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Turning over the assets as a contribution to another business is likely to not be looked on favorably. From the IRS perspective using money that was withheld from employees rather than paying it timely to the government is akin to stealing that money. My experience would make me think that the IRS may take a hard stance on the unpaid employment taxes.
Although you do not mention (and perhaps should not as these posts are publicly visible) what your personal assets are the IRS may even take the position that you are able and so they will expect the full amount of the employment taxes due in short order.
Any use of the business funds other than paying the IRS debt in the most unfavorable extreme view could be suspected to be a willful attempt to avoid payment of the tax due.
From the Department of Justice Tax Manual at http://www.unclefed.com/SurviveIRS/Tax-Man/taxmanc08.pdf
describing Tax Evasion:
"The affirmative acts of evasion associated with evasion of payment cases almost always involve some form of concealment of the taxpayer's ability to pay the tax due and owing or the removal of assets from the reach of the IRS. Obstinately refusing to pay taxes due, possession of the funds needed to pay the taxes, and even the open assignment of income, without more, do not meet the requirement of the affirmative act necessary for an evasion charge.
Examples of affirmative acts of evasion of payment include: placing assets in the names of others; dealing in currency; causing receipts to be paid through and in the name of others; causing debts to be paid through and in the name of others; and paying creditors instead of the government."
Note that among the acts listed is placing assets in the names of others and paying creditors instead of the government. Please know that I am not saying that you are attempting to evade paying the tax but you need to be aware that some of the acts you mentioned, in some cases, are considered affirmative acts of evasion associated with evasion of payment.
You certainly can loan money to the business with loan documentation and payment back to you. with interest, in order to take care of the employment taxes due. Investing capital is also an option and that may be preferred if you do not wish to have income that is considered if you need to do financial statements personally to determine how much of an installment payment the federal or state government deems you can pay.
You should seriously consider retaining a representative (such as a tax attorney or enrolled agent) to assist in these matters before taking any action.
Please let me know if you want more information or discussion.
Have you received my response?
Sorry there must have been a technical difficulty (and I was away).
Your reply never got into this thread only your question shows "Have you received my response?"
Please do let me know if you need more information or discussion.
I would like to reiterate that any recommendation to move assets to a C-Corp is even MORE dangerous than moving them to an S-Corp.
Fancy footwork by classic tax folks might sound appealing, but the law here says (especially with you having the history you have with this issue)... that moving assets to a COMPLETELY SEPARATE LEGAL ENTITY such as a C-Corp ...under both state corporate law AND federal tax law ... will be perceived as evasion.
IRS front lines won't buy it for a second ... and it you take it to tax court, the court will apply both (1) the substance over form doctrine AND (2) the reasonable person doctrine ... to say that ANY reasonable person would say that you moved the money to evade taxation.
WORK with them. They will not shut your business down, nor will they take your home ... IF you take the first step, work something out that says your best way to pay them back is to keep that business going, and approach them in a prepared way ... don't let them contact you next.
JUST TAKE A LOOK AT THIS: http://www.accounting-degree.org/scandals/ , TO GET A FEEL FOR HOW LARGE ACCOUNTING FIRMS HAVE HURT PEOPLE BY EITHER BECOMING A PARTY TO THE CRIME OR GIVING FALSE HOPE.