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    11 Replies Latest reply on Aug 25, 2008 12:52 PM by DomainDiva

    Inactive Corporation paying back taxes?

    robzherenow Wayfarer
      I started a C-Corp in the State of Deleware a few years back. I listed myself as the President. The business unfortunately never got off the ground- no operations, income/loss, etc. It was just a registered name (with an EIN number). I was told by the company that that I used to form the corporation (+I think it was or, etc+) that the state will "administratively dissolve" the corporation after "awhile" if it is not active. So I left it alone.

      Then recently someone told me that even if the corporation is not active, I would still need to file anual taxes for it every year- stating that it is not active.
      If I dont, the IRS will come after me with the back taxes + interest.

      Can someone tell me-

      1.) Can the IRS come after me personally since the C-Corp is its own entity?

      2.) How can I explain to the IRS that I was given misinformation and that I didnt intentially avoid filing taxes?
      Or should I not even bother since the corporation is in active, made no money, and therefore there is very little to be gained by the IRS from coming after someone like me...........


      Thanks in advance for your help.
        • Re: Inactive Corporation paying back taxes?
          Santa Fe CPA Adventurer

          Hello Robzherenow,


          If you have not filed your annual Delaware Corporate franchise tax for certain number of years defined in the States corporation act, your corporation has been disloved by the DE Secretary of State and is no longer in existance.

          Question #2. If the corporation had no operations, no income, and no expenses it will not have a tax liability. Should the IRS send you a notice of failure to file, you need only to file a return for that year disclosing zero revenue and zero expense. You should mark the blocks for "intial" and "final" return on the Form 1120. Since all penalties and interest are computed on the basis of the tax liability you will not be hit with a bill for either tax, penalty or interest. If it is more than 3 years since you filed for the EIN, and you haven't heard anything from them, I doubt that you would hear from them at all.


          Question #1. There are instances where to shareholders of a C corporation may be held liable for any taxes owed but you don't fall into that situation.

          Richard G. Robinson, CPA
            • Re: Inactive Corporation paying back taxes?
              robzherenow Wayfarer
              Thank you Richard.
              I wasnt sure how the State of Deleware handles inactive entitities.
              I have heard that the state of Nevada does not administratively dissolve inactive corporations, and thus, any fees and back taxes accrue until action is taken. Regardless, it takes a load off my mind to know that I wont have to dissolve the deleware entity or be required to pay penalties for not filing taxes.

              Thanks Again.
            • Re: Inactive Corporation paying back taxes?
              Lighthouse24 Ranger

              While you may not have any federal tax liability to worry about, there could be other issues. For instance, if you ever need a security clearance for your work someday, or if you one day start up another business that wants to sell to or contract with the government -- anything that might involve a routine investigation or audit -- then the fact that you were an officer and stockholder in a corporation that never filed or paid income taxes could make it not so "routine." You still wouldn't be in any real "trouble," but that apparent issue could delay something that you really want/need to proceed smoothly. So before you just "forget about it," think that through -- and if you decide it's necessary, clear it up now (while it's easier to do). Best wishes.
                • Re: Inactive Corporation paying back taxes?
                  robzherenow Wayfarer

                  I would want to take care of this the correct way so there are no future obstacles.
                  My concern is how the IRS is going to react to me not filing the corporation taxes for the past 3 years.
                  I was advised to file form 1120 with the IRS and state on it that I was unaware that I had to file taxes for an inactive corp.
                  and they will perhaps excuse the fees, possible fines, and interest. Well "perhaps" is the key word there.

                    • Re: Inactive Corporation paying back taxes?
                      robzherenow Wayfarer
                      I recently read a book called "Tax This: In Insider's guide to standing up to the IRS" written by a former IRS attorney. In the book, he reveals certain truths about the IRS that is unknown by the American public. He mentions how disorganized the IRS really is, and how one department does not have solid communication routes with another department, etc. The best way to work with the IRS during an audit is to ask for more time and drag out cases because the auditors at the IRS work on quota (need to audit a certain amount of individuals per year) and they dont like long drawn out cases (it works against them meeting their quota). Basically he concludes that if the IRS was to get audited themselves, they would fail miserably.

                      • Re: Inactive Corporation paying back taxes?
                        Lighthouse24 Ranger
                        As SantaFe noted, if your federal tax liability is zero, then the penalties and interest are generally zero -- so at the federal level, it seems that you're really just needing to file (even if it's very late) to close this out.

                        Again, the IRS may not be your only concern with this. For example, years ago I formed a new company to run a technolgy integration project. When the project ended, I properly dissolved the corporation except for being unaware of a half-page form that needed to go to the local tax assessor (in a county where we'd temporarily leased office space). He had continued to assess business property taxes and penalties against the firm. After 3 years (the dissolved company "owed" about $400 at that point), the county filed a lein with the annotation "unpaid taxes and penalties," which started showing up on my personal financials (looked bad and was a chore to resolve).

                        My suggestion (for anyone) is that when you discover an innocent oversight, resolve it proactively if you can -- rather than having it bite you unexpectedly later. Good luck.
                    • Re: Inactive Corporation paying back taxes?
                      LUCKIEST Guide
                      Inactive Corporation paying back taxes

                      It is great to get a professional answer from a CPA

                      On a lighter note, Saw an Off Broadway Show "Ten Percent of Molly Snyder" yesterday,
                      She starts off at the motor vehicle office to change her address, and her life does
                      down hill from there.

                      Nothing to do with the posting, BUT do it right the first time.

                      • Re: Inactive Corporation paying back taxes?
                        DomainDiva Ranger
                        You need to make personal contact with a CPA. I am a Delaware CB Corp and we have had nothing but problems with Delaware each and every year. The returns have to be filed online and the help desk is not able to answer most of the difficult questions. We just this year got a two year problem with amount(s) owed straightened out (we thought) that is until yesterday I received another letter from the Delaware agent listing three things wrong. All of them in error. So here we go again.

                        As long as you are upfront and can prove your assertions, I seriously doubt that the IRS is going to be a problem. Just get some competant professional and personal help. While the answers on the board here may be comforting, that is no substitute. The IRS will not take into consideration any copies of this post you have made for your personal records.