Question: I owe back IRS payroll taxes. I am planning to sell some assets to help pay off the taxes. How do you recommend I pay the taxes?
Answer: If your business is a corporation, then I recommend you pay off the trust fund portion first. The trust fund portion is the employee’s portion of withholdings, social security, and medicare taxes. Read my blog on Trust Fund taxes for more information.
The IRS can make you personally liable for the trust fund portion of the taxes. When the IRS makes you personally liable, the IRS will have the option to enforce the collection of taxes, such as levies or garnishments, from both your business and you personally. This will complicate your situation.
To pay off the trust fund portion, you must write a check for each period separately and on the memo line write the words “Form 941, tax period, and Trust Fund Portion.” So if you owe taxes for 3rd quarter of 2011. Then you would write Form 941, Q32011 or 9/30/11, Trust Fund Portion.
Keep a copy of all checks written in case the IRS does not apply the payment correctly.
IRS Circular 230 Disclosure: To the extent this writing contains advice on a federal tax issue, the advice is not intended to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed in this communication.