Closing out an S- corp

[grandmabee]

S-corp. closed.  No fixed assets, bank account closed and paid almost all of the final bills.  shareholders paid the balance of bills from personal money.  1 shareholder has a zero basis because used up in prior year and has a carryover losses. 2 nd shareholder has a loan to corp. on the books.  Has a small debt basis left.

they have taken W-2 wages and no distribution.  Restaurant could not survive during covid shut down.

Questions:  so is the carryover losses just lost because no basis left?  the one who has some basis left do I just take the losses up to basis like normal?  I have never closed out a S-Corp before.  I know I have to file a 966 which they are late on not within 30 days but it says to attach a certified copy of resolution or plan.    They don't have that.  Just decided they couldn't go on and closed the doors.  thanks for any help and point me in the right direction.

[Lee B]

I have never had a client have a Board of Directors Meeting to formally dissolve their corporation.

Therefore I have never filed a Form 966.

All I have ever done is file a final 1120 or 1120 S plus dealt with any fixed assets which ended up with the stockholders.

Over 28 years I don't know how many I have handled this way, but it's in the double digits.

I have never received a letter from either the IRS or the ODR with any questions etc.

 

[jklcpa]

Same as Lee. I've maybe seen one 966 in my entire career. Most lawyers around here advise to not even notify the Sec of State but to just not pay the franchise tax and the corp will go into inactive/certificate not in good standing, and after 3 years of that status it drops off the state's record.

[Randall]

4 hours ago, jklcpa said:

Same as Lee. I've maybe seen one 966 in my entire career. Most lawyers around here advise to not even notify the Sec of State but to just not pay the franchise tax and the corp will go into inactive/certificate not in good standing, and after 3 years of that status it drops off the state's record.

I do this as well.  But I do advise the client to contact the Ky Sec of State.  I think it's a simple form to officially close the corp.

[BulldogTom]

8 hours ago, jklcpa said:

... Most lawyers around here advise to not even notify the Sec of State but to just not pay the franchise tax and the corp will go into inactive/certificate not in good standing, and after 3 years of that status it drops off the state's record.

Not a good idea in CA.   The FTB collects the $800 per year until properly dissolved (including notification of the CA SOS).  There is a method for dissolving without following the steps, but it takes years and lots of notices from the FTB.   Better to just file the paperwork to close the business and then file your final return than go through the hassle in CA.

Tom
Modesto, CA  

[jklcpa]

1 hour ago, BulldogTom said:

Not a good idea in CA.   The FTB collects the $800 per year until properly dissolved (including notification of the CA SOS).  There is a method for dissolving without following the steps, but it takes years and lots of notices from the FTB.   Better to just file the paperwork to close the business and then file your final return than go through the hassle in CA.

Tom
Modesto, CA  

 

To be clear, I wasn't suggesting that as a course of action and was providing anecdotal story of how little is done here to close out.  Obviously everyone should follow the laws of the state(s) in which the entity is formed +/or operates.

[Abby Normal]

If a shareholder has no basis, then he can't deduct the carryover losses. Usually, I'm dealing with sole shareholders and the basis comes from cancellation of debt income, selling of assets or putting in personal funds, as happened here.