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Barbara
Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3826
Experience:  20+ years of experience in tax preparation; 30+ years of experience as a real estate/corporate paralegal.
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Similar question to this one, already answered: * Formed C

Customer Question

Similar question to this one, already answered: http://www.justanswer.com/tax/5wo15-what-s-late-filing-penalty-corp-made-no-money.html
* Formed C Corp in March 2012 with two family members.
* The business of this business was to manage someone else's business (for a cut of profits).
* Business never made a dime. In fact, myself and the two others involved lost tens of thousands of dollars.
* I ended up bankrupt and homeless by March 2013 (yes, really).
* Lost all assets, including computer that records were kept on. I have all bank statements, and since 100% of all incoming and outgoing cash went through this account, everything can be reconstructed from the statements.
* No return was ever filed for 2012 or 2013.
* A bill for $900 was just received by a relative, along with a threat to levy assets by 12/17/2015 (I have no assets--I'm a full time student, but I'm also still homeless).
No idea where to start.
Submitted: 1 year ago.
Category: Tax
Expert:  Barbara replied 1 year ago.

Welcome to Just Answer. My name is ***** ***** I will be happy to assist you.

C corps must file a tax return on Form 1120 every year. The filing deadline for the 1120 always falls on the 15th day of the third month immediately following the close of the tax year. Therefore, if your corporation maintained its books and records using the calendar year, the filing deadline is March 15 of the following year.

My best advice is to immediately contact the IRS (or have an Enrolled Agent/CPA do so on your behalf) to advise them that you will be filing the 2012, 2013, and 2014 tax returns so you are compliant in that regard. The IRS will cease any collection efforts once they are notified that you plan to become compliant. Once the returns are filed, you can then either make arrangements to be put on an installment/payment plan for any amount that is owed, OR (in your case because you are a full-time student and homeless) request to be placed in Currently Not Collectible Status. In either case, all collection activity by the IRS will cease.

You will also want to formally dissolve the C corporation as soon as possible if you have not already done so.

Please let me know if I can assist you further.

Thank you and best regards,

Barb

Customer: replied 1 year ago.
I understand what my legal obligations were--I just wasn't able to do it at the time. And, I do appreciate your confirmation that the IRS is capable of working with me on this--that makes me feel a lot better. However, I still have a few questions:1. This was a restaurant, and the POS system is gone. I have only bank statements at this point. EVERY dollar the business ever made went into this bank account, and EVERY dollar ever spent came out of this account. Consequently, the statements are a 100% accurate picture of the business profit (which is zero). HOWEVER, C corps must use the accrual method, and using the bank statements, it's not possible to reconstruct this precisely due to the loss of payable dates. For example, a person paying with a credit card might have the amount credited to the business account a few days later, and a vendor might hold a check for several days before cashing it. Will the IRS likely accept this reconstruction of the data? I can't think of another way to file the returns and show that the profit was zero.2. Does a zero profit for all years still subject me to any penalties? I know that for LLC and S corp entities, there is a substantial penalty for every month that a return is not filed, even if there is no tax due. I can't find anything in the IRC for C corp minimums except for a minimum penalty on taxes due (but no taxes are due).I should note that right now, they appear to be sending me a bill for the estimated amount due, but that estimate is obviously wrong. Further, only one of the tax years (the first one) is in collection, and since it was only part of a year, I can only guess that the other years will be shortly behind it (and with much larger dollar amounts). Consequently, while they've estimated a $900 tax bill for one of the returns, the total bill is likely to be at least several thousand dollars more than this.I recognize that the complexity of this would normally require a CPA directly involved, but obviously, I don't have the money for that right now. This could be serious because I'm a veteran and while I am homeless, my school is being paid for by the GI Bill. My understanding of existing Treasury rules is that the IRS could take my GI Bill benefits under the Treasury Offset Program (TOP) in response to IRS submission of a valid debt. I'm a senior in software engineering and loss of the VA money would eliminate my chances of finishing school.Thanks for your help.
Expert:  Barbara replied 1 year ago.

Thank you for the additional information.

While I understand your current financial situation prohibits you from engaging the services of a tax professional, your first course of action should be to contact the IRS and be proactive. Let them know your situation and that you are attempting to gather the information to file the tax returns. If the C corporation does not owe any taxes, there is no penalty for filing late.

As to cash vs. accrual,

IRC 448 prohibits both C corporations and partnerships with C corporate partners with gross receipts exceeding $5 million, and tax shelters from using the cash method of accounting. Most businesses that maintain an inventory also are generally prohibited from using the cash method. However, there are several exceptions to the prohibition against using the cash method:

  • Personal service corporations are permitted to use the cash method of accounting.
  • There is also a small business exception for businesses with an average annual gross receipt not exceeding $5,000,000 in at least 1 of the 3 previous tax years.
  • A small inventory-based business exception allows businesses with inventories to use the cash method if the average annual gross receipts of each 3-year period since 1998 does not exceed $10,000,000. If corporation was in existence for fewer than 3 years, then the annual average for when it was in existence must not exceed $10,000,000.

Best regards,

Barb

Expert:  Barbara replied 1 year ago.

Just following up with you to see if you have any other questions. If so, please come back to me here at your convenience, and I will be happy to assist you. If not, please take a moment to rate my answer since that is the only way I receive credit for answering you and alerts Just Answer to compensate me for a portion of the fee you previously paid.

Best regards,

Barb