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When Can the IRS Come After a Business Personally?

Man holding a receipts

Tax season can feel like an impersonal, bureaucratic process, but for business owners, the stakes are deeply personal. If something goes wrong with your company’s taxes, your own assets could be at risk.

Your time, energy, and money go into keeping your business afloat. Yet unpaid business taxes can quickly turn into a personal liability depending on how your company is structured and how taxes are handled. In fact, the IRS has grown more aggressive in collecting unpaid taxes in recent years, especially when it comes to “responsible persons” inside a business.

So, can the IRS come after you personally? The answer depends on the type of entity you operate and your role within the business.

How Business Structure Affects Personal Liability

The legal structure of your business plays the largest role in whether your personal assets are protected from business tax obligations.

Sole Proprietorships

In a sole proprietorship, you and your business are considered the same entity in the eyes of the IRS. The income is taxed directly to you, and you are fully responsible for all debts and obligations.

Key takeaway: If your business accrues tax debt, the IRS can pursue your personal bank accounts, home, or other assets.

Partnerships

Partnerships involve two or more people sharing ownership of a business. Like sole proprietorships, income passes through to each partner’s tax return.

  • General Partnerships: Each partner is personally responsible for business debts, including taxes.
  • Limited Partnerships: Limited partners are typically shielded from liability, while general partners remain fully responsible. However, if a limited partner takes on more control of operations, the IRS may still hold them accountable.

Corporations

Corporations create separation between business and personal assets, which generally protects individuals from personal liability for taxes. However, the type of corporation matters.

  • C Corporations: The corporation itself is responsible for taxes, not the shareholders. Personal assets are protected, but corporate profits are taxed twice (once at the corporate level and again when distributed as dividends).
  • S Corporations: Like C corps, S corps protect personal assets. Profits and losses “pass through” to shareholders to avoid double taxation. The catch: stricter rules and limitations on shareholders and stock types.

Limited Liability Companies (LLCs)

LLCs combine elements of corporations and partnerships. They offer liability protection for owners while allowing profits to be taxed on the owners’ personal returns.

Important note: Liability protections are limited. If you fail to pay employment taxes or personally commit tax fraud, you can still be held individually responsible.

The “Responsible Person” Rule

Even when corporations or LLCs are meant to shield individuals, the IRS can still collect from those deemed “responsible persons.”

A responsible person is anyone in the company with the authority or duty to collect, account for, or pay taxes. This often includes officers such as the president, treasurer, or CFO, but it can also include managers, bookkeepers, or anyone who had direct responsibility over payroll and tax deposits.

If you are identified as the responsible person and taxes go unpaid, the IRS can hold you personally liable under the Trust Fund Recovery Penalty (TFRP).

How to Protect Yourself and Your Assets

No matter your business structure, there are steps you can take to limit personal risk:

  • Keep accurate and up-to-date records of all tax filings and payments.
  • Pay on time to avoid penalties and scrutiny.
  • Understand your role within the company and whether it carries personal tax responsibility.
  • Work with a tax professional who specializes in IRS compliance and business structures.

Bottom Line

The IRS does not always stop at the business level when pursuing back taxes. Your company’s legal structure and your responsibilities within the business determine whether your personal assets are on the line.

The best protection is prevention: structure your business wisely, stay current on tax obligations, and seek professional guidance when necessary.