S Corporations & the NonFiler
A very common situation for a non-filer is an S corporation that has not filed in a number of years. To activate the corporation and put it in good standing can involve substantial fees. First, a taxpayer will have to pay substantial franchise tax fees and penalties for failing to file state income tax returns and failing to file the Statement of Officers. Then the taxpayer will be exposed to a per-partner penalty to the IRS for failing to file K-1s of $195 per month per partner in late fees.
These taxes and penalties are assessed at the entity level and cannot be passed down to the shareholders. In almost all cases the rational economic choice is to let the corporation stay in inactive status and live as a ghost in perpetuity. The shareholder/owner will not be assessed the tax
The individual shareholder will have to take a dividend or salary for any earned income through the corporation on the unfiled years. The complexity of calculating this earned income is beyond the scope of this Blog post. Let the corporate taxes and penalties die with the inactive entity and move on. The savings will be substantial!