Business Owners Beware – The Perils of Not Paying Payroll Taxes!

Business owners who fail to pay payroll taxes beware! Your home may be foreclosed on by the IRS to pay off the employment tax due, even if the home is owned jointly with a non-liable spouse.
In a recent case decided in a United States Court of Appeal for the Sixth Circuit, a Michigan couple found out the hard way. The husband, the business owner, had failed to pay the payroll taxes for his business for 2008 – 2011. The bill grew to over $1 million by 2013. The IRS had tried for quite some time to collect, but without success. Finally, the IRS filed a civil suit against the husband to convert the tax assessment to a judgment. The IRS also sought to enforce its liens through the sale of the jointly owned property with the one-half of the proceeds going to the non-liable wife. The wife objected to only getting one-half. She claimed she should get more because she was younger and healthier than her husband. The Court did not accept this argument, and ordered the sale of the property.

This is a recent demonstration of the fact that the IRS can “take” your house, after jumping through certain administrative hoops.

Does such foreclosure or property seizure happen very often? No, the IRS does not do that very often. The IRS pursues other collection methods much more frequently.

According to a collection activity report from the IRS from October 2015, in Fiscal Year (FY) 2015 the IRS conducted only 426 seizures. It referred a few hundred lien foreclosure suits to the Department of Justice. This is a significant decrease from years past.

But, contrast these numbers to the MUCH more common practice of collecting back taxes through levies (aka, garnishments) of bank accounts, savings accounts, wages, and other sources of income. In FY 2015, the IRS issued 1,464,026 levies, also a decrease from FY 2012 when it issued 2,961,162 levies.

So, although the IRS can take your house if you do not pay your taxes, the probability of that happening is very low.

But, to keep that probability even lower, there is one major thing you can do as a business owner: PAY YOUR PAYROLL TAXES ON TIME. If you cannot or think you cannot pay the payroll tax, then do NOT pay the payroll. If you have to short other suppliers and creditors to pay the payroll tax, that is what you need to do. And, beyond that, you have to do a thorough analysis of the business to make sure it is really viable. Maybe it is time to close it so you do not risk foreclosure on your property, or worse, criminal charges for failure to pay the payroll tax.

If you know someone who is struggling with payroll tax issues, or other tax issues, have them contact the Sodowsky Law Firm, PC at 703.968.8000 to arrange a confidential discussion of the issues.

— Elden Sodowsky