Non-Corpos Meant-us ... Ask TaxMama ... September 3, 2004

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Published by Eva Rosenberg, MBA, EA
Volume 6, Issue 274 September 3, 2004


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Non-Corpos Meant-us

» From: Halfmoon Bay, CA

Dear TaxMama:

I was the sole incorporator of a California "C" corp back in August 2000.

Since that time much has happened for me, but unfortunately filing CA corp tax returns was not one of them. The corp never really got off the ground, didn't issue shares, and was not active after January 2002.

I'm in the process of dissolving the corp and need advice on completion of the tax returns for 2000-2004.

In particular the dates for the close of business, final return, etc. I'm mostly worried about getting hit with a huge penalty when the corp never made any money, was not active and I simply didn't file on time.

Any sugggestions or advice greatly appreciated.

OBTW, I did find this article - this question you answered in Google Answers - helpful but was desiring more details about filling out the forms. I'm sure many people are in the same situation.

Joe

Dear Joe,

Call up the Secretary of State's office and ask them this:

If I never activated the corporation, can I dissolve it without paying any taxes?

If you never opened a bank account or did any business in the State of California, perhaps, since there is no "date business started" you just may have an out.

On the other hand, this IS the State of California. And she needs money. So, if there is a legal way to insist that you pay all the back taxes ... they will.

And if you did run the corporation until January of 2002... you're probably flat out of luck on that request.

I have seen people just walk away from their corporations without filing anything, and just wait out the State's series of ever-more-threatening notices, until they fade away. In the past, the State of California has not gone after the personal assets of corporate officers for the back franchise taxes on defunct corporations.

But, I have lately heard rumblings that they just might.

There is one legal citation I have seen used to enable people to walk off clean. I have also seen the State fight it, but the taxpayer generally wins. You'll need to see your tax professional to get that guidance.

But the trade-off is - while it may help you walk away from several years of corporate taxes, you will pay several hundred dollars to a tax professional for their help. But, that IS a lot less than the taxes, penalty and interest you'll be paying to the FTB (Franchise Tax Board).

As to what happens when you file all the returns and how much will you owe? Figure, the minimum tax is $800 per year. The late fees about $100 per year. The collection fee, since you didn't respond to the State sooner, is probably about $179 per year. Then interest on the whole shebang.

Oh, and to clear it, you will have to file a tax return for 2004 as well. You're in for about 5 grand.

Joe, you've got to pay attention when you do these things. If you're not going to use it - shut it down fast.

And if you DO need a corporation, wait until you're ready to start business, THEN, open it up. With today's companies, like AccountStreet.com , and online tools, you can open a corporation in a day or two.

As to the dates to use?

If the Secretary of State's office doesn't let you off the hook, then use the most current date possible for the end of the corporation - then you won't also have any late filing penalties for 2004. After all, you're supposed to file the final tax return within 2 and half months after the corporation's close.

Good luck!

Best wishes,

Eva Rosenberg
Your TaxMama

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