What Happens When No Final SCorp Return is Filed

[FDNY]

I have 2 clients who are (were) major shareholders in a national S Corp that went bankrupt.  The corporation assets and name were purchased by paying off the bank loans.  This was 2 years ago but no Final return was ever filed.  I questioned the CPA (who I have known for some time) and he said he has not been paid for the previous year, so he will not be doing any more work.  The new company has the same name as it is widely recognized in the industry, went from an S Corp to LLC.  My question is, since there is no basis for my clients and I have not been able to claim any losses since 2015 do I just keep it on un allowed losses on 8582 forever, as there will never, ever be anything reported as income to my clients, or can I just eliminate it?   My reason for the question is that I want to move the returns from ProSeries to ATX and it would be a lot easier if I don't have to deal with the un allowed losses, although if I have to, it would not cause me to go into concussion protocol, just a little more work.

[OldJack]

Well maybe you should ask your client to pay the CPA and get things finished so you have proper documentation to proceed.

[Abby Normal]

Suspended losses due to lack of basis don't go on 8582, anyway, they stay on the K1 basis worksheet. And they do disappear when the S corp dissolves, unless there is enough income to create basis.

If this was a passive activity for the shareholder, once the losses are released from the basis worksheet, then they go to 8582, until disposition.

If the purchase price exceeded the basis of the assets, the income (gain) would have created basis to use up some losses.

Any cancellation of debt income to the S corp would also be income and basis increases.

If we assume the assets were sold at a loss and any COD income was roughly equal to the losses suspended due to lack of basis, I'd think you'd be safe to just fugetaboutit.

[FDNY]

Thank you both for your responses, they're very helpful.  One client is Non Passive, was the president and he will not be the one to pony up $ to pay the stiffed CPA firm because this was a large corporation doing business in about 20 states, would be a major fee that was not paid since 2015 return, 2016 was not prepared.  The corporation ran out of money a few years ago and survived on bank loans that eventually were defaulted on, these loans were for major plant expense.  The product is a recycled commodity and when prices dropped substantially, so did business.  Why buy recycled when you could buy new cheaper.  My client claims CPA doesn't want anything to do with them as I assume books may have some deficiencies, besides non payment of fees, I can't blame him.

I like Abby's last sentence (glad to see you speak Brooklynese).  Thanks again.