Tax Liens and What They Mean for a Small Business

Jacob Maslow  |

Small businesses dread receiving a notice from the Internal Revenue Service. A tax lien can be issued to a small business that fails to:

  • Pay their business taxes in full
  • Pay their business taxes on time

The IRS issues 1 million liens annually, and this will have serious consequences for a business.

"Notices of federal tax liens are public documents that inform creditors of the IRS’s priority interest in a business’s property. The IRS can also enforce its lien by auctioning off the business property and other assets," explains Randolph Law Firm, P.C.

When a lien is filed, it means that the government has a lien on the business so that they have first legal action against a business’ property. A lien can result in the following being seized:

  • Equipment
  • Inventory
  • Property
  • Intellectual properties
  • Trademarks
  • Copyrights

Sole proprietorships can also have a lien placed on the owner’s personal assets. Homes, cars, investments and other assets can have a lien placed against them by the government.

Notice and Demand of Payment

The IRS doesn’t want to spend resources putting a lien on your small business, but they will assess a lien if you continue to avoid your tax responsibilities. A Notice and Demand for Payment will be sent to the business.

When this notice is received, this means that the business has 10 days to pay the debt in full.

Making matters worse, penalties, interest and any fees will also need to be paid. Tax liens require a court judgement before a seizure, so a business has time to rectify the issue.

If a business cannot pay taxes in full, it’s worth entering into a payment plan with the government. The IRS wants their money, and they will do all that they can, including working with a business, to ensure that they receive all of the money that is owed to them.

Installment payments may be able to be made, or the government may also consider settling the tax debt for a lot less than what is owed to them.

If revenue dropped or the business was forced to close, the government may settle the debt for less.

The IRS does offer a short-term extension on the time you have to pay, and this is often the best option for a small business. It's better to pay some, or pay slowly over time, than to not pay at all. Taxpayers can request a 120-day extension to pay their tax in full, and this may be enough time to pay off the tax debt.

DISCLOSURE: The author has no stake in the listed equities


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