Bankruptcy and Taxes

[despritfreya]

@Taxing Matters - was hoping you would show up. Thank you for the clarifications. Now I understand.

Des.

 

[Taxing Matters]

@Taxing Matters - was hoping you would show up. Thank you for the clarifications. Now I understand.

Des.

You're welcome. I'm happy the information was useful.

 

[LdiJ]

I see. . . so on a rare instance the corp may have a tax debt, otherwise, if a S there is no income tax burden. As a result, in OP's case, OP is really talking about income tax as owed on his/her personal 1040.

Edt to add. . . I should not assume that the taxes are reported as owed on OP's 1040 as it is possible that one of those rare instances applied.

Des.

No, in this instance the OP is not talking about income tax. The OP is talking about penalties assessed to the S-corp for not filing their information returns (1120S) in a timely manner. It is NOT income tax, its penalties (or if it makes it more understandable, fines).

 

[HodgePA]

Thanks to all for the added information and clarification.
Questions remain: Can owners/shareholders of a failing S-corp business that owes penalties be persued to pay? If the business shuts down - makes the last filing with the IRS - can and does the IRS pursue? Does anyone have experience with this scenario?

 

[Taxing Matters]

Thanks to all for the added information and clarification.
Questions remain: Can owners/shareholders of a failing S-corp business that owes penalties be persued to pay? If the business shuts down - makes the last filing with the IRS - can and does the IRS pursue? Does anyone have experience with this scenario?

I believe I addressed that before. The IRS may pursue the owners of the S-corporation for the late filing if the corporation distributed assets of the corporation to the owners before/during liquidation to the extent of the value of the assets received. This is done by making a transferee assessment against the shareholders who got the distributions. If the business properly liquidates under state law and does not distribute any assets to the shareholders (either because the business had no assets or because the business gave all the assets to creditors in the course of liquidation) then there is nothing for the IRS to pursue against the shareholders personally.