941 taxes: Statute of Limitations for Sole Proprietorships

Unlike the example below - with corporations and some LLC's - where there can be a very limited statute of limitations to collect, sole proprietorships who ring up 941 tax debts have a long statute before the taxes expire:  10 years.  They receive the same treatment as 1040 tax debts which also have 10 year statutes.

On the good side, 941 debts created by sole proprietorships are often easier to deal with and can be lumped in with 1040 debts in Offer in Compromises.


Owe 941's -- talk to a tax expert:  Marty Griffith, Washington Tax Services 1-866-525-7324

Own a Corporation with 941 tax issues? Three Year Rule to Assess Personally: Important Factor

A recent phone call from an old client of ours is a perfect illustration of the rules relating to Corporations and 941 - Payroll Taxes. Back in 2008, we filed the Power of Attorney for his business while also also guiding him what to do on what appeared to be an unpaid 941 liability totalling $300,000(!). Our guidance to him at that time was if he had no qualms with closing his corporation then there was a chance that he could run out of the clock of 3 years, i.e., the IRS might miss the 3 year statute for them to assess the taxes personally against the owners of the company.

Well, it's now 2012.Yesterday, an IRS agent called us out of the blue to pursue this debt. It is pretty clear to us that the IRS missed their chance to collect this debt. The debt appears that it will go to the grave with the corporation.

This is one of the beauties of incorporating. Nobody plans for failure, BUT if you have a high payroll type of business it is best to incorporate. If you fall behind on 941 taxes, you can potentially avoid personal assessment of the taxes and at the worst, the IRS can assess the trust fund or 45% or 50% of the taxes against you personally as long as that assessment is within a 3 year period.

If he had been a sole proprietor, chances are that the debt would have lasted 10 years on his record and would have been fully assessed against him. That's quite a financial albatross.

Have unpaid 941 taxes? Call us at 1-888-282-4697 or EMAIL us a description of your tax problem HERE and we'll contact you! Staff of Washington Tax Services.