Like an individual who cannot pay his taxes, a business may also enter into a payment agreement or make an offer in compromise to the IRS in an effort to work things out. However, a business faces additional hurtles beyond those encountered by the individual. For example, the IRS will not consider an offer in compromise from an on going business unless it has been in current compliance for at least the last two quarters. That means that the business has filed its payroll tax returns and paid whatever payroll taxes were due through regular and timely tax deposits. Additionally, the IRS will examine the financial records of any individuals who control the business to see if they have sufficient assets and/or income to pay at least the trust fund portion of the taxes. (See the article on The Trust Fund Recovery Penalty.)
Depending on the severity of the cash flow problems, other options may have to be considered, such as refinancing, sale of the business, Chapter 11 bankruptcy, or liquidation of the business through Chapter 7 bankruptcy, assignment for the benefit of creditors, or other options.