2

I have a company that was incorporated in November 2015 as a S Corp. There was no activity at the company for November / December 2015 and a tax return was not filed for 2015.

I found that even with no activity, all S Corps are required to file a yearly tax return. The penalty for this seems to be $195 per month per shareholder (we have two shareholders in the company) with the max # of months capped at 12 (so a total of ~$4,800 = 2 x $195 x 12).

I am currently floating the possibility of selling my stake in the company.

Who is liable here for my half of the penalty ($2,400) - the corporation or me? If I sold my share in the company right now, and the 2015 return was filed as late somewhere down the line - would I be liable for the penalty?

0

According to this H&R Block article:

The failure to file penalty for S corporations is assessed against the S corporation, not against any individual shareholder. Shareholders are not directly liable for the penalty.

However, there are a few things to note.

The article quoted above is not a primary source, and no source is referenced.

Failure to file can be considered a criminal act, and if you were found responsible within the company to file the tax return and failed to do so, it is possible to be charged with a crime.

There are other penalties you may not have considered. For example, if your corporation didn't file the corporate tax return, it probably also did not submit a Schedule K-1 to the shareholders. There is an additional penalty for this according to the instructions for Form 1120S.

Depending on the circumstances, you may be eligible for a First Time Penalty Abatement from the IRS.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.