Trying To Sell Your Business With Debt?
Selling or closing a business is already a major change; IRS debt raises the stakes. What might be simple can become complex due to legal, financial, and personal issues. If you’re selling or dissolving an LLC with IRS debt, slow down to understand liens, levies, and owner exposure.
Business tax problems do not disappear simply because the business changes form or stops operating. The IRS operates on procedure, not emotion. If taxes have been assessed and remain unpaid, the government has collection tools available, and those tools do not automatically switch off because you are exiting the business.
Dissolving a Company Does Not Erase Tax Debt
Many owners believe that once dissolution paperwork is filed with the state, the entity is effectively closed and the remaining issues are contained within it. From a state-law perspective, dissolution may end future operations. From a federal tax perspective, however, obligations remain until they are resolved.
Closing a business properly requires final tax returns, payroll filings, and compliance with IRS requirements. If those filings are incomplete or balances remain unpaid, the IRS can continue collection efforts based on what is already assessed. Dissolution does not prevent enforcement. In some situations, it can even draw greater attention to how assets are being handled.
When business assets are distributed to owners while tax debt remains unpaid, those transfers can be scrutinized. The IRS may examine whether funds were distributed while creditors remained outstanding. If the tax problem includes payroll liabilities, the situation can become even more serious, because payroll taxes carry a different type of risk for owners.
Business Tax Liens and Their Impact on a Sale
When business taxes are assessed and remain unpaid, a federal tax lien arises by law. If the IRS files a Notice of Federal Tax Lien, it becomes public record and attaches to the business’s property and rights to property. That can include equipment, inventory, accounts receivable, and other assets that a buyer expects to receive at closing.
A business tax lien does not automatically stop a sale, but it does change the transaction. Once discovered during due diligence, the deal must be structured around the IRS’s claim rather than ignoring it.
Before moving forward, you need to determine:
- Whether a Notice of Federal Tax Lien has been filed
- Which assets the lien attaches to
- Whether the sale proceeds will need to address the tax balance
- If a lien discharge or subordination request is appropriate
- How closing documents will reflect the IRS’s position
Levies and Active IRS Collections
While liens represent claims, levies represent active collection. The IRS can levy business bank accounts, accounts receivable, and other assets once enforcement escalates. A bank levy includes a statutory holding period before funds are turned over, but that period is short and does not eliminate the disruption caused by frozen operating accounts.
If IRS collections are already in motion, timing becomes even more critical during a sale or dissolution. A levy imposed mid-negotiation can destabilize operations and undermine buyer confidence immediately. It can also interfere with payroll and vendor payments, creating operational consequences beyond the tax issue itself.
The presence of enforcement activity means that coordination is necessary before attempting to transfer assets or finalize a closing. The IRS is not required to pause collections simply because a business owner is transitioning out of the company.
Selling a Business With IRS Debt
When you sell a business with IRS debt, the deal structure matters more than most owners realize. Whether the transaction is an asset sale or an equity transfer affects how liabilities are handled and how risk is allocated. If tax debt is involved, buyers will scrutinize the transaction before moving forward.
They are not just looking at price. They are evaluating risk, including:
- Whether a business tax lien is attached to assets being sold
- Whether the IRS could pursue levy action against the sale proceeds
- Whether the transaction creates successor liability concerns
- Whether assets are being transferred for fair market value
- Whether the tax debt is being addressed as part of the closing
Payroll Taxes and Personal Liability
Payroll taxes create the greatest exposure for owners during dissolution or sale. When federal income taxes and employment taxes are withheld from employees, those amounts are considered trust fund taxes. If those funds are not remitted, the IRS has the authority to assess the Trust Fund Recovery Penalty against individuals it determines were responsible for collecting and paying those taxes and who willfully failed to do so.
This is how business debt can become personal liability taxes.
Dissolving the entity does not eliminate this risk. If payroll taxes remain unpaid, the IRS may investigate who had control over financial decisions, signature authority, and payment priorities. Personal assessments can follow even after the business has ceased operating.
For this reason, payroll tax liabilities require careful attention before assets are distributed or ownership changes. Ignoring payroll issues during a transition often results in consequences that extend beyond the business itself.
The Proper Order of Operations
When you’re preparing to sell or dissolve a business with IRS debt, the order of steps matters more than the urgency to close. Rushing toward a transaction without understanding the tax landscape can create avoidable risk for both the seller and the buyer. A structured approach preserves options and reduces surprises at closing.
Before moving forward, the transition should follow a deliberate sequence:
- Confirm exactly what the IRS says is owed and what has been assessed
- Identify any unfiled returns that must be submitted
- Determine whether a business tax lien or levy is already in place
- Stabilize current compliance so new liabilities are not accumulating
- Evaluate how the planned sale or dissolution interacts with existing IRS enforcement
Need Professional Help?
Selling or dissolving a business with IRS debt is possible, but only if it’s handled strategically. Tax liens, levies, successor liability, and potential personal liability don’t disappear just because the business is closing.
The biggest risk is moving assets or signing agreements before addressing the IRS piece. A rushed exit can create long-term problems that could have been avoided with proper planning.
If you’re planning to sell or dissolve, and an IRS debt is involved, get clarity first. Schedule a confidential consultation and put a strategy in place before you move forward.
