unfiled 1120s

[erchess]

I have a client who never could work out a time with me to get his stuff about the 1120s before the deadline. He was going to get it to me a week before the deadline which would have met my deadline but his computer crashed and he had no backups so he was having to go back to his paper files and reconstruct. Since that conversation he has not called me nor have I called him. (I have different rates according to how much hand holding people want and he signed up to get and does get very little. I return his calls but am not proactive in reaching out to him.)

He was already thinking that he had closed or would close the corp out and that 2012 would be the final year of substance with a 2013 no activity final return being necessary. If that is done will someone still have to pay the penalties for the late return? I know that the amount of the penalty is based on the number of shareholders and how late the return is but if I remember right it's assessed at the corporate not individual level so if the corp stops existing there would be no one obligated to pay the penalty.

[Nashville]

Penalty Relief premises unfounded

Erchess, if your client is not assessed a penalty it will be because it is too much trouble for the IRS to chase down the situation. He certainly doesn't have any justifiable premise for not getting one.

Face it: this guy just doesn't want to file, period. One excuse after another. Perhaps the most ridiculous idea is if he doesn't file a final return he won't owe a penalty because the corporation no longer exists. Get real! They will prevail against the shareholders if the corporation doesn't file or pay. You won't hear from this guy again unless the IRS catches up with him and causes him so much misery the corporation will have to file a return.

A very realistic probability, however, is they won't bother. Just like any other organization, the IRS is not going to waste their resources unless there is a financial recovery for doing so. There are literally thousands of corporations, partnerships, other entities who are broke, and don't even have the money to pay someone to prepare a final return. The IRS is aware of this vast wasteland of unfiled returns - but also knows the reason they are shut down is because they have no money. Hard to get the IRS to pay big money to assign a task force of agents to enforce filing and payment from these untold thousands of entities.

Anyone who believes the IRS operates on principle instead of cost-benefit analysis is just simply naive.

[erchess]

This is interesting. I routinely get NCDOR to stop bugging clients about corp and franchise taxes by dissolving the corp or allowing the SOS to do so administratively. In fifth grade I learned that a corporation enabled people to pool their funds and take a stab at going into business with the promise that the most they could lose was whatever time money or property they contributed to the business.

[JohnH]

I seem to recall that the FTF penalty is specifically assessed against the S-corp only. So if the S-corp has closed down and insolvent, the IRS cannot assess the FTF penalty against the shareholders.