A one-owner commercial cleaning company in Ohio ran into payroll tax trouble not long after it opened, and the IRS eventually held the owner personally responsible for part of that debt. She was fighting cervical cancer through several surgeries and a Covid-19 hospitalization at the same time. In July 2021, PFGTAX got her personal case placed into Currently Not Collectible status, which meant the IRS stopped actively pursuing her while she focused on getting well.

How it started

The business was a small, single-member LLC that opened its doors in 2016. For the first year or so, an outside accountant handled the payroll filings and deposits. Then, in early 2017, that accountant closed their practice, and the owner discovered the company had not been reporting or paying its federal payroll taxes correctly the whole time. Not long after, the business lost three major accounts in one stretch, more than $26,000 in revenue gone almost overnight, and she spent most of what she had just keeping the doors open.

Then came the diagnosis. She was found to have cervical cancer and underwent a radical hysterectomy that did not go well, leading to three more surgeries within six months. She kept working through chemotherapy, radiation, and later a Covid-19 hospitalization in 2020. Through all of it, the payroll tax problem from 2017 never went away.

The pressure from the IRS

When a business falls behind on payroll taxes, the IRS treats the part withheld from employees’ paychecks differently from the company’s own share. That withheld money is supposed to be held in trust and handed over to the government, and when it is not, the IRS can assess what is called a Trust Fund Recovery Penalty directly against whoever it decides was responsible for making sure the money got paid. Since she was the sole member of the LLC, that responsibility landed on her personally, separate from anything owed by the business itself.

By December 2020, a letter from PFGTAX laid out the damage plainly: civil penalties stacking up quarter by quarter from 2017 through the first quarter of 2019, adding up to a little over $33,800 owed to the IRS, and growing, since interest and penalties do not stop while a case sits open.

What we did

PFGTAX had power of attorney on file for both her personal case and the business, and stayed in contact with the assigned revenue officer for years through faxes and financial statement submissions. On the personal side, we filed Form 433-F, the IRS’s standard financial disclosure form, laying out her income, her expenses, and her medical costs so

the IRS could see plainly that there was nothing left over each month to put toward the debt. Based on that, we asked the IRS to place her personal case in Currently Not Collectible status.

At the same time, we worked the business side separately. The company got its own installment agreement in place for the underlying payroll tax debt, and PFGTAX filed a penalty abatement request, and later an appeal, arguing that her medical crisis and the sudden loss of major accounts amounted to reasonable cause for reducing some of the penalties. That business-side appeal is a separate matter from her personal case and is not the subject of this story.

The outcome

On July 2, 2021, the IRS approved Currently Not Collectible status for her personal case. That status does not erase what she owes. It means the IRS agreed, based on her real finances, that she could not pay right now without genuine hardship, so active collection stopped. No levies, no wage garnishment, no repeated demand letters while the status holds. Any tax refund she is due still gets applied to the balance, and she still has to file every return on time going forward to keep the status in place. If her financial picture improves later, the IRS can take another look.

Why it matters

A lot of business owners assume that if the company falls behind on payroll taxes, the debt stays with the company. It does not always work that way, and a Trust Fund Recovery Penalty can turn a business problem into a personal one almost overnight, especially for someone running the business alone. Currently Not Collectible status is not forgiveness and it is not the end of the story, but it is real relief. It stops the letters, the threat of a levy, and the pressure to send money that simply is not there, while someone works through a health crisis or a business in trouble. For this client, it meant one less thing to fight while she focused on getting through treatment.

Frequently asked questions

What does Currently Not Collectible status actually mean?

It means the IRS reviewed a taxpayer’s income and expenses and agreed that they cannot pay anything right now without real financial hardship. Under IRM 5.16, the IRS can suspend active collection, like levies and wage garnishment, while an account sits in this status. It is a pause on collection, not a write-off of the debt.

Does the debt disappear once a case is marked Currently Not Collectible?

No. The balance stays on the books, interest and penalties keep adding up, and any tax refund the person would otherwise get is usually applied to the debt instead. The account only becomes truly uncollectible if the legal collection period runs out before the IRS resumes active collection.

What is a Trust Fund Recovery Penalty, and why did it become a personal debt here?

Under IRC 6672 and IRM 5.7, when a business withholds payroll taxes from employee paychecks but does not forward that money to the IRS, the agency can assess a penalty equal to the unpaid amount against whoever it determines was responsible for making sure it got paid. Because that penalty is assessed against a person rather than the business, it follows that person even if the business later closes or struggles separately.

Can the IRS take away Currently Not Collectible status later?

Yes. The IRS periodically reviews these accounts, and if income improves or the taxpayer falls behind on filing or paying current taxes, the IRS can move the case back into active collection. Staying compliant going forward is part of what keeps the status in place.

What happened with the business’s own payroll tax debt?

The business worked out a separate installment agreement for its payroll tax balance and pursued its own penalty abatement request with the IRS. That is a different matter from the owner’s personal Currently Not Collectible status described here, and its outcome is not part of this case study.

Results depend on each taxpayer’s specific facts and financial situation. PFGTAX does not guarantee any particular outcome or reduction in tax debt.