Suspended Corporation

[peggysioux]

Taxpayer incorporated with the state of CA in 2003, but did nothing with corporation, basically a shell. He now wishes to dissolve, but Franchise Tax Board of CA has suspended corporation. Corporate returns for past years have to be filed before Franchise Tax Board will release corporation so that corporation can be dissolved. My question is this "does client need to file federal corporate returns as well if he did not file anything with the IRS regarding corporation? Can he just file state corporate returns and then file dissolution papers with secretary of state?"

[BOB W]

Dear Dissolving

If the corporation filed and received a Federal ID number, it would be good to file the Federal returns and mark the last one final.

If CA is like NY you will have a hefty franchise tax bill. You may want to rethink dissolution by letting the Corp just die. Lets look at this way, if the Corp has no assets the Corp will not have to pay the franchise bill. If the bill is not paid CA will not dissolve the Corp.

NY has an $800 minimum per year for "no asset" corporations plus late filing fees and other penalties.

[peggysioux]

Bob W,

The taxpayer did not file for a federal ID # and there were no assets transferred into corporation; however, the CA Franchise Tax Board is advising client that he is liable for the minimum franchise tax fee of $800 per year plus penalties and interest. How does a corporation "just die" rather than dissolve?? Won't client be liable for the $800 yearly franchise tax fee if corporation is not dissolved?

[BOB W]

Incorporation

One of the benefits of incorporation is limited liabiity. I can only speak for NY and they don't go after the shareholders unless there was corporate assets that were withdrawn for personal use.

[dsi]

I had a similar situation myself. I formed an S-corp back in 2001 here id CA. I never used it, never funded it, etc. I never applied for a FEIN either. I thought it was going to go away, as Bob said "just let it die". Well guess what folks... the FTB is looking high and low for money. I ended up having to payApprox $3000 in taxes, P&I. I have since dissolved the corp. BTW, you do have assets. You had to have incurred some org/startup costs that would be amortized?

[peggysioux]

So, if client

never submitted for federal ID #, should tax returns be filed for federal or just file state returns for California to release suspension to submit forms for dissolution??

[BOB W]

dsi

Were they chasing you personally or just the Corp. How did they convince you that you were personally responsible.

[dsi]

Peggysioux,
I only prepared and filed the CA returns.

Bob,
During a telephone conversation with ??? from the FTB, I was told that I could lose my right to practice in CA if I failed to pay the taxes, and properly dissolve the corp. So I did.

[BOB W]

So..........

........ other than that, there was no other direct liability to the shareholder?

[BOB W]

Peggysioux

I strongly suggest that you contact a tax or business lawyer in CA to find out what recourse CA has for not filing or dissolving a "shell" of a corporation.

[peggysioux]

Someone

from the FTB said back taxes needed to be paid even if it was a "shell". If we contact an attorney, their fees might add up to the $3000 in back taxes, penalties and interest and client still has his business, just kept running it as a sole proprietor. Thanks for all your input.

[BOB W]

Back Taxes

What I meant was to call someone to see if these filing fees are personal liabilities, not to hire a lawyer to solve the problem.

You must know someone who can answer that question.

[jainen]

attorney's time

>>client still has his business, just kept running it as a sole proprietor<<

This could be a problem. I think he should see an attorney--one who specializes in corporate or small business formation. It shouldn't take more than one $400 hour, and results will probably be very satisfactory.

You say the corporation never had any assets, but if the sole proprietorship is using things like goodwill, a name, or a client list the state could theoretically still hold him personally liable for the minimum tax and penalties.

California Franchise Tax Board is tough, and Board of Equalization (the appeals office) is really tough. Tell your client to go to a bookstore or his public law library and look for a Nolo Press book about forming corporations. That will prepare him to make maximum use of his attorney's time.

[peggysioux]

Thanks for

all the useful information.

[Unregistered]

Guest

dsi,
Could you claim the $3000 Tax paid for the Corporation in your persnal Income Tax return ?

Thanks