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Starting a NewCo When your current company owes taxes

Some tax resolution companies’ sales hook is the Offer in Compromise.  It’s easy to sell because it sounds so good and is just complicated enough to be confusing to most taxpayers.  These companies use it to get clients in the door and when the Offer in Compromise comes back denied, it’s blamed on the stingy IRS.  Then the same client gets another fee from the same company to set up a monthly Installment Agreement.

You see it’s difficult, almost impossible to know whether a delinquent taxpayer qualifies for the Offer in Compromise without first looking at their complete financial picture and running the numbers through the IRS calculations.

What’s The Solution To My Payroll Tax Problem?

There’s a different hook for business owners that owe payroll taxes to the IRS.  These dishonest tax resolution companies will sell a business owner on opening a new company to avoid paying all the tax.

The scenario is outlined like this – You close your current company that owes the tax, which leaves you, the business owner, responsible for the Trust Fund portion of the tax, which is significantly less than the whole ball of wax owed to the IRS.  At the same time, you open a new business, with a new EIN, to get a fresh start.  Then you set up an Installment Agreement to pay the Trust Fund portion on the personal side.  You pay the tax resolution company $5,000 - $10,000 and you save $100,000 on the taxes.  Sounds great!

The “NewCo” Is a Bad Idea If Your Business Owes the IRS

Well…  It’s not quite that simple.

There’s the matter of tax liens, financial and asset disclosure, asset transfers, ownership interest, new state ID numbers, fresh worker’s comp rating, new licenses, new insurance… and possible nominee assessments and tax fraud charges, which make it all for nothing.

What I’m getting at, is that the process is complicated at best.  At worst, it’s tax fraud with criminal prosecution.  Take a second to think about it.
  • Does your current business have tools, equipment, machinery that you’d like to use in the new business?  If so, the new business will have to purchase them, the IRS will have to okay the sale, and the proceeds will be applied toward the tax debt.
  • Who is going to own and operate the new business?  As a responsible individual of the tax delinquent business, you won’t be able to own or manage the new business.  That means that you can’t sign checks or direct funds.  You can only be an employee.
  • Does the current business have a lease or license or insurance policy you’d like to keep?  The new business will have a different legal name and Tax ID numbers.  Therefore, most of the contracts and licenses that you have in place will need to be revised.
  • Do you need startup capital?  The money in the bank and A/R of the current tax delinquent business can’t be transferred to the new business without IRS approval.  It’s all likely covered by a tax lien, along with the tools, equipment and machinery.
The list could go on.  There are industry specific hurdles that can make it even more complicated.  And like we pointed out earlier, you could be unknowingly breaking the law at the direction of a “professional”.

Often what happens is the IRS catches up and assesses the tax from the old company to the new company with all the penalties and interest that has accrued.  Then you’re stuck with the original tax bill (but with interest) and you’re out all the money you paid to set up the “NewCo” and to the tax “professional”.

 If you’ve heard this pitch from a Tax Resolution Company, Stop!  And contact us.  You don’t have to hire us, but you’ll want to hear what we have to say.



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