Dissolved By Proclamation

[BOB W]

This was discussed many months ago but I had a tax attorney come up with a different conclusion than was discussed on this board.

Returning client of 12 years ago now wants to sell property held in an S Corp but has not filed returns since 1994. The tax attorney says when the Corp gets reinstated with NYS it will be an S Corp just as if it had filed all returns without being dissolved.

Does anyone disagree?

[JohnH]

I think it's an unsettled issue, and may depend at least partly on state law. In NC, for example, a corp can be suspended for failure to file its income tax returns, and it can be administratively dissolved for failure to file annual reports. One usually follows the other in the normal course of events. The only way to reinstate the corp is to file all delinquent returns, pay all taxes due, and then file reinstatetemt paperwork along with an additional fee payment. There are a couple of NC court cases which say once a corp is reinstated, it is put back in the postion as having never been dissolved. (It's similar in effect to a corporate resolution ratifying all informal acts by the corp officers & directors after-the-fact. In essence, it's the only way to validate actions taken outside the scope of the charter or minutes, if that's possible).

So I'd think that a corp in NC which had been suspended or dissolved and subsequenty reinstates wouild maintain its S-corp status for the suspension/dissolution period. But if it never reinstates then the S-corp election probably terminated when the revenue suspension was first issued.

Other states may be different, and IRS may look to state law as a part of the determination of what constitutes an inadvertent termination of S-corp status. On the other hand, Harlan mentioned a long time ago that if there has been a suspension or revocaiton of the charter, it wouldn't hurt to re-file the 2553 after the reinstatement. That seems like a prudent course of action to me, because it can't do any harm and it may cure any lingering problem going forward. The suspension period may remain in some sort of limbo, but at least you've done all you could to keep the client in compliance after your become involved.

Here's a previous discussion on this matter (I notice that I started it - sure hope I'm being consistent in this response).

http://www.thetaxbook.com/forums/showthread.php?t=13108&highlight=dissolution

I'm still dealing with the original situation -> very similar to yours right now, so I'll be keenly interested in other points of view on this matter.

[BOB W]

The problem here is that the property needs to be sold and I don't want to file a new 2553 unless I am sure it is needed. If the S election is still good I could have a lease with option to buy in one year (time needed to get all returns filed and corp reinstated). If the corp will be considered a C Corp, then the Lease with option to buy needs to be at least 5 years (BIG).

[New York Enrolled Agent]

See if this helps.

http://www.tax.ny.gov/bus/doingbus/tr194_1.htm

[BOB W]

Thanks for that post. I did review this site initially but was more concerned with IRS posistion since the sale of fully deprecialed property was 1.3mil and purchased in 1977.

The lawyer said he could find no US code covering the loss of S status upon re-instatement.

This whole issue came about because I remembered a previous board post that indicated S status was lost when corporation was closed by proclamation of State. Now we all know that it isn't.

Anybody know where I can get 1995-2001 corporate tax programs? My provider only keeps 7 years back. I guess I have to dig through my basement to see if I find those computer with Window 95 and Windows 98. I don't know if the tax programs or computers are still functioning,

[JohnH]

ATX will sell them to you for $100.
I think they go back that far, but not sure.

[BOB W]

ATX will sell them to you for $100.
I think they go back that far, but not sure.

Are they XP compatible?

[JohnH]

No,i think you'll need a computer with Win95 t run some of them.

[BOB W]

OK, I'll check my basement all should there if I can get it (them) running with compatable monitor and such.

[oceanlovin'ea]

I think I would just be tempted to do them the "old fashioned" way.....by hand.

Linda, EA

[BOB W]

Don't remember..........Ha Ha.

[erchess]

Bob and Drake

Drake will sell a subscriber old versions going back as far as the company does and these versions run in XP and newer versions of windows. I think the cost is $25 per year. I would think they would sell to a non subscriber at the same price. You could also subscribe to the current year and have the right to download the older stuff going back quite far (but not all the way) at no charge.

[BOB W]

I will check into it if I have a problem resurecting my old computer(s). Thanks for your help.

[BOB W]

OK old computers are garbage......... will contact Drake........... Thanks again.

[JON]

Questions

Has the corporation been operating all these years??? As an S Corp were they receiving rent??? Where they an operating business??? Unless it has income does the IRS even care about loses from more than the open years??? Depreciation is as if you filed for all the years. Who was paying the operating expenses???