Discussion:A Corporation - NOT
From TaxAlmanac
| Revision as of 20:09, 21 October 2009 KatieJ (Talk | contribs) (I'm not a lawyer) ← Previous diff |
Revision as of 20:29, 21 October 2009 JR1 (Talk | contribs) (So the stupid qu) Next diff → |
||
| Line 92: | Line 92: | ||
| The value of the stock, not the value of the property, was determined at the date of the decedent's death. The stock got a step up in basis, the property did not. I would guess that the corporation's IRC [[Sec. 311]] gain is the difference between the FMV of the property at the time it was distributed to the new stockholder ($12 million in Pomcor's example) and the corporation's basis in the property.}} | The value of the stock, not the value of the property, was determined at the date of the decedent's death. The stock got a step up in basis, the property did not. I would guess that the corporation's IRC [[Sec. 311]] gain is the difference between the FMV of the property at the time it was distributed to the new stockholder ($12 million in Pomcor's example) and the corporation's basis in the property.}} | ||
| + | |||
| + | {{ForumReplyPost|UserID=JR1|Date=October 21, 2009|Text=So the stupid question of the day is why didn't the corp distribute the land to the s/h when received by the estate? Zero gain at that point, then it all shifts to personal after that. No one could see this day coming?}} | ||
Revision as of 20:29, 21 October 2009
Discussion Forum Index --> Tax Questions --> A Corporation - NOT
Smfbookkeeping (talk|edits) said: | 18 January 2007 |
| A business operating as a corporation no longer has a listing with the state. The annual fee to maintain the name apparently had not been paid for some time. Is there any tax ramification for filing an 1120s if you are not recognized as a corporation or any other kind of business by your state. | |
| 18 January 2007 | |
| You can contact the state to see if it can be retroactively reinstated. In Michigan, filing all of the missed annual reports and paying the fees will reinstate the entity.
Good luck. | |
| January 18, 2007 | |
| But the answer is that nothing changes to the IRS, you've merely lost legal protection in the state. | |
| 18 January 2007 | |
| JR, I have done no research so I'm shooting from the hip on this...I agree there is no IRS problem if the entity is retroactively reinstated. However, if nothing is done, I'd be concerned that a deemed liquidation occurred (or at least the IRS could argue that point). If so, that would create a huge mess.
I'm curious if there is any authority supporting it being a non-issue no matter what. | |
| 18 January 2007 | |
| It can be an issue. In an audit, the IRS would want to convert it to a Schedule C, and tax the deemed liquidation of the corporation. To any creditor, they can now sue the owner instead of the corporation, so there is no limited liability. | |
| 18 January 2007 | |
| If you fail to pay the franchise taxes or something, the corporation ceases to be in good standing. States' laws vary, but, typically, the ONLY consequences are that (1) the corporation doesn't have certain current rights, like filing a lawsuit, and (2) when it eventually pays the tax it will owe a penalty.
The liability shield isn't affected, the corporation maintains its existence and the ownership of its property, and there shouldn't be a deemed liquidation. | |
| 18 January 2007 | |
| In many states, however, after a certain time on the "not in good standing" list, the state will administerially dissolve the corporation. In those states, the client no longer has a corporation. Since the corporation charter is granted by the state, when the charter is revoked the corporation doesn't exist. That's how the IRS looks at it - I represented a client in an audit in this situation. | |
| 18 January 2007 | |
| I agree with LH2004 at least in the State of Oregon. The corporation still exists even though the administration fees/assessment are in arrears to the Corp division or Sec of State. This is why I advise my clients to file dissolution papers with the state ($50) rather than just letting the entity 'die on the vine'. Who knows what the future holds? Just close the corp..:)
| |
| 18 January 2007 | |
| All agree that there is no problem with filing the 1120s. There are some differing views of the contingent liabilities an entity my be exposed to by operating through a period of bad standing with the state level entities that administer charters... | |
| January 18, 2007 | |
| There's an awful lot of if's and could be's and all there. I can tell you this: it happens ALL the time. In fact, in IL, many attorneys who know no better consider that not paying the annual fee to the SOS is the best way to liquidate! Duh. You are not liquidated until/unless you do so intentionally, unless someone tells me differently. You must file a 966 and a Resolution of Dissolution and a Certification of the Resolution. Until then, you exist in IRS' eyes, but not in the state's eyes. You have no legal protection at all. But the body is alive. It's an entity that you have birth to. It does not die without intention. | |
Death&Taxes (talk|edits) said: | 18 January 2007 |
| JR, an old boss used the non-payment of fees to put corps out of misery in NJ....they would be put on the 'Governor's List" as he called it....30 years ago. I would add one proviso: every so often I find some 'corporation' is actually operating out of the owner's checkbook. In that case IRS might use lack of corporate charter to not recognize the corporation. Like in divorce, IRS recognizes state laws about entities and in my stupid example, use lack of entity on two counts to tax it as an individual, if there is one shareholder. | |
| 2 July 2009 | |
| Update:
I came upon this thread in my research for a client in this situation. For what it's worth, the IRS business unit/technical services representative agrees with JR1. The corporation is alive in the eyes of the IRS until the 966 is filed. Now all I have find out is if that's a good thing or a bad thing for my client. | |
| July 2, 2009 | |
| Thanks for that confirmation. First time I've been right in a month....or at least it's starting to feel like that. | |
| 2 July 2009 | |
| (actually, JR, your post was from January 2007, so maybe this is the first time in two and a half years?) Just kidding. You do know your $&!t AND your shinola. | |
| July 2, 2009 | |
| LOL...*sigh*...*Still laughing...* That sure is how it feels of late. I feel like I spend more time looking over my shoulder and doubting, like when I first entered this world of tax...maybe that's what wisdom is...knowing that you don't know much! | |
| 3 July 2009 | |
| In my state, it can't transact business and can't defend itself. It can do anything it wants that makes it jump into the fire, but nothing that will get it out, not even file bankruptcy. The minimum franchise fee is $800 per year and must be paid with penalties to revive the corporation so it can act again. From the perspective of my stated, I think you would be better off concluding that the humans walked away from the corporation and formed a partnership. | |
| 4 July 2009 | |
| In my state, which is a lot like (or the same as?) MSCash's, a suspended corporation does not cease to exist and, in fact, can still enter into contracts. See GERRY L. RODE, Plaintiff and Respondent. v. FRONT RANGE MOTORCYCLES, INC., Defendant and Appellant., 2d Civil No. B206562, 01/12/2009 (unpublished). Of course, any contract entered into by a suspended corporation is voidable at the instance of any party other than the corporation itself (Cal Rev. & Tax. Code Sec. 23304.1). Also, a suspended corporation can be revived at any time by filing back tax returns and paying all of the applicable taxes, penalties and interest. It can also amend its articles of incorporation to change its name or file an application for exempt status (CRTC Sec 23301).
There is a potential criminal penalty, a fine not less than $250 nor more than $1,000, or imprisonment for not more than one year, or a combination of the two, for attempting or purporting to conduct business in the name of a suspended corporation (CRTC § 19719). Dissolving a corporation in California used to be a complicated procedure involving the issuance of a tax clearance certificate from the FTB. Since 2006 it is just a matter of filing a return marked "final," not doing any business after the end of that final year, and filing a certificate of dissolution with the Secretary of State within 12 months after the end of the final year. In the old days many, many California corporations were allowed to "die on the vine," i.e., go into suspension and stay there, rather than jumping through the tax clearance hoops. I don't remember ever, ever hearing of such a corporation having a problem with the IRS, even though the corporation technically continued to exist. What is the penalty for failure to file a null return? The FTB would send bills for the $800 minimum tax for a certain number of years and then stop. If the stockholders haven't taken anything out of the corporation to render it insolvent, the FTB can't collect from them. | |
| 5 July 2009 | |
| P.S. Another current penalty I forgot: a corporation that has been suspended or forfeited that continues to do business in California and fails to file returns is subject to a penalty of $2,000 per taxable year. Cal. Rev. & Tax. Cd. §19135. The penalty is imposed if the failure to file continues for more than 60 days after notice and demand to file, but can be waived if reasonable cause can be shown for the failure. This penalty has been in the law since 1993. | |
| 21 October 2009 | |
| Background:
Former shareholder (“Gramps”) owned a California "C" corporation with one asset, undeveloped real property with an inside cost basis for tax purposes of $1,000. There was no real income from the property and consequently the “C” corp was not required to file U.S. tax returns. Gramps fell ill and failed to file the necessary paperwork required to keep the corporation in good standing and California administratively dissolved the corporation. Shortly thereafter, Gramps passed away. In Gramps will, Gramps left the stock of the “C” corp owning the property to his grandson (“New Shareholder”). At the time of Gramps passing, the property was estimated to have a market value of approximately $20M and the “C” corporation stock (given the imputed $8m corporate tax liability at 40%) was estimated to be worth $12M. The estate was settled and presumably paid all pertinent taxes; giving the New Shareholder a “step-up” in the basis of the stock. Three years later, the market value of the undeveloped property has fallen to $12M. Developer approaches New Shareholder and desires to acquire the real property. New Shareholder (as President of the dissolved corporation) deeds the property to himself, “…for $10 and other valuable consideration.” with the intent to convey the property to the Developer for $12M in the next three months. Question (1): “Does the administratively dissolved corporation escape the Californian or U.S. Federal Capital Gains tax on the distribution of the property to the New Shareholder?” Question (2): “If so, would the corporation’s capital gains tax on the distribution be based on the value at the time the estate was resolved (i.e. @ $20M) or the market value at the time administratively dissolved corporation deeded the property to the New Shareholder, personally (i.e. @ $12M) ?” | |
| 21 October 2009 | |
| P.S. KevinH5, if you could restore my status so I can post the above question as new thread, that would be appreciated.
Paul | |
| 21 October 2009 | |
| You were blocked from making new discussions because of prior SPAM, Pomcor. If you will agree to not SPAM again, then your full priviledges will be restored. You would be welcome to ask and answer questions, and even provide your contact info if someone would like to discuss something with you in further detail, but you are not allowed to post advertising which we take as SPAM. Would that be acceptable? | |
| 21 October 2009 | |
| I'm not a lawyer, but I don't believe there is such a thing as administrative dissolution in California. A corporation that fails to file its California franchise or corporate income tax returns, or its annual reports to the Secretary of State, is suspended, not dissolved. The corporation continues to exist and, as noted above, can enter into contracts (which are voidable at the instance of any party other than the corporation itself, but are otherwise valid). See, e.g., Parmar v. SBE, Calif. Super. Ct. (Los Angeles Cty.), Case No. BC379013, 11/26/2008 (tentative decision). In order to dissolve, the corporation must first revive by filing all of its back returns and paying all of its tax liabilities.
So I think the answer to Pomcor's first question is no, the corporation does not escape the tax on its distribution of the real estate to the new stockholder. The value of the stock, not the value of the property, was determined at the date of the decedent's death. The stock got a step up in basis, the property did not. I would guess that the corporation's IRC Sec. 311 gain is the difference between the FMV of the property at the time it was distributed to the new stockholder ($12 million in Pomcor's example) and the corporation's basis in the property. | |
| October 21, 2009 | |
| So the stupid question of the day is why didn't the corp distribute the land to the s/h when received by the estate? Zero gain at that point, then it all shifts to personal after that. No one could see this day coming? | |
