Tax Debt, Corporations and the IRS

This article on corporations and the IRS will describe how to use a corporation to keep the great collector at bay while you organize your finances and documents.  You must be ready to deal with the IRS so that you have every advantage possible when you go to battle.

When I talk about tax debt, corporations and the IRS, I mean that a corporation can buy you some time to get your affairs in order.  For example, you might want to pay certain bills, like credit cards, increase certain expenses, such as your automobile, and reduce others, like your rent.  All of this takes time and the IRS automated collection system will be all over your personal accounts.

Therefore, you should form a corporation or Limited Liability Company (LLC), open an account under that entity, and hold your cash in that account.  This will keep the automated collection system from levying the account and you can transfer money from your company account to your personal account to pay personal bills.

This goes double for those of you operating a business without an entity (reporting it on Schedule C of Form 1040).  You should incorporate immediately to protect your cash and assets from the IRS.

Note that I am talking about personal tax debt, corporations and the IRS.  I am not suggesting a corporation will allow you to hide money from the IRS when you complete your financial statement and begin to negotiate an installment agreement.  I am saying the corporation will keep the IRS out of your pocket for a few months while you get your finances in order.  If you are running a business, you will probably have more time, but both personal and corporate accounts must be reported to the IRS on your 433-A.

Once a revenue officer is assigned to your case, which is to say a person is coming after your assets rather than the automated system, then the corporation is of limited benefit.  If you are not running a legitimate business, the revenue officer will attempt to disregard the company – to pierce the corporate veil and thereby gain access to your accounts.  Basically, he needs to prove you are paying personal expenses from the company bank account, and then he can go after the corporate assets.

The reason this works with the automated system is that the computer simply sends a notice to the bank demanding any accounts under your Social Security Number, which means all personal accounts.  It takes an aggressive collector to figure out that you are using a corporation and file the forms necessary to get through the structure.

I hope this article on tax debt, corporations and the IRS has been helpful.  Please remember that we are considering a temporary remedy here and not a long term solution to your tax debt.