My client was advised to incorporate her existing restaurant business, which is a sole proprietor
located in California
. The date of incorporation with the California Secretary of State
is May 7, 2009 and stock certificates were issued to it's one shareholder
. The company that prepared the incorporation stated that an S election was filed and I recently confirmed with the IRS
that in fact they never received the Form
2553. A second shareholder was issued stock on June 9, 2011. My client never did not transfer the business into the corporation. All they have done is used the EIN on their new bank account (which states the sole proprietor name and the DBA) This bank account was opened in March of 2012. My client also used the EIN on sales tax returns
beginning on April 1, 2011.
I am concerned that the IRS will demand 3 years of C Corporation tax returns, which will result with a large amount of dividend income
for the distributions
made to the business owners.
I would like to receive a lot of input from you tax
attorneys with regard to this situation.
I would like to know if closing the corporation due to no transfer of assets
nor the incurring of liabilities
took place, as well as no operations took place with in the corporation. The business continued to operate as a sole proprietor and has filed Schedules C in the tax returns of the owner up until 2010. The 2011 tax return
is on extension
What do all you tax attorneys advise as the best solution.