Can a Company's Tax Debt Be Personally Assessed After Bankruptcy?
Small business owners face higher overall liabilities than individuals when confronted with bankruptcy, and this extends to tax debt as well. In a 2008 study by the Small Business Administration, individual debtors owed an average tax debt of $11,000 when filing for bankruptcy, while small business owners average over $120,000 in tax debt. The IRS will be interested in collecting tax debts directly from the owner after bankruptcy, if possible.
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The Automatic Stay
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When an individual or a business files for bankruptcy, the court issues an order prohibiting collections activity called an automatic stay against collections. This is to allow the debtor and the court a chance to work out the affairs of the bankruptcy estate. This automatic stay also applies to the IRS concerning tax debt, but it does have more powers. The IRS can conduct an audit, or demand tax returns from the debtor, as well as issue a notice of deficiency and demand the taxes due from the debtor in spite of the stay.
Payroll Taxes
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The IRS treats payroll taxes withheld by an employer differently from other tax debt. While other forms of business tax debt can be collected from a business owner in bankruptcy, payroll tax debt is more aggressively pursued. The IRS can confiscate the personal property of a business owner to satisfy payroll tax liabilities. In addition, failure to send in payroll taxes on a timely basis may carry criminal consequences.
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Dischargeable Tax Debt
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Some types of tax debt are dischargeable in bankruptcy. The tax return for the year income taxes are due must not be fraudulent, and the returns must have been due at least three years prior to the bankruptcy. You must have filed the tax return at a least two years before bankruptcy, and the tax must have been assessed at least 240 days before filing, or not assessed at the time of bankruptcy. Dischargeable tax debt can be eliminated by the bankruptcy court, with the business owner no longer held liable.
Non-Dischargeable Tax Debt
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If the tax debt does not meet the guidelines for discharge, it will survive the bankruptcy, and the IRS may attempt to collect it from the business owner. With a corporation, the IRS may seek to collect the debt from the corporate officers. Methods of collection include attachment of property and bank accounts, and garnishment of income.
Tax Liens
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A tax lien placed by the IRS before bankruptcy will survive the bankruptcy, and can not be discharged or removed through the bankruptcy process. This is also true with liens that the IRS may have placed against a business owner's personal property to secure collection of debt.
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