Filing for Bankruptcy? You've still got to contend with the IRS.

Q: What happens when a corporationbecomes insolvent and files for bankruptcy? Does the IRS usuallypursue the corporation for unpaid federal taxes? Can the IRS breakthrough the corporate firewall and pursue the owner's personalassets for the payment of federal taxes?

A: The short answer to yourquestions is yes. The IRS has broad powers to collect back taxes and cangrab company cars, bank accounts or any other valuable assets.Although you may be tempted to take up permanent residence inIceland, keep in touch with the IRS even if your company is behindon paying its taxes.

Individual liability depends on the kind of taxes you owe. Ingeneral, a corporate officer or director won't be heldpersonally liable for income taxes. But if employment taxes aredue, the IRS can come after personal assets. And declaringbankruptcy won't do you any good-these taxes don'tget discharged (wiped out) in a bankruptcy proceeding.

What are these "payroll taxes" that make the IRScharge like a bull in the ring? There are three types: federalincome tax withholding (due for all employees); Social Security andMedicare taxes (fund payouts under the Federal InsuranceContributions Act, or FICA); and federal unemployment tax (whichbenefits workers who lose their jobs).

Instead of scaring you further, I'll lay out some solutions.Say you have $20,000 of past-due taxes and $50 in your checkingaccount. Here are your options:

• Borrow the money you owe from a bank or credit union ifpossible.
• Ask for an extension on your payment deadline. A 30- to 60-daydelay is frequently granted, especially if this is your firstrequest.
• Pay in installments. By filing IRS form 9465, "InstallmentAgreement Request," you can stretch out the payments over areasonable time, usually three years or less. Watch out: Interest(8 percent per year) and penalties (.25 percent a month) keeprunning up.

Let's say the situation is bleaker, and your company isbehind $90,000 in payroll and income taxes. Your only assets leftare IKEA couches and "Dotcom," the company's goldenretriever. In this case, ask the IRS to consider an "offer incompromise," which is basically an offer to settle the debtpermanently by paying only a portion of it. Offers in compromiseare used for larger amounts, when there's little chanceyou'll ever pay off the whole amount through corporate assetsor personal earnings. File IRS form 656 (request form) togetherwith Form 433 (financial disclosure form).

Then there's what some consider the ultimate solution:bankruptcy, which comes in several flavors. There's Chapter 7,or "straight liquidation bankruptcy," which can wipe outunsecured debts; Chapter 13, which is tailored for theself-employed or those on salary; and Chapter 11, the classic"reorganization," which requires partial repayment ofdebts.

Businesses incorporate in part to avoid personal liability, butall bets are off when taxes remain unpaid. A crucial question: Didshareholders incorporate to foil the IRS? If there's anulterior motive, the IRS can pierce the corporate shield and goafter shareholders' assets.

The bottom line: Have a system in place for paying all yourbusiness taxes regularly, and get in touch with the IRS if fiscalwoes find you short. Your business's future depends on it.

Joan E. Lisante is an attorney and freelance writer who livesin the Washington, DC, area. She writes consumer-related legalfeatures for The Washington Post, the Plain Dealer,the Spokane Spokesman-Review and the Toledo Blade(Ohio). She is also a contributing editor to LawStreet.com andConsumerAffairs.com.

In her practice, Lisante is counsel to ConsumerAffairs.comand was counsel for Zapnews, a fax-based customized news servicefor radio stations. Previously, she served as Assistant DistrictAttorney in Queens County, New York, and Deputy District Attorneyin Nassau County, New York.

The opinions expressed in this column arethose of the author, not of Entrepreneur.com. All answers areintended to be general in nature, without regard to specificgeographical areas or circumstances, and should only be relied uponafter consulting an appropriate expert, such as an attorney oraccountant.