no risk of conversion to s in 2012.
so, let's review what the story is.
corp didn't file income tax
returns, but files sales tax returns and did banking.
If owners reported all income as schedule C, report corporate income/expense as in/out, with no tax due. Perhaps you could report sales on 1120 as 300,000, with a reduction that says reported by (shareholder ss) 300,000, for 0 sales. Same with expenses, reporting them all in detail, with a corresponding addition for reported by shareholder ss on 20XX 1040 schedule C). No corporate income tax, just late filing charges.
You will have to file all the old returns before you could set up a new corp in your shareholder's name. A new corp is cleaner, but since you are concerned about costs, why not use what you have?
Thanks again from Just Answer.