NASSAUSUFFOLK

A new, elderly client (sole shareholder PC) asked us to prepare corporation returns from 2011 to date.  We filed as C-Corp, and received notices from IRS that this is an accepted S-Corp since 2011 and that, instead, 1120-S must be filed for all years.  Client has no recollection of 2553.  IRS issued penalties for failure to issue K-1.  The monthly penalties are very substantial, due to the years involved.  The corporation had NO INCOME.  This is a dormant medical practice that only had professional liability insurance expense.  No losses were taken on the 1040's as they were also just filed by us and the losses were treated as C-Corp NOL.  The loss on a K-1 may not justify amending 1040's.

We will, of course, attempt to have the penalties abated.  If we are unsuccessful, however, is there a Responsible Party personal liability for failure to issue K-1 (and late filing of the corp returns)?  Are there any Responsible Person liabilities here?  Everything researched do far indicates no trustee funds and no personal liability. Is this correct?     

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David Vishnia

DAVID VISHNIA, CPA
New Rochelle NY
914-636-4550
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The penalties do not find their way to the shareholder personally.

Also, if applicable , you must consider NYS.

i have had conversations with NY where the decision was made not to pay, and then ultimately let the corp dissolve by proclamation. This may not be right for you, but it was for me in my situation.

I suggest the first thing you do, is get a POA for Fed and NYS if applicable.  Assess the state implication also.

Then decide what the future will be for this entity.  should it be saved

Facts and circumstances may give rise to reasonable cause.  

IRS is usually fairly lenient for the first year, and you may be able to have the penalties waived as a " first time " offense. This is true even though it is so late.   The same is a possibility for NYS.

i believe the penalties also max out as follows:

Corps   

   Federal              195 Per shareholder  max 12 months

   NYS                        $50  Per shareholder  max 5  months Max

hope this helps

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Abby Alhante
KURCIAS & ALHANTE, CPAs LLC
Melville NY
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