A small California S-corporation and its owner ended up owing two different tax agencies at once. The business owed the IRS and had unfiled corporate returns. The owner personally owed California’s tax agency for missing state returns of his own. Two debts, two agencies, and one owner trying to keep both current while running his company. PFGTAX negotiated two separate payment plans, one with the IRS and one with the state, to close out both matters.

How it started

Anyone who runs a small business through an S-corporation files two tax returns every year, not one. There is the corporate return for the business, and there is the owner’s own personal return. When one slips, the other often slips too. Both usually get handled around the same time each year, often by the same person. That is roughly what happened here. The corporation’s 2013 Form 1120S, the corporate income tax return, showed a shortfall of a little over $1,000. The next two corporate returns, for 2014 and 2015, never got filed. Around the same time, the owner’s own California return for 2013 came in owing more than $12,000. His 2014 and 2015 state returns went unfiled as well. Neither the business balance nor the personal balance was severe on its own. Together, with two years of missing paperwork behind each one, they had grown into a real problem.

Facing two agencies at once

Most tax debt cases involve a single agency. This one had two moving at the same time. The IRS handled the business side. California’s Franchise Tax Board, the state agency that collects California income tax, handled the personal side. Neither agency would discuss a resolution while returns were still missing. The IRS will not negotiate a payment plan or any other resolution with unfiled returns still outstanding. The taxpayer has to file every required return and bring the account current first. California’s FTB works the same way for its own returns. So the business had to catch up on two years of corporate filings before the IRS would discuss a plan. The owner had to do the same with two years of personal state returns before California would talk. Two separate sets of paperwork, two separate agencies, and both needed to move before anything else could happen.

What we did

PFGTAX filed the corporation’s outstanding returns and got the owner’s personal California returns caught up as well. Once both accounts were current, PFGTAX opened two negotiations at the same time. PFGTAX did not work one case all the way through before starting the other. One conversation was with the IRS, about the business’s federal corporate tax debt. The other was with California’s Franchise Tax Board, about the owner’s personal state tax debt. Different agencies mean different forms, different offices, and different rules for an acceptable monthly payment. PFGTAX handled each negotiation on its own terms, even though both were happening for the same family at the same time.

The outcome

The IRS approved the business installment agreement first, in June 2016. The company would pay $125 a month starting July 28, 2016. A one-time $120 setup fee applied, making the first payment $245. Six months later, in December 2016, California’s Franchise Tax Board approved the owner’s personal installment agreement. He would pay $100 a month starting January 10, 2017, plus a $34 fee, for a first payment of $134. Both agencies confirmed their agreements in writing. Neither the business file nor the personal file showed any further collection notices after that.

Why it matters

A lot of small business owners carry two tax identities at once, the business’s and their own. It is easy to assume that fixing one account means fixing everything. It is also easy to assume a business problem and a personal one have to be untangled in some particular order. They do not. The IRS and a state tax agency operate under separate rules, forms, and staff. A resolution firm can run both negotiations side by side instead of making a family wait for one to finish first. Getting current on filings, for both accounts, is almost always the real first step. Once that happens, each agency can put a workable number on paper. A debt can run a few thousand dollars or much more. Either way, the size alone does not decide whether a manageable payment plan exists.

Frequently asked questions

What is an IRS installment agreement?

An installment agreement is a formal deal with the IRS to pay a tax debt over time instead of all at once. The IRS authorizes these agreements under IRC 6159, and IRM 5.14 covers how the agency reviews and approves them. Both businesses and individuals can qualify, and the monthly amount depends on what the taxpayer can realistically afford.

Can a small business owner owe the IRS on the business side and a state tax agency personally at the same time?

Yes. An S-corporation files its own corporate return, and its owner still files a separate personal return. A shortfall on one does not affect the other directly, but both can pile up if paperwork slips on both sides in the same stretch of years. Each debt gets resolved through its own agency, on its own timeline.

Does the IRS require all outstanding returns to be filed before it will set up a payment plan?

Yes. Under IRM 5.14, the IRS generally will not negotiate an installment agreement, an offer in compromise, or any other resolution while required returns are still unfiled. Getting every return filed and the account current is usually the first real step toward any agreement.

Is a California Franchise Tax Board installment agreement the same as an IRS payment plan?

No. California’s Franchise Tax Board runs its own installment agreement program for state income tax debt, separate from the IRS. It has its own forms, its own review process, and its own rules for what payment it will accept, so resolving a federal balance does not automatically resolve a state one.

What happens if someone misses a payment on a California installment agreement?

Missing a payment, or falling behind on new state tax obligations after the agreement is approved, can put the agreement at risk. California’s Franchise Tax Board can end the agreement and resume collection action if that happens. Staying current on both the agreed payment and any new filings is what keeps the plan in place.

Every case is different. Outcomes depend on a taxpayer’s specific financial situation, and PFGTAX does not guarantee any particular result or reduction in tax debt.