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?


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.

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