You are a business owner. You built something. You have employees who depend on you, vendors who count on your business, and a community you serve.

And right now, you are in trouble.

The economy has been brutal. Costs went up. Revenue got unpredictable. You started making impossible choices — which bills to pay, which ones to put off. At some point, you started falling behind on your payroll tax deposits. Maybe just a quarter. Maybe more. You told yourself you’d catch up when things got better.

They haven’t gotten better. And now the IRS is involved.

If this sounds like your situation, you are not alone. Payroll tax problems are among the most common — and most serious — tax issues facing small and medium-sized business owners in Tucson and Southern Arizona right now. And they are the kind of problem that can destroy not just your business, but your personal finances as well.

Here is what you need to know.

Why Business Owners Fall Behind on Payroll Taxes

Let’s be honest about something that the IRS never acknowledges: when a business is fighting to survive, payroll taxes are often the first thing that gets delayed — because they are the easiest thing to delay.

You can’t delay paying your employees. You can’t delay rent without losing your space. You can’t delay your supplier without losing your inventory. But the IRS doesn’t send someone to your door the day after a missed deposit. There is no immediate consequence you can see.

So the money that should go to the IRS gets used instead to keep the business alive. One quarter. Then another. And then the IRS notices.

This is not a character flaw. It is a cash flow crisis. Business owners across Southern Arizona make this choice every day — not because they are dishonest, but because they are desperate.

The problem is that the IRS doesn’t see it that way.

What the IRS Does About Unpaid Payroll Taxes

Unpaid employment taxes are the IRS’s highest enforcement priority. Here is why: those taxes were withheld from your employees’ paychecks. Your employees paid their share. You collected it on their behalf. From the IRS’s perspective, you are holding money that does not belong to you or your business.

As a result, the IRS treats payroll tax debt with a speed and aggression that is different from most other tax problems.

Once employment taxes go unpaid, the IRS can and will:

• Assign a Revenue Officer to your case — a field agent whose sole job is to collect
• File a federal tax lien against your business assets
• Levy your business bank accounts — including the account you use for payroll
• Seize business assets — equipment, inventory, accounts receivable
• Shut down your business entirely in extreme cases

And then there is the thing that most business owners don’t know about until it is too late.

The Trust Fund Recovery Penalty — This Is Personal

When your business withholds Social Security, Medicare, and income taxes from an employee’s paycheck, those funds are called “trust fund taxes.” The law requires that they be held in trust and deposited with the IRS on a regular schedule.

When they are not deposited, the IRS has a powerful tool called the Trust Fund Recovery Penalty — and it allows them to hold certain individuals personally responsible for those funds.

This means the debt is no longer just the business’s problem. It becomes your problem. Personally.

The IRS can assess the Trust Fund Recovery Penalty against:

• Business owners
• Officers and directors
• Anyone who had signature authority over the business bank account
• Anyone who was responsible for deciding which bills got paid — including, in some cases, a bookkeeper, an accountant, or a manager

Once assessed, the IRS can pursue your personal assets to collect the trust fund portion of the debt:

• Your personal bank accounts
• Your home
• Your personal vehicle
• Your personal investments and retirement accounts

The trust fund portion of employment taxes is typically the employee’s share — roughly half the total employment tax debt. On a significant payroll tax balance, that can be a devastating personal liability.

The Trust Fund Interview — What It Is and Why It Matters

Before the IRS can assess the Trust Fund Recovery Penalty against you personally, a Revenue Officer will typically conduct a trust fund interview. This is a formal interview in which they ask you questions specifically designed to determine:

• Whether you were a “responsible party” — someone with authority and control over the business finances
• Whether you “willfully” failed to deposit the taxes — which does not require intent to break the law, only that you knew the taxes were owed and chose to pay other creditors instead

The answers to these questions — and the documents you provide — directly determine your personal financial exposure.

Do not go into a trust fund interview without legal representation.

This is not a casual conversation. The Revenue Officer is building a case. Every answer you give becomes part of the record. And the standard for “willfulness” under IRS rules is surprisingly easy to meet — even if you had the best of intentions and were simply trying to keep your business alive.

An experienced tax attorney will prepare you for this interview, be present with you, and ensure that your rights are protected throughout the process.

What You Can Do Right Now

If your business is behind on payroll taxes — whether you just missed a deposit or you’ve been behind for years — here is the right sequence of steps:

Step 1: Get current on new deposits immediately.

This is non-negotiable. The IRS will not work with a business that is still falling further behind. Every new pay period, every new deposit must be made on time and in full. If your business cannot do this right now, that is a conversation you need to have with an attorney about what comes next.

Step 2: Do not ignore Revenue Officer contact.

If a Revenue Officer has been assigned or has already made contact, respond — through your attorney. Ignoring them does not delay enforcement. It accelerates it.

Step 3: Do not try to negotiate alone.

Many business owners call the IRS directly and try to work something out. Sometimes this works in the short term. More often, it results in an agreement the business cannot sustain, or in the business owner providing information that makes the trust fund assessment worse.

An experienced tax attorney will negotiate the resolution on your behalf — including the installment agreement terms, the lien situation, and most importantly, the trust fund exposure.

Step 4: Get a resolution in place.

The options for resolving employment tax debt include:

• Installment agreement — the most common path. The IRS will consider your business’s current ability to pay and negotiate a monthly amount.
• Offer in Compromise — in some cases, the business can settle the debt for less than the full amount. This requires a careful financial analysis.
• Partial pay installment agreement — if the business genuinely cannot pay the full debt before the 10-year collection statute expires, the IRS may agree to a reduced payment plan.
• Currently not collectible — if the business is truly unable to pay anything without shutting down, a temporary suspension of collection may be available.

The right option depends on your specific financial situation. The goal is to stop the bleeding, protect you personally from the trust fund penalty, and put a resolution in place that the business can actually sustain.

In This Economy, You Are Not Alone — But You Need Help Now

Right now, in 2025 and 2026, more small business owners in Tucson and Southern Arizona are facing this exact situation than at almost any point in recent memory. Rising costs, labor challenges, slower consumer spending — the economic pressure on small businesses has been relentless.

The IRS is not unaware of this. They have programs designed for businesses in genuine financial distress. But accessing those programs requires knowing they exist, qualifying for them, and presenting your situation effectively.

That is what an experienced tax attorney does.

If your business is behind on payroll taxes — even just one quarter — do not wait for the situation to get worse. The earlier you get legal representation, the more options you have and the better the outcome tends to be.

Why Business Owners in Tucson Choose the Lazarow Law Firm

Sheldon Lazarow has represented businesses before the IRS for 25 years. He has handled Revenue Officer negotiations, trust fund interviews, business installment agreements, and offers in compromise for business owners throughout Southern Arizona.

His background as a trial attorney means he does not back down when the IRS pushes back. He knows the law, he knows the procedures, and he knows how to fight for outcomes that keep businesses operating and protect business owners from personal devastation.

He has never allowed the IRS to take a single penny from a client after they hired him. In 25 years. That record holds for business clients as much as individuals.

If your business is in trouble with the IRS, call him.

Serving Business Owners Throughout Southern Arizona

Lazarow Law Firm, P.L.C. represents small and medium-sized businesses throughout Tucson, Oro Valley, Marana, Green Valley, Sierra Vista, Bisbee, Benson, Douglas, Nogales, Florence, and all of Pima, Cochise, Santa Cruz, and Pinal counties.

📞 (520) 623-5856

Free consultation. If your business owes payroll taxes to the IRS — or if a Revenue Officer has made contact — call us today. The sooner we get involved, the more we can do.

Sheldon Lazarow is a Tucson, Arizona tax attorney with 50 years of legal experience, including 25 years of IRS tax debt resolution. Licensed to practice before the IRS, all Arizona and California state and federal courts, the Ninth Circuit Court of Appeals, and the United States Tax Court. Lazarow Law Firm, P.L.C. | 25 E. University Blvd., Tucson, AZ 85705.