When In Tax Debt? The Ultimate Guide to Tax Debt Resolution Options

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Tax issues have been the downfall of many otherwise successful enterprises. While dealing with corporate tax debt can be nuanced and complex, it’s an unavoidable part of running a large business.

If your business is dealing with tax debt, consider these impactful tax debt resolution options.

Negotiate a Payment Plan

The IRS is typically open to working with businesses to get a tax debt paid. Programs like the Fresh Start Initiative are designed to help individuals and businesses struggling to pay their taxes due to financial hardship. However, strict eligibility restrictions apply. 

Corporations can negotiate a payment plan with the IRS by contacting the agency and submitting a request for a payment plan. The IRS has several payment plans available, including short-term and long-term options. 

To request a payment plan, the business must provide financial information, such as income, expenses, and assets. These details will help the IRS determine the amount the business entity can afford to pay each month. The business must also provide a reason for its inability to fully pay the tax debt.

Once a payment plan is approved, the business must make timely payments and meet the agreement terms. If the corporation fails to make timely payments, the IRS may terminate the payment plan and pursue other collection actions, such as levying bank accounts. 

Explore Outside Funding

Business enterprises can use outside funding, such as loans or investments, to help pay off a tax debt. There are several sources of outside funding available to businesses, including banks and angel investors.

Angel investors provide funding to start-ups or small businesses in exchange for equity or ownership stakes. By working with an angel investor, a business may be able to secure the funding it needs to pay off tax debt and improve its financial position.

Depending on the situation, banks and other lenders may offer a line of credit or financing solution to pay off the IRS or consolidate debt. While this approach may help deal with the tax situation, it does require taking on another form of debt in the interim.

Audit and Streamline Operations to Cut Costs

Corporations can free up cash flow to pay down existing tax debt by auditing and streamlining operations to cut costs. Variable expenses tend to be the starting point for exploring cost savings solutions. However, productivity and efficiency often eat up a lot of valuable resources.

Start by reviewing processes to identify any steps that are unnecessary or duplicative. By eliminating these steps, businesses can streamline their operations and reduce costs. Look for low-hanging fruit by exploring processes that can be improved by automation or outsourcing.

Sell Assets and Capital

Selling assets can be an effective way for businesses to improve liquidity and pay down debt. This can also involve selling intangible assets, such as intellectual property or patents.

Start by identifying the assets your enterprise is willing to sell and determining their value. Conduct a market analysis to determine the value of the assets and find potential buyers. 

This approach can provide a quick source of funds and help businesses free up resources to pay down tax debt. However, it’s essential for businesses to carefully consider the potential impact of selling assets on their operations and long-term financial position.

Work with a Tax Relief Service

A tax relief service is a company or organization that assists individuals or businesses with tax debt. These teams often have CPAs and tax attorneys on staff to provide expert assistance.

Working with a tax relief service that specializes in corporate taxation can provide assistance with: 

  • Negotiating payment plans
  • Filing back taxes
  • Reducing penalties and interest
  • Providing financial counseling

The downside of working with a skilled tax relief service is that they have eligibility requirements and thresholds, and their services cost a substantial amount. 

Final Thoughts

There’s no one-size-fits-all approach to dealing with business tax debt. Consult with the experts before determining the best strategy for your organization.

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