S-corp and tax penalty

[buckle1234]

What is the name of your state (only U.S. law)? NY

An s-corp filed a voluntary dissolution in February, 2010. A final return should have been filed within 75 days, but the client did not realize that and filed it by the normal filing date of March 15, 2011. The IRS then assessed a penalty for late filing of over $5,000. The amount was high because there were three sharedholders over 11 months The company was in existence for three years and was never profitable and there never were any tangible assets in the corporation. We asked for an abatemet from the IRS, given the circumstacnes, but they have refused.

Can the client just ignore the IRS request since there never were assets to pay the penalty , or will the IRS try to pursue the penalty against the shareholders?

I'm thinking that the S-corp could file bankruptcy to avoid paying the penalty, but it's not in existence.

Any thougnts would be appreciated.What is the name of your state (only U.S. law)?

 

[JustAPal00]

What is the name of your state (only U.S. law)? NY

An s-corp filed a voluntary dissolution in February, 2010. A final return should have been filed within 75 days, but the client did not realize that and filed it by the normal filing date of March 15, 2011. The IRS then assessed a penalty for late filing of over $5,000. The amount was high because there were three sharedholders over 11 months The company was in existence for three years and was never profitable and there never were any tangible assets in the corporation. We asked for an abatemet from the IRS, given the circumstacnes, but they have refused.

Can the client just ignore the IRS request since there never were assets to pay the penalty , or will the IRS try to pursue the penalty against the shareholders?

I'm thinking that the S-corp could file bankruptcy to avoid paying the penalty, but it's not in existence.

Any thougnts would be appreciated.What is the name of your state (only U.S. law)?

When I had a similar problem, I had to file Chap 7 for the S-Corp. Even though my S-Corp was no longer opperating. By filing the chap 7, the penalties and interest were forgiven by the IRS and only the taxes due were owed. Had I not, I would have been the one responsible for paying it all back because I was the person responsible for making financial decisions. Mine was a case of back taxes though. But still the penalties and interest were forgiven. Hope this helps.

 

[tranquility]

Can the client just ignore the IRS request since there never were assets to pay the penalty , or will the IRS try to pursue the penalty against the shareholders?

I suggest you don't ignore the IRS, ever.

You should see a tax professional who can look at your facts. That you never had enough assets to pay the penalty may be a problem. While this is not a trust fund penalty, there still may be a path to getting the money from the officers as the corp was not wound up properly.

 

[davew128]

Why not amend the return so that the tax year ends on 12/31? Just because a corporation is administratively dissolved with the state doesn't mean it no longer exists and conducts its affairs under the tax code, particularly in an instance where it is winding up its affairs, paying its debts and distributing assets to shareholders Was a Form 966 filed?

 

[buckle1234]

Bali Hai,

Thanks for the suggestion. In my case, the compnay filed a voluntary dissolution and just didn't realize it should file a final return right away. Do you think an amended reutrn would still work underthose circumstances?

 

[davew128]

Bali Hai

Thanks for the suggestion. In my case, the compnay filed a voluntary dissolution and just didn't realize it should file a final return right away. Do you think an amended reutrn would still work underthose circumstances?

I have no idea, because I've never had an s-corp get a penalty in these circumstances. But it theory the remedy makes sense.

 

[LdiJ]

I have no idea, because I've never had an s-corp get a penalty in these circumstances. But it theory the remedy makes sense.

If they had done it that way from the get go, it would have worked. I have done it that way for many clients. I kind of think its unlikely that the IRS will buy the amended full year operation now that a return has already been filed showing a short year...and the IRS has already refused to abate the penalty.

The enforcement of these penalties is relatively new...its only been in the last few years that the IRS is doing so...and they have embraced it with a vengence, so there is not a lot of history for us to work off of.

Our firm had a couple of clients who ceased operations in 2009 but did not tell us, so their 2009 1120-S's were not marked as final returns. They got fined the same way for not submitted 2010 returns. We sent in "0" returns showing final return and asked for an abatement of the penalties, and got no where.