how screwed am i? - Posted by embarrassed

Posted by Bill H on March 18, 2006 at 16:36:12:

Fess Up…Pay Up…Hell hath no fury compared to the tax man who find out (or thinks) he has been cheated…

Like Jimmy says, I too have seen the results of that…It ain’t NO FUN!

Good Luck,
Bill H

how screwed am i? - Posted by embarrassed

Posted by embarrassed on March 17, 2006 at 22:12:06:

OK, I flipped a house in '02, got fired up and incorporated. Then I never did any biz in the corp. I opened a checking account, did some advertising, but never bought a house, never made a dime.

Now I want to dissolve the corp, after having forgotten about it (now suspended). In CA the Sec of State needs a form for taxes…

Here is my concern. How screwed am I with the taxes? The corp never did anything, is there going to be a tax hit?

embarrassed…

Depends. What kinda taxes? - Posted by John Merchant

Posted by John Merchant on March 22, 2006 at 10:55:42:

If your corp owned, but didn’t rent, RE in CA, you likely owe NO CA income tax, as your corp never
"did business" in CA.

But if they want CA franchise tax that’s another issue that I think has already been answered.

Re: how screwed am i? - Posted by Frank Chin

Posted by Frank Chin on March 18, 2006 at 07:54:01:

Most states have a “minimum franchise” tax. We have one here in NY state. I took a quick look, and it looks like it runs $800.00/year in CA, but new corps are excused from paying it the first two tax years, in your case 2002-2003. We don’t have that luxury in NY state.

But you’ll probably have to file returns for 2004-2005, and pay the minimum taxes on those, plus penalties for late filing.

Suggest you get a CPA. I got a friend operating a small loan referal business from home, incorporated, and collecting fees, filed state and federal returns unawares he had to file separate NYC returns. The tax man caught up with him, and he had to pay with penalties. He didn’t use a CPA.

I don’t think “I was trying to save money on not using a CPA, and didn’t know” would work.

So, depending on where you live, you might also have local taxes.

Frank Chin

A Little tricky - Posted by Jimmy

Posted by Jimmy on March 18, 2006 at 07:40:03:

here’s the deal. the fact that you did no business in the California entity is totally IRRELEVANT. The corporation owes the minimum franchise tax ($800 per year) for the privilage of having the entity in existence.

However, if you “play possum” the FTB will eventualy suspend the corporation, and its legal status will terminate. What I cannot tell you is whether the FTB might try to come after you for the back taxes. 15 years ago, they would have never tried. But I saw a case recently where a lawyer-buddy of mine was convicted of tax fraud for intentionally failing to file CA franchise reports for an inactive CA corporation. [to be fair. it was not the FTB that came after him. if was the DA in San Mateo County in a case that had nothing to do with taxes. but they could not get the fraud and embexxlement stuff to stick to him, so they used the tax angle. nonetheless, is was scary as hell to those of us practicing in this area].

the correct way to go is to formally dissolve the corporation. this is a 2 step process. first, you need to get a TCC (Tax Clearance Certificate). I think the BOE issues these. To get it, you have to pay all of the back taxes. Then you file the Cetificate of Termination (or whatever it is called) with the TCC with the Sec of State.

Sorry for the long-winded answer.

Re: how screwed am i? - Posted by embarrassed

Posted by embarrassed on March 18, 2006 at 14:09:50:

How long does the Tax Man have to come back and get you? Maybe I should be looking into that CPA… I’m so stupid sometimes.

Thanks for helping and not flaming (I thought I’d get beat up and didn’t even want to post this.) I’ve always respected your balanced thinking Mr. Chin.

Re: A Little tricky - Posted by embarrassed

Posted by embarrassed on March 18, 2006 at 14:04:44:

Well thanks. the corp is already suspended as I forgot to renew last year. i’ve been trying to turn over a new leaf and not take the ‘burry my head in the sand’ approach… man it’s expensive.

But I’m inclined to take this approach… but I just don’t want to compound the problem with further stupidity (which I do rather well already)… ugh…