Sharp rise in federal tax lien filings threatens recovery.

• Author: Parent, Anthony
• Position: Private companies

The view of many is that the Internal Revenue Service, one of the United States' largest federal agencies, appears to be doing its best to undermine the recovery of today's staggering economy. There has been an alarming increase in the number of federal tax liens filed against delinquent companies and individual taxpayers in recent years, and the liens are often lodged against those companies that are in the most precarious financial situations.

Recent figures indicate that the number of federal tax liens filed by the IRS has increased by 250 percent over the last seven years while, at the same time, the number of tax liens removed by the IRS has remained stagnant.

This trend is likely to continue, which does not bode well for companies in trouble. And it is even worse news for the private companies, considered the engine of the U.S. economy.

The Perils of Tax Dilemmas

Companies with large payrolls and tight cash flows can find themselves falling into severe tax trouble quite easily in today's economy. Companies typically deposit huge sums into the U.S. Treasury for their employment taxes, as well as the money they are withholding on behalf of their employees.

Often, to maintain a handle on their cash, companies will hold off depositing funds with the IRS, with an eye toward catching up at some near future point. It's similar to having access to a loan with a 100-percent approval rate, but the eventual interest rates and penalties the IRS charges can be worse than those imposed by a loan shark.

Indeed, this kind of thinking can lead to more problems. Once the company skips the first payroll tax deposit, it becomes easier for company finance officers to skip another, and liabilities can begin to mount. Then, in just a few months the IRS begins to levy and the money levied is applied to the old liabilities. There is nothing to pay current liabilities, and the IRS will not stop levying until the employer starts making current deposits.

Eventually, the company runs up a huge bill and the IRS moves to padlock the company's doors, seize the assets, take pennies on the dollars for these assets and apply them to the oldest assessment.

But the IRS is not done. For whatever remaining payroll taxes the employer did not deposit on behalf of the employee, the IRS will take that business obligation and make it into a personal obligation. This is done through what is...