Discussion:California corporation first year 15 days or fewer

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Discussion Forum Index --> Advanced Tax Questions --> California corporation first year 15 days or fewer


Discussion Forum Index --> Tax Questions --> California corporation first year 15 days or fewer

Calsurf (talk|edits) said:

13 March 2011
If a California corporation is formed in the final 15 days of December, it is not required to file a return or pay tax, providing it conducted no business. The problem is that it appears a federal return has to be filed, nonethless. Since clients have been told they're not required to file for a return formed in the final 15 days, there is a presumption that this also applies to the federal S corp return. Since it's not, initial year elections have been not been filed timely, and there is a substantial penalty for late filing. Does anyone have any thoughts how to deal with this costly dilemma?

TOrahaCPA (talk|edits) said:

13 March 2011
the initial tax year begins the earliest date on which the corporation has shareholders, acquires assets, or begins doing business.

TOrahaCPA (talk|edits) said:

13 March 2011
Calsurf,

Are you saying that your client is required to file a state return, therefore, a federal return as well?

JackTraffic (talk|edits) said:

13 March 2011
A purely shelf corporation (no activity) shouldn't be required to file a federal or state corporate return... but here's another question: since you're in the business (presumably) of filing corporation returns, why not just file the return?

KatieJ (talk|edits) said:

13 March 2011
A California corporation is required to file a return and subject to the $800 minimum tax for ANY period of its existence as a corporation -- from the earlier of the date of incorporation, qualification, or commencing to do business in the state until the date of dissolution or withdrawal. CRTC Sec. 23153(a). Two exceptions: there is no $800 minimum tax for the first taxable year (CRTC Sec. 23153(f)(1), and if the initial period is 15 days or less and there is no activity, the initial period does not count as a taxable year (and therefore doesn't use up the $800 minimum tax exemption for the first year). CRTC Sec. 23114. Oh, and there is another, new exception, effective 9/27/2010: a corporation solely owned by a deployed military member is not subject to the minimum tax for any year when the owner is deployed and the corporation operates at a loss or ceases operations. CRTC Sec 23153(i).

Calsurf is saying that the corporation had no need to file a state return for the first period, which is true. I'm not sure about the federal.

Calsurf (talk|edits) said:

13 March 2011
Torahcpa got it right with respect to the federal filing requirement. It's Reg. §1.1362-6(a)(2)(ii)(C) that defines when the first return must be filed. I knew I'd see that requirement before, but there is nothing in the 1120S instructions that specify that any longer.

As for filing the federal with no activity a year late, it's very expensive. The penalty, as I recall, is $195 per shareholder per month up to 12 months. Once the Service sees that the corporation was formed prior to the first return period, a letter is issued requiring a return.

Thanks to those of you who responded.

Calsurf (talk|edits) said:

13 March 2011
Unfortunately, that was a bad citation. It does not deal with the requirement for filing an initial return. Torahcpa, do you have a citation? I still can't find it.

TOrahaCPA (talk|edits) said:

13 March 2011
I think you have the right cite.

Calsurf (talk|edits) said:

13 March 2011
Torahcpa, that citation is for the S election. I wish it were for the initial return filing requirement.

Harry Boscoe (talk|edits) said:

13 March 2011
IRC §6012(a)(2) might work:

"Sec. 6012. Persons required to make returns of income

(a) General rule - Returns with respect to income taxes under subtitle A shall be made by the following:
(2) Every corporation subject to taxation under subtitle A..."

I've always heard that if a corporation exists, it's supposed to - it is required by law to - file a tax return.

What's a "shelf corporation" anyway, and how is it not subject to this rule?

Calsurf (talk|edits) said:

13 March 2011
Harry, I think you have the right Code section. All corporations are required to file. This has always been the case. The only thing that's changed is that awful penalty for late filing for S corporations. Since it's a C corporation for fewer than 15 days, it would be an 1120 that's filed late.

Harry Boscoe (talk|edits) said:

13 March 2011
But the *real* issue here is why does California have to be so damn special!!

They've got this idea that they're a separate country, pretty much, when it comes to tax laws...!!

Could drive a feller or a gal to drink, dontcha know!

Calsurf (talk|edits) said:

14 March 2011
Amen, Harry.

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