Discussion:Bank Interest after S-Corp Final Tax Year?

Who reports this interest (and how)?

How is any residual bank interest reported after the Final Tax Year (and Corp Dissolved per Form 966)? Note that the Bank Interest belongs to one of the shareholders, but was incorrectly allocated to the Corp due to a clerical error.

When you say "incorrectly allocated" do you mean that the bank put the corp's EIN number on the 1099 instead of the shareholder's? How about getting the bank to correct the error?

The shareholder had a personal account at the same bank and accidentally made a transfer into the corporation account rather than to the personal account close to the end of the year.

The bank put a hold on the funds until several days into the next year. During the hold time, the bank did not allow the funds to be moved to the personal account or allow the Corp account to be closed on Dec 31 when the Corp dissolved. Thus, because of the hold, interest was generated in the Corp account for a few days in the year following the "official" dissolution.

I think you could spend more time in responding to notices, and trying to abate penalties than actually filing the return, and get it over with. I would do this, even if I was unable to charge for it.

Filing the 1120S for a year after the Final Tax year would complicate things. For example, startup expenses were only allowed to be deducted in the Final Tax year. If the subsequent year is filed, it would then become the final year, and the previous deductions would be disallowed in original Final year (but apply to the new year of course).

Furthermore, CA would want another $800 in minimum Franchise tax...

Finally, can/should a dissolved corporation, that is not doing business, file a return? Note that, as far I understand, receiving bank interest is not considered doing business.

This actually brings up an interesting point (I am also posting this in a separate post!):

When is an S-Corporation Dissolved for Federal Purposes?

As far as I understand, the Corporation is dissolved when the Corporation board decides that it is dissolved?

For Federal purposes, form 966 is filed to alert IRS to this fact (within 30 days of decision to dissolve), and the final Tax return must then be filed within 3.5 month after the dissolution date. For CA State (Franchise Tax board) the final Tax return must be filed on the regular due date + extension (i.e. Oct 15). The Corporation then has up to 1 year after filing the final return to file the Certificate of Dissolution with the SOS.

For example: Corporation declares dissolution on Dec 31, 2007. Form 966 is filed before Jan 30, 2008. Final 1120S filed on or before April 15, 2008 (Final Tax Year 2007). Final 100S (CA return) filed on or before Oct 15, 2008 (Final Tax Year 2007). Certificate of Dissolution filed on or before Oct 15, 2009.

p.s. A strange situation occurs if the company instead had decided to dissolve an inactive Corporation on February 20, 2008 for example. In this case, IRS would consider 2008 to be the final tax year (a short Tax Year). However, the CA Franchise Tax board would still consider 2007 to be the final Tax year (No minimum Franchise Tax is due for 2008). How can the final tax year be different for State and Federal Purposes?

And to paraphrase a recent poster: closely held corporate minutes, I laugh at. or something to that effect.

Viking, I know the problems you state. All I am saying is that if advise is given not to file a return, when one is required, I think this shifts potential problems from the taxpayer to the advise giver. For one, I am not willing to accept this burden.

Yes, the date should have been 3/15/08 or 4/15/08 if extension was filed (Max 3.5 months after dissolution for final return).

If there's corporate income which got missed, it's simply taxable to whoever (on 1040 in the case here) got it, under section 61. Does we seriously think IRS will even launch an examination involving a related corp over a $25 1099? A CP-2000 is an examination, with indirect cost implications.