Owing the IRS can keep any business owner up at night. This page answers the questions owners ask most about IRS business tax debt relief, from how settlements are priced to what the IRS can and cannot take. Each answer is short, direct, and reviewed by our tax team.
For a full overview of your options, see our business tax debt relief guide or read how to choose the right IRS fix.
Business Tax Debt Forgiveness and Settlement
Does the IRS forgive business tax debt?
The IRS does not simply forgive business tax debt, but it can reduce or settle it. An offer in compromise can settle the debt for less than the full balance, penalty relief can remove added charges, and a balance left when the 10-year collection period ends is generally no longer collectible.
Each path has strict rules, so a full review of your IRS account comes first. Learn how the offer in compromise program works.
Is there an IRS Fresh Start program for businesses?
Fresh Start is not a separate application. It is the name for changes the IRS began in 2011 that made payment plans, offers in compromise, and lien relief easier to get. Businesses resolve their debt through those same programs rather than a special business version.
Read more in our article on the Offer in Compromise and Fresh Start Program.
What percentage will the IRS accept in a business offer in compromise?
There is no set percentage. The IRS accepts an offer that equals or exceeds its reasonable collection potential, which is the equity in your assets plus a set number of months of future disposable income. Some offers settle for a small fraction of the debt, while others come close to the full balance.
- Lump-sum offer: about 12 months of future disposable income, paid within five months.
- Periodic offer: about 24 months of future disposable income, paid within 24 months.
For sole proprietors and owners, the IRS limits allowable living expenses using its Collection Financial Standards.
How long does the IRS take to decide on a business offer in compromise?
Most offers take several months to a year or more. If the IRS does not decide within 24 months of receiving your offer, the law treats it as accepted. Incomplete applications and missing financial documents are the most common reasons for delays.
If an IRS problem is causing serious hardship and normal channels are not working, the independent Taxpayer Advocate Service may be able to help.
Do you pay taxes on business tax debt the IRS forgives?
Generally, no. When the IRS accepts an offer in compromise, the tax it agrees not to collect is not treated as taxable income, and no Form 1099-C is issued for it. That is different from forgiven loans or credit card debt, which can create taxable income.
Payment Plans and Stopping Collection
Does applying for a payment plan or offer stop IRS collection on my business?
Usually, yes. The IRS generally cannot levy your bank accounts or receivables while a payment plan request or offer in compromise is pending, for 30 days after a rejection, or while a timely appeal is underway. Liens can still be filed, and penalties and interest keep growing.
The request must be complete and made in good faith. See how to set up an IRS installment agreement.
Can a business have more than one IRS payment plan?
No. The IRS generally allows one installment agreement per taxpayer, so all of a business’s tax periods go into a single plan. The business and its owner are separate taxpayers, though, so an owner with personal tax debt or a Trust Fund Recovery Penalty may need a separate plan.
New balances that appear after a plan starts can cause a default. Learn more about payroll tax debt relief for owners.
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Does interest keep growing on a business payment plan?
Yes. Interest keeps accruing on the unpaid balance until it is paid in full, and the late payment penalty generally continues too. Individuals who filed on time can get a reduced late payment penalty during a plan, but business entities usually do not, so paying the balance down faster saves money.
Liens, Levies, and Your Business Assets
What is the difference between an IRS tax lien and a levy on a business?
A lien is a legal claim against your business property that protects the government’s interest. A levy is the actual seizure of property, such as money in a bank account, payments from customers, or equipment. In short, a lien claims the asset and a levy takes it.
Learn about federal tax lien help and how IRS collections defense can stop a levy.
Can the IRS take my house for my business’s tax debt?
It can, but it is rare. The IRS can only seize a home if you are personally liable, such as a sole proprietor or an owner assessed the Trust Fund Recovery Penalty, and it must first get approval from a federal judge. A federal tax lien, however, can attach to your home much sooner.
Can the IRS take money from my merchant account or credit card processor?
Yes. The IRS can levy money your business is owed, including payments held by credit card processors, payment apps, and customers. Processors report your sales to the IRS on Form 1099-K, so revenue officers know where to look, and a levy can cut off daily cash flow quickly.
See how our bank levy attorney help works to release funds.
Can the IRS revoke my business license?
No, the IRS itself cannot revoke a business license. State and local agencies can, and many states suspend seller’s permits, professional licenses, or a corporation’s good standing over unpaid state taxes. Anyone claiming to be the IRS who threatens to pull your license is likely a scammer.
The IRS explains this in its guide on how to know it is really the IRS. For state issues, see our IRS and state tax relief services.
Credit, Deductions, and Refunds
Does business tax debt affect my personal credit score?
Usually not directly. The IRS does not report balances to credit bureaus, and the three major consumer credit bureaus stopped including tax liens on credit reports in 2018. A recorded federal tax lien is still public, though, so lenders, landlords, and business credit agencies can find it.
Can I deduct IRS penalties and interest on my business taxes?
IRS penalties are never deductible. Interest is different: a C corporation can generally deduct interest on its tax debt, but individuals, including sole proprietors, cannot deduct interest on personal income tax, even when the tax came from business income.
Interest on other business taxes, such as payroll taxes, may be deductible. Ask your tax professional how the rules apply to your entity.
Can my business get a tax refund while it owes the IRS?
Generally, no. The IRS applies refunds and overpayments to your unpaid federal tax first, including balances from other tax periods. If you are personally liable for the debt, your personal refund can be taken too. With an accepted offer in compromise, the IRS keeps refunds through the year the offer is accepted.
Starting Over and Staying Compliant
Can I start a new business if my old business owes the IRS?
Yes, but a new business does not erase the old debt. Personal liability, such as a Trust Fund Recovery Penalty, stays with you. If the new company is really the old one under a new name, with the same owners, assets, and customers, the IRS may pursue it as a successor or alter ego.
The new business must stay current on every deposit from day one. Explore our small business tax relief services.
What happens when an IRS revenue officer comes to my business?
A revenue officer may visit your business, sometimes unannounced, to collect overdue taxes or missing returns. They must show two forms of official ID and will usually ask for financial details on Form 433-B. You have the right to consult a representative before answering detailed questions.
Real IRS employees never demand payment by gift card or wire transfer. Payments always go to the United States Treasury.
How far back can the IRS go for unfiled business tax returns?
There is no time limit for the IRS to assess tax on a return that was never filed. In practice, the IRS usually asks for the last six years of returns to bring a business into compliance, though it can ask for more in serious cases. Missing returns must be filed before most relief is approved.
Get help with unfiled tax returns.
Speak With a Tax Relief Professional
Every business tax case is different, and the right answer depends on your IRS records. Our tax attorneys, CPAs, and enrolled agents will review your account, explain your options in plain language, and help protect your business from collection.
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Call now: 800-676-6014 for a free, confidential consultation.
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About Republic Tax Relief
Republic Tax Relief has helped individuals and businesses resolve IRS and state tax problems since 2005. Our in-house team of tax attorneys, CPAs, and enrolled agents has resolved more than 18,000 cases and settled over $220 million in tax debt. Call 800-676-6014 or contact us online for a free, confidential consultation.
Sources
- Internal Revenue Service. Collection Financial Standards.
- Internal Revenue Service. How to Know It’s Really the IRS Calling or Knocking on Your Door.
- Taxpayer Advocate Service. Taxpayer Advocate Service.
This page provides general information and is not legal or tax advice. Tax laws and IRS procedures change, and every case is different. Speak with a qualified tax professional about your situation. Results vary.