What do I do about IRS collections for a closed business?
Sometimes, a business may be in debt to the IRS with employment taxes and will therefore be subject to IRS collections even if that business has closed down. The worry for those previously involved in the business is that they could be held personally responsible, and IRS collections could therefore be directed towards them.
If a business is closed, the IRS likely will not be overly interested in it. In most cases, the taxes owed by the business will have been deemed as not collectible, so long as the business closed in the normal way and no suspicious activity had taken place. Any notices you receive about IRS collections are most likely automated, since these are simply sent out when taxes are owed, regardless.
If there was a decision to not pay the IRS for employment taxes, it is possible that they will demand payment. If you have been deemed as one of the people who decided to not pay the tax, the IRS will likely issue you a trust fund recovery penalty. This will be given to the business too, but of course, it is most likely that it cannot collect anything from the business – so it will have to come from those personally involved and held liable for the withheld payments.
The important thing to know about this is that if one person pays off the full debt, no one else will have to pay anything. You should note however that the IRS manages to collect very little from its trust fund penalties. In fact, from 2002 until 2007, it only collected 13.5% of the value of trust fund penalties, which is a figure that might be able to ease your worry slightly if you find yourself in this situation.
