Can the IRS collect on a closed LLC?

[David Becker]

Jurisdiction

Texas

I have an entity that was shut down in 2018, that was opened in 2015. Employee/bookkeeper prepared but didn't seem to file the taxes (including 940,941, and the end of year 1065. When I sold franchises I sold computers that held everything on them. Previous owners said they no longer have that data on the computer and the IRS is saying I owe them for these years plus interest. Without a legal active entity any longer in place what legal action can I or the IRS take to claim these taxes?

 

[army judge]

Without a legal active entity any longer in place what legal action can I or the IRS take to claim these taxes?

Straight outta the horse's mouth:


5.1.21 Collecting from Limited Liability Companies | Internal Revenue Service

Then there's this view:

When You Might Be Personally Liable for LLC or Corporate Debt

https://www.avvo.com/legal-answers/personal-liability-for-llc-tax-debts-355699.html

Can a Member of an LLC Be Held Responsible for Its Debts?

Tax Levies and LLC's - Can the IRS Reach an LLC's Assets?

Uncle Sammy gonna try to get that money!!!

 

[adjusterjack]

what legal action can I or the IRS take to claim these taxes?

They can hold you upside down by the ankles and shake you until money pours out of your orifices. At least it will feel like that's what's happening.

 

[Tax Counsel]

Without a legal active entity any longer in place what legal action can I or the IRS take to claim these taxes?

If you were supposed to file a Form 1065 then that indicates that your LLC was classified as a partnership and thus you must have had at least one other partner in this business. The Form 1065 is not a tax return. It is an information return that reports to the IRS the income/loss of the partnership and each partner's allocated share of that income/loss. The income or loss of the partnership flows through to the partners, and gets reported on the income tax return of the partners. So to the extent that you did not report income from the partnership on your individual income tax return the IRS can come after you individually for the tax you owe on that income, assuming that the statute of limitations for assessment has not yet expired for that tax year.

There is a late filing penalty for failing to file the Form 1065. That penalty is imposed on the partnership. So if the LLC is defunct/dissolved and has no assets there is nothing to collect on that unless the partners got assets of the partnership when it went out of business. If they did, then the IRS could pursue a transferee assessment against the partners to pursue collecting the penalty if it chooses. It's the same situation for the federal unemployment tax act (FUTA) tax (and related interest and penalties) that the partnership reports on Form 940. It's a liability of the LLC, but the IRS could go after a transferee assessment if the facts support it.

The federal employment taxes reported on Form 941 are a special case. Those taxes are made of up two distinct parts: (1) the federal income tax and the Social Security and Medicare (FICA) taxes that are withheld from the employee's pay and (2) the employer's matching share of FICA. The 941 taxes, penalties, and interest are of course liabilities of the LLC. And for the employer's matching share of FICA, and interest and penalties owed, the answer is again that the partnership is liable for that and that the partners could be pursued for transferee assessments given the right facts. But the withheld taxes are what make these taxes special. The IRS may assess those taxes against all "responsible persons" of the partnership, which may include not just partners but other persons responsible for handling the 941 taxes in the business, including bookkeepers, etc. This is done by assessing against the responsible persons what is known as a trust fund recovery penalty under Internal Revenue Code (IRC) § 6672. Note that withheld taxes (and thus the IRC § 6672 penalty) are NOT eligible for discharge in bankruptcy.

So you will need to address these problems and I would suggest you consult a tax professional (enrolled agent (EA), certified public accountant (CPA) or tax attorney) for assistance.

 

[Tax Counsel]

They can hold you upside down by the ankles and shake you until money pours out of your orifices. At least it will feel like that's what's happening.

No, they can't. Though it benefits the IRS for people to think that's what will happen. The reality is quite different. While the IRS certainly has a great deal more ability to collect debts than private creditors do, there are also significant limitations on what it can do. I know that better than most as I used to be a revenue officer for the IRS and thus collected delinquent taxes.

 

[adjusterjack]

I used to be a revenue officer for the IRS and thus collected delinquent taxes.

Did you hold one ankle or both.

 

[David Becker]

Thank you