Tax Law Insights

Where a business does not pay its federal employment and/or unemployment taxes, and continues in operation, the IRS will utilize administrative measures, including tax liens and levies, to collect the unpaid taxes. Administrative measures alone, however, may often not prevent a business from operating and also paying its back taxes. In these instances, the IRS has increasingly gone to the courts, and is now more frequently requesting injunctive relief against these businesses in order to prevent the business from operating and where it may further accrue federal employment/unemployment taxes.

United States District Courts have jurisdiction to hear cases involving IRS requests for injunctive relief, and to also issue injunctions against businesses and their owners to prevent them from accruing further employment/unemployment taxes while the business continues to operate. An injunction is an order of the court prohibiting conduct and/or requiring a business or an individual to do certain things. Once an injunction is entered against a business and/or its owner, if the business and/or its owner does not file its federal tax returns and pay its employment/unemployment taxes going forward, the business and/or its owner may be held in contempt by the court. Contempt is punishment for violating the court's injunction order. Punishment may involve fines, but can also mean jail or a prison sentence. Where a court orders jail/prison time for violating its order, this is not a sentence for any crime committed; it is civil punishment for not doing what the court has ordered.

The IRS has been particularly active in the Southeastern United States lately, including North Carolina, South Carolina, and Georgia, and where it has successfully sought and received injunctions against a number of businesses and their owners where the businesses have not filed federal employment tax returns and not paid federal employment/unemployment taxes, and continue to seek to operate.

Finally, not filing federal employment tax returns and not paying federal employment taxes can be crimes as well, and where the IRS can seek to prosecute businesses and business owners for these failures. The IRS may also file civil lawsuits seeking injunctions against these businesses and their owners, and where criminal investigations may also be pending. Businesses and their owners must seek legal counsel in these instances.