Business Tax Liabilities

Business Tax Liabilities

Business tax issues are far more diverse than personal tax issues. Whereas there are certain business taxes that may be dischargeable in bankruptcy, there are also taxes that cannot be discharged. We prefer to identify and address all tax issues at the outset through our pre-filing analysis in order to prevent surprises where possible.  

NON-DISCHARGEABLE BUSINESS TAXES 

Taxes that are collected by a business and held by the business pending payment to the state or federal taxing authorities are commonly referred to as trust fund taxes. Trust fund taxes include employee tax witholdings for income tax, Social Security, and Medicare, and state sales taxes. Failure to pay trust fund taxes when due will result in a substantial penalty to the business, and the obligation to pay the trust fund taxes cannot be discharged in bankruptcy.  

OWNER/MANAGER PERSONAL LIABILITY FOR TRUST FUND TAXES

In the event that the debtor business owes trust fund taxes and cannot pay them, the tax debt (including penalties and interest) can be deemed to be the personal debt of the owner or manager deemed responsible for ensuring that the trust fund taxes be paid.

Once accessed against that individual, the trust fund tax debt cannot be discharged or abated - even by filing a personal bankruptcy. Further, no interest or penalties will be eliminated, regardless of the age of the debt, often leaving the individual with a substantially greater tax debt than the Debtor business ever had. 

The only protection for the owner or manager deemed responsible is a business bankruptcy through which all available assets are directed to paying the taxes first, thereby minimizing the amounts that the owner or manager will be personally responsible for.