Thank you I did not consider the BK option, that is very helpful.

Unfortunately, bankruptcy is not a viable option here; the taxes the questioner is being assessed are almost certainly the so-called "trust fund recovery penalty" which is the amount of payroll taxes that should have been withheld from the workers' wages but weren't. The trust fund recovery penalty is assessed against anyone who was a so-called "responsible person" for the business in question - which would definitely include the sole member of a single-member LLC - and becomes a personal liability once assessed. The trust fund recovery penalty is not one of the taxes that can be discharged in bankruptcy; accordingly, the only available alternatives are (i) working out a resolution with the IRS that involves proving that the people you issued 1099s to actually paid their taxes, (ii) working out an installment payment arrangement with the IRS, or (iii) working out an offer in compromise with the IRS. Depending on the amount of tax and the questioner's age, financial resources, and the like, the IRS may, or may not, be willing to compromise on the amount due; however, getting them to compromise is an uphill battle that is rarely won unless you have really unique circumstances.

Quite honestly, if the amount the IRS is demanding is approximately $10,000, then unless you can find the old workers and get them to tell you whether or not they paid the taxes due on their wages, you'd be better off working out a payment plan because you're going to spend way more than $10k on legal fees trying to get a compromise with no guarantee at the end of the day that you will get a compromise.

Attorney Atchley, the way I read it is that outsiders were paid and not 1099'd, "" that we did not 1099 enough people that were paid over $600 that we missed in our 1099's"" and ""if we can prove that the 1099'ers in question filed returns ""

He also said ""thats what we get for attempting to be compliant and snitch on our workers""

He also said ""they said if we can prove that the 1099'ers in question filed returns then the amount would be alleviated"" (proving that workers paid double [once on withholding and a second time out of their own pockets] would not alleviate a trust fund theft problem.)

These statements on the whole seem to be incompatible with taking the trust fund monies.

Thus it seems to me to be an accusation that people were paid "under the table" rather than "that the employer absconded with EMPLOYEES trust funds".

I interpreted the problem as lack of 1099 report filing to the government. (not trust fund tax).

If my impression was true then government has two prongs: (1) not filing 1099's and denying deductibility, and (2) independent contractor v. employee controversy.

If its (1) they should be able to show that they paid the money and didn't report it by 1099 due to inadvertence or show the systems used in years past and that it was a glitch (maybe to be shown in collection action).

As to (2), that battle goes on tradition etc.

Neither (1) nor (2) seem as if they would be nondischargeable based upon their character, and so long as the appropriate time periods for the tax becoming dischargeable had passed.

The only other alternative I can think of is a conspiracy where the employer conspired with the workers to cheat the government. This "conspiracy" would fall to the more often encountered "Independent Contractor" status which many Americans have used successfully.

Sorry, but I don't see this as a trust fund case......

The LLC was originally set up as a single member when applying for the EIN, but the tax return was filed as corporation and three members, this was just a mistake in filing for the EIN but the tax return was filed as Corp with three members. the argument from IRS was that 1099's were filed properly, not an issue of reclassifying 1099's to W-2's in other words. Their argument was that we simply forgot to 1099 10 or so people that should have received 1099's.

That is what I thought!! And in addition you had some conversion from single member LLC to a check box corporation. That may be why they are persuing you personally. Save your records, someone is going to have to dig into this for a blow by blow and present this, possibly in an "equivalent hearing" to reconstruct what happened.

Don't delay in moving forward. Your details on timing are not stated and you may or may not be able to get into tax court.

If the other conditions are permissible, a bankruptcy judge can also hear this case under 11 USC 505.

Thank you very much!

You have indeed caught the proper gist of it Mr. Harrington; my apologies for not being as adept as yourself.