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Can a Business Tax Lien Become a Tax Crime?

Receiving a tax lien notice as a small business owner may put you in a state of panic. Will you lose your business? Will you be fined? Can you be imprisoned?

It’s essential to understand how a tax lien will affect your business and whether it will become a crime.

Business Tax Liens Rarely Become Crimes

Here’s the excellent news: it’s very rare for business tax liens to become a crime. So having a tax lien against your business assets is separate from criminal prosecution.

The IRS will put a tax lien on your business if you fail to file or pay your business taxes. In addition, in some cases, the IRS will hold corporate officers responsible for unpaid taxes.

About 35 million penalties are assessed against taxpayers each year, and two-thirds of those assessments are against businesses. These are penalties for failing to file and pay payroll tax filings in most cases.

Many new business owners are unaware of the IRS requirements to file and pay payroll taxes. Businesses unaware of their payroll tax obligations may find that they don’t have the cash to pay when the time comes.

But tax liens don’t automatically become crimes.

When Tax Liens Become Crimes

For a federal civil tax matter to become a criminal one, the IRS must refer the case to its Criminal investigation division. For example, this would occur if the IRS believed the business owner intentionally evaded taxes through fraudulent activities.

A business or a person can only face criminal prosecution if the IRS can prove, beyond a reasonable doubt, that the failure to pay was a deliberate act to violate the tax code.

According to Randolph Law Firm, P.C., examples of fraudulent activity can include:

  • Hiding income
  • Filing false tax returns
  • Falsifying deductions
  • Creating fake invoices for bogus deductions
  • Running a cash business and not reporting receipts

For a tax lien to become a crime, the IRS must prove that you knowingly attempted to defraud them. While many businesses are familiar with good tax practices, some may engage in these taxes unintentionally.

Avoiding Tax Liens and Crimes

Businesses can avoid tax liens and crimes by using all the tools, options, and recourse available as soon as they experience financial troubles.

It’s essential to be proactive when experiencing financial trouble as a business owner. If you’re having cash flow issues, sit down and create a plan to ensure your quarterly filings and deposits are made on time.

IRS auditors will scrutinize your financial records to determine whether you paid other obligations while failing to pay your tax bill.

Suspending your operations or cutting back on expenses would be difficult as a business owner, but these actions may save you thousands of dollars in penalties and fees later on down the road.

If you still have difficulty paying your taxes, file your returns anyway. Then, communicate with IRS right away to agree on a payment plan.

By communicating with the IRS and making efforts to pay your tax debt, you’re showing the IRS that you are not intentionally avoiding your tax bill.