Can The IRS Come After A Business That Is Closed?
Discover if the IRS can pursue a closed business for unpaid taxes. Get a deep dive into legal insights and real-world cases, especially in Utah. Learn more now!
Can The IRS Come After A Business That Is Closed?
Introduction
Running a business is a rewarding yet challenging endeavor. You’re juggling everything from financial management to customer satisfaction, and sometimes, it’s easy to overlook legal implications. One common concern for business owners is the potential repercussions from the IRS, especially when thinking about closing or having already closed their business. So the burning question arises: Can the IRS come after a business that is closed? To dissolve the mystery, this article dives deep into real laws, giving you a full spectrum of knowledge using examples from Utah, its statutes, and real-world applications.
The Legal Landscape in Utah
Corporations and Limited Liability Companies (LLCs)
In Utah, the regulation of businesses such as corporations and LLCs is laid out in the Utah Code Title 16, which deals with corporations, and Title 48, which addresses partnerships and LLCs.
What’s Next for Closed Businesses?
According to the Utah Code 16–10a-1405, corporate dissolution doesn’t absolve you from any debts, taxes, or other liabilities. The IRS can still pursue those claims even after a business has closed. Similar principles apply to LLCs as outlined in Utah Code 48–3a-705.
For example, let’s say you had a thriving bakery in Salt Lake City. Due to various factors, you decided to wind down operations. While you filed the Articles of Dissolution with the Utah Division of Corporations and Commercial Code, the IRS can still pursue outstanding taxes.
Business Succession Planning
While you’re running a business, considering an exit strategy involving proper business succession planning is prudent. Properly planning your exit can help mitigate risk and ensure all legal pitfalls are handled proactively. Business succession law is a specialized area, and Utah attorney Jeremy Eveland is a recognized expert in this field.
IRS and Your Closed Business
Tax Liabilities
Even if your business has been shut down, the IRS can come after you for unpaid taxes, interest, and penalties. The IRS maintains jurisdiction over these issues under federal law. It’s common to assume that dissolving a business puts an end to all legal responsibilities, but this is a dangerous misconception.
Statute of Limitations
The IRS generally has three years to audit your business after you file your return. This period extends to six years if they find substantial underreporting of your income. Remarkably, there’s no statute of limitations if you never filed a return. Therefore, closing your business does not terminate the IRS’s ability to investigate past tax filings.
For example, imagine you had a furniture business in Provo, Utah. You closed it down, but three years later, the IRS can still audit your filed returns for an additional up to seven years under certain circumstances under the 26 U.S. Code § 6501.
Trust Fund Taxes
Businesses often withhold taxes from their employees’ paychecks. These are known as trust fund taxes. Post-closure, you might still be responsible for any unpaid trust fund taxes. The IRS has substantial power to collect these funds, and it can, in some cases, go after your personal assets.
Case Study
Consider a digital marketing agency in Park City that closed its doors last year. The business had employees but failed to remit the full amount of collected payroll taxes. The IRS, discovering these discrepancies, pursued the agency’s dissolved business. The owners, thinking they were in the clear, were in for an unpleasant surprise when the IRS collected the owed amount directly from their personal bank accounts.
Why This Matters for Business Owners
Understanding these nuances is paramount. Ignorance can lead to significant financial and legal consequences. Knowing your liabilities and responsibilities allows you to make informed decisions, safeguarding your financial well-being and that of your family.
Addressing Common Misconceptions
“I Filed Articles of Dissolution, So I’m Free of IRS Pursuits”
This is a widespread belief that is plainly incorrect. By law, the IRS can still come after you for outstanding tax liabilities. The filing of the Articles of Dissolution with the Utah Division of Corporations and Commercial Code does not absolve your federal tax duties.
“Only Large Corporations Need to Worry About This”
While it might seem that the IRS only targets larger companies, small businesses are not immune. Whether you had a mom-and-pop shop in Ogden or a tech startup in Lehi, the IRS will exercise its right to collect unpaid taxes.
Practical Insights and Next Steps
Engage a Business Succession Lawyer
Hiring a lawyer who specializes in business succession law is crucial. Attorney Jeremy Eveland, for example, can offer comprehensive legal advice tailored to your needs.
Conduct a Final Audit
Before concluding operations, consider conducting a final audit of your accounts. This process helps identify any unpaid taxes or other liabilities.
Keep Records
Maintaining proper documentation and records is vital, even after your business closes. Keeping your tax records, employee payroll documents, and business expenses will be essential if the IRS decides to inquire.
Pay Off Outstanding Liabilities
Ensure all potential liabilities, including payroll taxes and sales tax, are paid off before officially closing your business. This will minimize the risk of future IRS pursuits.
Infographic: The Lifecycle of Business Closure and IRS Liabilities
Lifecycle Diagram:
- Initiating Business Closure: File Articles of Dissolution.
- Final Audit: Assess financial records.
- Pay Off Outstanding Debts: Clear all dues.
- Maintenance of Records: Keep detailed records for reference.
- IRS Review Period: IRS has authority to review past filings.
Frequently Asked Questions
What happens if I ignore the IRS’s claims after closing my business?
Ignoring IRS claims can have severe repercussions, including wage garnishments and levies on your personal bank accounts.
Does the type of business entity affect IRS ability to collect?
Different business structures have varying levels of liability protections, but closing the business doesn’t shield owners from personal liability for unpaid taxes.
Is there any way to negotiate with the IRS to reduce my liabilities?
Yes, options such as an Offer in Compromise allow you to settle your tax debt for less than the full amount you owe. Seek legal advice from professionals like Jeremy Eveland.
Conclusion
Closing a business involves much more than merely filing the necessary paperwork with the state. Understanding your ongoing responsibilities with the IRS is essential to avoid potential pitfalls. Given the complexities involved, considering professional guidance from an experienced lawyer can be incredibly advantageous.
Understanding these detailed legal maneuvers will empower you to navigate the waters of business closure responsibly and effectively. Knowledge is power, and with the right advice and actions, you can minimize risks and maximize your peace of mind.
Feel free to clap for this article, leave a comment with your thoughts, and subscribe to our Medium newsletter for more updates!
To speak with a lawyer, call attorney Jeremy Eveland:
Jeremy Eveland
8833 S Redwood Rd
West Jordan, Utah 84088
(801) 613–1472
Jeremy Eveland — Business Succession Lawyer Sandy, Utah
Disclaimer: The information contained in this article is for informational purposes only and is not legal advice. For legal advice, hire a competent lawyer in your jurisdiction.
