Suspended C-Corp Revival of Business

[megabeacon]

I'm wondering what the best direction to file my late tax returns for my Suspended C-Corp.

I've filed them once with my personal taxes back in 2015 and I believe it was suspended from 2017 until now. I now am looking to file these late returns in order to revive the business. I spoke with the IRS and they stated amounts that were due based on estimates but no income was made on these suspended years. If I file this years returns as I did in 2015 and file the late returns later this year will there but an issue? I'll have to get a tax expert to file that no income was made those years and go from there.

[tagteam]

You need professional tax preparation for the Form 1120 to have a better chance of meeting the IRS reasonable-cause criteria for late filing. 

[Mike9241]

there would be no late filing penalties if the corp had no tax liability. however, for the earliest years (2015-2017), any estimated tax payments would be forfeit because the returns were not timely filed. another issue, have you been paying and filing any annual reports/franchise tax returns required by the state of incorporation. failure can result in automatic dissolution of the corp, but then again some states allow reinstatement if the past due items are filed and paid.

[tagteam]

Unless exempt under section 501, all domestic corporations (including corporations in bankruptcy) must file an income tax return whether or not they have taxable income.

The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $435. The penalty will not be imposed if the corporation can show that the failure to file on time was due to reasonable cause.

[Critter-3]

@megabeacon     I've filed them once with my personal taxes back in 2015

A C-Corp return is a totally separate filing from a personal income tax return ... are you possibly saying you has a Sch C on your personal return for a sole prop business?   If so just add the Sch C back to the personal return if you had any income from that business.   In the prior years, if you had no income or expenses for the Sole Prop then no Sch C would have been filed which is normal.

[Rick19744]

I agree with the overall premise that you should get a tax professional involved, even if you did not have any activity.

You will most likely receive correspondence from the IRS as a result of the late filed returns.  The minimum penalty mentioned by @tagteam has varied over the years so depending on the year your penalty will run from around $210 ish to the $435 for the respective year the return was filed late.

Your tax professional will be able to help you respond to the IRS notice and possibly get a tax penalty abatement.  You will need to come up with a reasonable cause as has already been noted.

Keep in mind, your C corp was not "suspended" in the eyes of the IRS.

Also make sure you contact your state to see if there is something there that needs to be filed as well.

Best of luck in getting this resolved.

[AmeliesUncle]

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@tagteam wrote:

is the smaller of the tax due or $435. 

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As Mike said, if there is no tax liability, there won't be a penalty.

[tagteam]

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@AmeliesUncle wrote:

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@tagteam wrote:

is the smaller of the tax due or $435. 

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As Mike said, if there is no tax liability, there won't be a penalty.

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That is 100% correct. For some reason, I was thinking of the late filing penalty for an S corporation return.

[Critter-3]

The simple fact is you got an EIN for a C-Corp and the IRS expects a return to be filed every tax year for this entity until you file a final return.  Even if there is no activity you must still file the expected return.  Failure to file the required/expected form can be  expensive.  

[Rick19744]

I also agree in reading the statute again.

The instructions to the form 1120 (page 5 of the 2020 instructions) state "The minimum penalty for a return that is more than 60 days late is the smaller of the tax due or $435."

This agrees to the flush language of Section 6651(a)(3):

In the case of a failure to file a return of tax imposed by chapter 1 within 60 days of the date prescribed for filing of such return (determined with regard to any extensions of time for filing), unless it is shown that such failure is due to reasonable cause and not due to willful neglect, the addition to tax under paragraph (1) shall not be less than the lesser of $435 or 100 percent of the amount required to be shown as tax on such return.

If it is the "lesser" of the two amounts, if there is no tax due, the lesser amount will be zero.

While Congress wanted at least a minimum tax penalty, this will not apply where there is zero tax liability.