| The manner in which the IRS seeks to collect on tax | | | | debt from any one partner, it cannot gather any more |
| debt depends on the type of business. | | | | money than is owed by the business. In the case that |
| Sole proprietorships | | | | one individual pays more than his share of the liability, |
| When one person owns a business, all assets, | | | | he can take action against his partners in accordance |
| contracts, and liabilities fall under the owner's | | | | with the laws of his state of residence, but the IRS |
| responsibility. Therefore, in the event that a sole | | | | remains free to regain the debt from any/all partners. |
| proprietorship accrues tax debt, the owner is held | | | | This is for general partners and not limited partners. |
| completely liable for it. In turn, the IRS would seek to | | | | Corporations |
| collect from the proprietor, as though the deficiency | | | | Though the laws that govern the formation of a |
| were gained in his/her name. | | | | corporation differ depending on state, all states require |
| General partnerships | | | | the fulfillment of legal documents in order to recognize |
| When more than one person forms a business entity, | | | | corporation status. While stockholders own |
| the entity is referred to as a general partnership. | | | | corporations, the IRS cannot collect any tax debt from |
| Because general partnerships serve as the default | | | | the stockholders. Rather, it must seek to resolve the |
| organization, no paperwork needs to be filed upon the | | | | discrepancy with the corporate entity. On the other |
| business' inception. In this case, all partners share | | | | hand, stockholders are not completely protected by |
| responsibility for assets and liabilities, aka joint and | | | | this system. In the event that a Trust Fund Recovery |
| several liability. Therefore, all partners are responsible | | | | Penalty is issued against the corporation, the IRS |
| for any tax debt accrued. | | | | becomes free to assess liability against certain |
| In the even that a general partnership cannot pay all of | | | | stockholders if they were deemed responsible for the |
| its taxes, the IRS seeks to collect the deficit funds | | | | decision to withhold payroll taxes from the |
| from all individuals in business together. While the IRS | | | | government. In this case, the IRS can proceed to |
| can collect the full amount of penalties, interest and | | | | collect from the individual stockholder. |