Federal Tax Liens Threaten Recovery

The view of many is that the Internal Revenue Service, one of the United States’ largest federal agencies, appears to be doing its best to undermine the recovery of today’s staggering economy. There has been an alarming increase in the number of federal tax liens filed against delinquent companies and individual taxpayers in recent years, and the liens are often lodged against those companies that are in the most precarious financial situations.


Recent figures indicate that the number of federal tax liens filed by the IRS has increased by 250% over the last seven years while, at the same time, the number of tax liens removed by the IRS has remained stagnant. This trend is likely to continue, which does not bode well for companies in trouble. It is even worse news for the private companies, considered the engine of the U.S. economy.


The Perils of Tax Dilemmas

Companies with large payrolls and tight cash flows can find themselves falling into severe tax trouble quite easily in today’s economy. Companies typically deposit huge sums into the U.S. Treasury for their employment taxes, as well as the money they are withholding on behalf of their employees.


Often, to maintain a handle on their cash, companies will hold off depositing funds with the IRS, with an eye toward catching up at some future point. It’s similar to having access to a loan with a 100-percent approval rate, but the eventual interest rates and penalties the IRS charges can be worse than those imposed by a loan shark.


Indeed, this kind of thinking can lead to more problems. Once the company skips the first payroll tax deposit, it becomes easier for company finance officers to skip another, and liabilities begin to mount. Then, in just a few months the IRS begins to levy, and the money levied is applied to the old liabilities. There is nothing to pay current liabilities, and the IRS will not stop levying until the employer starts making current deposits.


Eventually, the company runs up a huge bill and the IRS moves to padlock the company’s doors, seize the assets, take pennies on the dollars for these assets and apply them to the oldest assessment.


But the IRS is not done. For whatever remaining payroll taxes the employer did not deposit on behalf of the employee, the IRS will take that business obligation and make it into a personal obligation. This is done through what is known as the “trust fund recovery penalty.” After that, the IRS will look for ways to make all officers of the company or anyone who was responsible for the decision forego deposits liable for the unpaid amount.


Recourse for Companies

In the past, small business owners, the self-employed and independent contractors with similar cashflow issues had alternatives — borrowing against equity is one such alternative action. But this economic environment is far less accommodating. With real estate values still plummeting, traditional banks continuing to be averse to lending and the hard money lenders remaining scarce, leaving these small businesses with tax liabilities they cannot afford to pay. For companies in this situation, even the factoring of their accounts receivable isn’t an alternative because once the IRS files a tax lien, factoring then becomes impossible.


The consequences of a tax lien go far beyond the payment of outstanding taxes. Whether or not the lien is justified, the damage done to the business can be irreparable. A business may be given the opportunity to challenge the lien. But, as a practical business consideration, mounting a challenge to a tax lien directive can often be difficult and time-consuming. Moreover, even if the challenge is successful or the company satisfies the tax obligation in full, it is very likely the company will suffer irreparable harm because of the lien’s impact on its business credit rating.


Any business owner who receives a Notice of a Federal Tax Lien is bound to be devastated by the news. But that should not render the company immobile and unable to react quickly. Companies are advised to take action as soon as possible, as there are solutions available.


If you are experiencing payroll tax issues, or if you have already been levied, contact us. We can help. Call us at 888-727-8796 or email info@irsmedic.com.