Dissolved Corporation Must Still File Returns

A recent private letter ruling issued by the Revenooers may come as a surprise to some.  IRS says that a corporation’s dissolution under state law is not the equivalent of a “termination” for income tax purposes, and the corporation must continue to file returns as long as it operates in a corporate manner.

In this case, a bloke formed a corporation which was administratively dissolved by the state in which it was formed (due to some neglect in a routine state filing, or payment of some state required fee).  During the period in which the taxpayer was unaware of the dissolution, he continued to file the annual corporate tax return and pay all corporate taxes as they came due.

The core test of corporate existence for purposes of federal income taxation is always a matter of federal law.  Whether an organization is to be taxed as a corporation under the Internal Revenue Code is determined by federal, not state, law says IRS.  A corporation is subject to federal corporate income tax liability as long as it continues to do business in a “corporate manner,” despite the fact that its recognized legal status under state law is voluntarily or involuntarily terminated.

And IRS is on solid ground here, pursuant to the results in several cases which stand for this proposition.

And here’s some good news for those of you single-member pension plans which may have been a little sloppy in filing those annual Forms 5500-EZ which IRS insists upon.

As of June 3, the IRS has made permanent the one-year pilot program (which expired the day before) which provided penalty relief for one-participant plans (covering typically the business owner and his or her spouse) which hadn’t kept up with their filings.  The permanent program does require the payment of a fee to obtain relief (though the temporary pilot program did not).  Still better than paying all of the delinquency penalties which can really pile up!

And a bit of good news for all of you California-ites out there.  Keep an eye on Assembly Bill 99 which, if passed, would extend the partial income exclusion for principal residence mortgage debt forgiveness for an additional year (covering the 2014 tax year) in conformity with federal law.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, and welcomes comments at [email protected].

Leave comment