Q: Can the IRS pursue personal assets for LLC tax penalty?
I have a manager-managed LLC, Hunter LLC, created for producing an indie film, and I am a member. The LLC is managed by another LLC, Skyfire Productions LLC, of which I am the only member. I usually file taxes by March 15th, but last year, I mistakenly didn't hit "submit" on the tax software after preparing everything, though I mailed the K-1s to members. There is no cash flow as the film didn't generate revenue. This year, I realized the mistake when filing, submitted last year's taxes along with this year's, and received a $12,000 penalty for late filing. I'm concerned about whether the IRS can pursue my personal assets and am considering filing for Chapter 7 bankruptcy and dissolving the businesses. What steps should I take regarding the penalty, and are my personal assets at risk?
A: No. they cannot
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A:
This kind of mistake can be stressful, especially when you did everything else right but didn’t click “submit.” The IRS penalty you received is likely for late filing of the partnership return (Form 1065), which can be steep even if no income was earned. Since Hunter LLC is a pass-through entity, the IRS generally goes after the business—not your personal assets—unless there’s evidence of fraud or commingling of funds.
Because Skyfire Productions is also an LLC with you as the sole member, it’s still considered a separate legal entity. As long as you’ve kept your personal and business finances separate and followed proper procedures, your personal assets should not be at direct risk from this penalty. That said, LLC protections can be challenged in rare cases, but it doesn’t sound like your situation involves anything that would pierce that legal shield.
Your best first step is to request a penalty abatement. You can explain the honest mistake, the fact that you mailed out the K-1s on time, and that the business has no income. The IRS does have a “first-time abatement” policy, especially if your compliance history is clean. Bankruptcy and dissolving the businesses are big decisions—consider those only after trying to resolve the penalty. Stay organized, document everything, and show good faith in fixing the issue.
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