inactive corporation - Florida

[oceanlovin'ea]

I was just checking to make sure my business clients had filed their annual report with the state of Florida.
One business that I have done some work with in the past but have not done her tax return for about 3 years now. Actually no one has done them. When she calls me, I tell her exactly what information I need to do them.
But she has not filed her annual report and paid her fees to the state since 2005. I can't believe that!!! Well, I can but....

What happens now? If the corporation has been dissolved by the state, what is the status with IRS?
The corporation is a restaurant that has had huge losses for years now...at least for the years that I did do. Mr. H died and the restaurant was left to his wife. Her son and daughter have been "trying" to run the restaurant for years and are making a total mess of it. All the talking I do falls on deaf ears. The lady is in her 80's and in bad health. She recently tried to sell the restaurant but I think the deal is falling through. She has loaned the business money to pay bills for years so the business owes her a lot of money.

I am just wondering what direction I should take her in. When I called the state about another business who forgot to pay their annual fee on time last year and doesn't have the money to pay it (It is $150 by May 1 and $550 after May 1), I was told that he should leave the corporation inactive and just form a new corporation.

I appreciate any imput you might have.

Linda

[kaimana]

I was of the impression that the taxpayer has to send a form disolving the company...it may be put on inactive status due to no returns being filed and I'm sure you know that the client will have to provide a tax clearance in order to take the company off inactive status.

Don't think what the clerk gave you was very good advice.

[oceanlovin'ea]

Letter from state

The annual report is due on May 1st and the fee is $150 for corporations and $138.75 for LLCs. If you have not filed by Sept 15th, you get a letter (card) from the state that says the business is being administratively dissolved. In order to stop this action, you must send in $550 immediately.

I had one business last year that forgot to do this. They wanted to change to an LLC. So we set up the LLC and I was going to do a merger. But was told that you can't merge an inactive or dissolved business into another. It must be active. So we just had to close the business as of 2007 and start a new LLC in 2008.

Linda

[JohnH]

From the Florida Secretary of State Web Site:

17. What does administratively dissolved, administratively revoked, involuntarily dissolved, and revoked for annual report mean?

Under current law, a Florida entity which fails to file its annual report form as required is administratively dissolved by our office. If the entity is a foreign (or out-of-state) entity, its certificate of authority to transact business in Florida is administratively revoked. Under previous law, entities which failed to file their annual reports were involuntarily dissolved or revoked for annual report. So, these terms have the same meaning. The entities are no longer active on our records. These business entities may reinstate by filing a reinstatement application and paying the applicable fees. When the reinstatement is effective, it relates back to and takes effect as of the effective date of the dissolution or revocation.
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The person you spoke with was probably suggesting that it would be cheaper to form a new corporation than to pay the fees to reinstate the existing corp. This is often true in many states, irrespective of the income tax filing obligations.

It's my understanding that a corporation must file a Federal Tax Return for any year in which it conducts business, even if the corporation has been administratively dissolved or if its charter has been suspended by the state in which it was formed. So for Federal purposes, the administrative dossultion has no practical effect if the corporation continues to operate. However, I'm also pretty sure that an "S" corporation which has been administratively dissolved or suspended will lose its "S" corp status, unless the corporation is reinstated via the laws of the state in which it was formed. If the state provides a process for reinstatetement and the corporation eventually complies, then the "S" corp status is not affected.

[oceanlovin'ea]

Thanks John

I don't know why I didn't think to look that up on the website, but thank you for doing that.

Fortunately, this business is a regular C corp. But I will need to contact the state to see what they will have to do to get this straightened out since she is trying to sell the business.

Linda

[JohnH]

It's an interesting situation, especially if there's not a termination of an "S" corp election to be worried about.

In NC, a corporation which is under revenue suspension or administrative dissolution is legally allowed to conduct business necessary to wind its operations down (including sale of assets, etc) even if it never pays the reinstatement fees. So if this were an NC client I might be inclined to tell them they can probably do an orderly shut down and forget the Sec of State (this approach would need some more work and the blessing of a lawyer, but it might be OK).


But the corporation laws of each state can be quite different, so Florida might have different rules altogether. And if your client expects to receive significant money from the sale of the business and wants to repay loans she made to the business, it might be better to pay the fees to the Sec of State and clean up the legal niceties.