limited control over the business and do not assume any risk.
That means their liability is usually quite minimal. However, the same rules apply as with a sole proprietorship or general partnership when it comes to taxation and money owed to the IRS.
After partnerships and sole proprietorships come corporations. And when a corporation is formed, it separates the individual from the business, meaning the corporation is liable for unpaid taxes. Therefore, creditors can only come after corporate assets. There are three different structures of corporations, and the IRS treats them all a little differently when it comes to tax liability.
C Corporations are liable for unpaid taxes and can be held responsible if a creditor needs payment from the business. However, personal assets are protected.
Also, the double taxation rule applies to C Corporations, meaning the business’s income is taxed after deducting operating costs and the cost of goods sold. What’s left after that is divided among shareholders and taxed as individual income.
A C corporation is very similar to an S corporation, but there is no double taxation with this business structure. Income is only taxed one time at the shareholder level, and shareholders are limited to how much income they can take from the company.
Limited Liability Companies (LLCs)
Finally, we have LLCs. These offer limited liability for the owners of the business and are a popular choice among small businesses.
The taxes for a limited liability company are filed in a similar way to sole proprietorships and partnerships while still offering protection to the owner’s personal assets.
While an LLC does protect an owner from the IRS for coming after your personal assets, you can be held personally responsible for failing to deposit taxes from an employee’s wage.
So, can the IRS come after an LLC for personal taxes? In most cases, the answer is no. However, there are some situations in which they may be able to do so.
It’s important to make sure that your business is registered as the correct type of entity and to stay on top of any corporate taxes that are owed.
Can the IRS Seize Personal Assets?
Yes, and the most common seizure that the IRS employs is a levy. A levy is when the IRS takes assets such as money in a bank account, wages, or property to satisfy a tax debt.
The IRS can also place a lien on an individual’s property which will make it difficult to sell or refinance until the taxes are paid. If you’re facing collection action from the IRS, it’s important to seek professional help.
Is it Against the Law for the IRS to Levy an LLC for Personal Taxes?
In most cases, the IRS cannot levy the LLC’s receivables to collect against your personal 1040 income tax liability. However, the IRS CAN legally seize your single-member LLC property to satisfy taxes if you have not filed IRS Form 8832 and have failed to respond to the IRS notice of overdue tax debt.
If you have taken care of Form 8832 and have not failed to respond to the IRS notice of tax debt, they cannot legally levy your corporation or LLC for your individual taxes. Unfortunately, due to the billions of dollars in back business taxes owed to the IRS, they still try to do it sometimes.
Some Revenue Officers, particularly in Las Vegas, will break the law and levy corporate bank accounts or accounts receivable for the owner’s personal taxes regardless. The banks usually will not pay such levies. On the other hand, accounts receivables will sometimes pay such levies out of fear of trouble with the IRS.
Small business owners have no problem suing the bank if they pay such a levy. Bear in mind that you can always get another bank and that you are unequivocally favored to win in a civil court. Suing accounts receivable presents a conflicted choice…you sue them, and you almost certainly lose their business.
What recourse do you have? Internal Revenue Code 6343(b) provides as follows: If the Secretary determines that property has been wrongfully levied, it shall be lawful for the Secretary to return:
- The specific property levied upon,
- An amount of money equal to the amount of money levied upon, or
- An amount of money equal to the amount of money received by the United States from a sale of such property.
Rather than taking legal action against someone that the small business owner or professional would like to continue to do business with, the small business owner can administratively pursue the IRS for the wrongful levy; if the protest is denied, it is appealable. Contact the Tax Crisis Institute if you are in this predicament.
Assets Subject to the IRS Seizure
The following are the types of assets that are subject to seizure by the IRS to satisfy unpaid taxes:
- Real estate.
- Business equipment.
It’s important to remember that these are just a few examples and that each case is different. If you have any questions about what the IRS can seize to collect on your unpaid taxes, then it’s best to talk with a representative from the agency.
Types of Tax Levies
There are two types of tax levies that you need to know about: A salary or wage levy and an asset seizure.
- A salary or wage garnishment is the act of withholding money from your paycheck to satisfy back taxes owed. This can be done either directly by the IRS, through their Levy Program, or indirectly if your employer is notified of the tax levy and decides to withhold a portion from your paycheck.
- An asset seizure, as discussed above, is when an agency seizes assets such as property or other items to satisfy back taxes owed by the individual.
Assets That are Approved for Seizure
The following are examples of assets that the IRS has been able to seize to satisfy back taxes:
- IRS Bank Levy: If you don’t act and make arrangements with the agency regarding your tax debt, then they will issue a bank levy where all funds from your account(s) will be frozen. All outstanding balances owed will be paid with the funds in the account(s).
- Income Tax Levy: The IRS can levy your wages and/or your business income to satisfy unpaid taxes.
- Real Estate: If you own real estate that is not being used for business purposes, the IRS may seize it and sell it to collect on your back taxes.
- Personal Property: The IRS may seize personal property such as vehicles, artwork or jewelry if you own them and they are not being used for business purposes.
How to Avoid Personal Tax Levies
There are a few things that you can do to avoid personal tax levies from the IRS.
- File all your past due returns: If you have not filed a return for several years, then the IRS may come after you for back taxes. It’s important to file as soon as possible and work out a payment plan with the agency.
- File for an Offer in Compromise: If you can’t afford to pay your tax debt, then this may be a viable option that will allow you to settle it for less than what is owed.
- Request Collection Due Process Hearing: Sometimes, individuals are contacted by the IRS without justification or issued with levies that are in error. If this is the case, you can request a Collection Due Process hearing to dispute the levy.
- Set Up an installment agreement: This will allow you to pay your tax debt off over time instead of all at once.
If you are facing personal tax levies from the IRS, it’s important to act immediately and speak with a representative from the agency. They will be able to help you understand your options and work out a payment plan that is suitable for your situation.
How Can I Protect My Assets?
If you’re worried about the IRS coming after your assets, there are a few things that you can do to protect them.
- Create an LLC: This will help to protect your personal property and business equipment from being seized by the IRS.
- Set Up a Trust: A trust is another way to protect your assets from being seized by the IRS. The trust will own the assets, and you (the beneficiary) will be able to use them.
- Transfer Your Assets: You can transfer your assets into a trust, and then, once it’s approved by the IRS, you (the beneficiary) will be allowed to access them without any issues.
You Can Also File for an Abatement
If you believe that the IRS has issued a levy in error, you can file for an abatement. This is a request to have the levy removed and will require some documentation to support your claim.
What Happens to Assets that the IRS May Seize?
Once the IRS seizes assets that you own, they will be held in storage until your tax debt is paid off. If you do not settle your outstanding balance within 120 days of having items seized, then these assets may end up being sold at an auction or by a third party to pay off what’s owed.
What Assets Will the IRS Not Seize?
The following assets are not subject to seizure by the IRS:
- Schoolbooks and clothing.
- Work tools that are valued at $3,520 or less.
- Personal items that aren’t more than $6,250 in value.
- Furniture with a value of $7,720 or less.
- Any asset that doesn’t have an equitable value.
- Your home if you owe less than $5K on it.
What’s the Difference Between a Tax Lien and a Tax Levy?
A tax lien is a public notice that the IRS has filed against you to inform others of your outstanding debt. A tax levy is when the IRS comes after assets to settle what’s owed. This could include bank accounts, cars or anything else that can be sold by auction if necessary. It will remain on your credit report for up to seven years.
Here are some of the most frequently asked questions that people have about the IRS coming after them for personal taxes.
Can the internal revenue service put a lien on my LLC?
The IRS can put a lien on an LLC if the company owes taxes. This will be in addition to any personal tax debt that the owner of the LLC may have. If you’re worried about this happening, there are steps that you can take to protect your assets. Speak with a representative from Tax Crisis Institute for more information.
Who is responsible for taxes on an LLC?
LLC owners are responsible for paying taxes on what they make each year. This will be the responsibility of both the LLC and its owner (if there is one). As an LLC, you’ll want to file your tax return by March 15th to avoid late fees and penalties from the IRS.
Can the internal revenue service go after corporate officers for back taxes?
The IRS can go after corporate officers, but it won’t be for personal tax debt. Instead, the agency will only target you if there are outstanding payroll taxes on behalf of your business and that money is not being paid back to them.
Who is personally liable for corporation tax debts?
If you’re a corporate officer and the business owes taxes, then you could be personally liable for paying back what is owed. You may also have to pay late fees or interest charges on top of this if it’s not paid off in time.
The IRS withdrew cash from my bank account. What now?
If the IRS has taken money from your bank account, you’ll need to take immediate action. This could include filing for an abatement or setting up a payment plan. You can also contact a representative from the Tax Crisis Institute for more information and assistance.
We have representatives available in Southern California and Las Vegas, and we’re happy to answer any questions you may have about the IRS.