Yes, the Internal Revenue Service (IRS) can go after an LLC (Limited Liability Company) if the LLC owes taxes, has unpaid tax liabilities, or is non-compliant with tax regulations. While an LLC provides limited liability protection to its owners (members), it does not shield the business from its tax obligations.
Here are some key points to consider:
- Pass-Through Taxation: Most LLCs are treated as pass-through entities for tax purposes. This means that the profits and losses of the LLC “pass through” to the individual members’ tax returns. If the LLC owes taxes, those tax liabilities can be passed through to the members, and the IRS can pursue collections from the individual members.
- Unpaid Employment Taxes: If an LLC has employees, it is responsible for withholding and remitting payroll taxes, including federal income tax, Social Security, and Medicare taxes. The IRS can take legal action against the LLC if these employment taxes are not paid.
- Tax Liens and Levies: The IRS can place tax liens on the LLC’s assets or bank accounts to secure payment of outstanding tax debts. In extreme cases, the IRS can also issue levies, which allow them to seize the LLC’s assets or bank accounts to satisfy tax liabilities.
- Limited Liability Protection: While the members of an LLC have limited liability, protecting their personal assets from business debts and legal liabilities, this protection does not extend to personal tax debts. If a member is personally liable for certain tax debts, their personal assets may be at risk.
- IRS Penalties and Interest: The IRS may impose penalties and interest on overdue tax payments, which can accumulate over time and increase the overall tax liability.
- Bankruptcy: In some cases, an LLC facing insurmountable tax debts may consider bankruptcy as an option. Depending on the type of bankruptcy (Chapter 7 or Chapter 11), the LLC may undergo liquidation or reorganization to address tax obligations.
It’s crucial for LLCs to maintain good tax compliance, including filing tax returns, making estimated tax payments, and meeting all tax obligations promptly. If an LLC is unable to meet its tax obligations, it should consider seeking professional guidance from tax advisors, accountants, or tax attorneys to explore options for resolving the issue, negotiating with the IRS, and avoiding legal action.