Tax Law (Questions About Taxes)/scorp disolve

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QUESTION: hi john,  i have a friend who setup a scorp about 5 years. he files his corporate taxes every quarter and year end.  he no longer need the scorp so he is dissolving it. he also has a business check account where he receive payment from client.  he wants to know if once the scorp is disolve, does he needs to close the business account ?  he is planning to just leave the checking account open and not use it.   

i told him it is not a good idea because in the future even if the scorp is dissolved, IRS can check on dissolve companies(even if taxes were not file that year due to been disolved) to see if bank account still active and they may ask you why it is still open. he argue it is not true.

can you explain if anything could happen by leaving business bank account open etc?

ANSWER: Rob,

Thanks for your question.

If the business is dissolved, the bank account needs to be closed or changed.  The bank has the company tax ID number on file, so this number would no longer be valid.  

Also, as you state, if the IRS discovers a checking account under the tax ID number of the business, they would likely make inquiries about the funds coming into the account.  This could occur, for example, if there were any interest earnings and a 1099 be issued under that tax ID number.  Seeing activity in the checking account, they would pursue the company or its owner for not filing a return.

Keep in mind that dissolution is a state matter.  When you form or dissolve a corporation you do it in the state of incorporation.  Tax ID numbers are federal matters so they have no knowledge (unless told) that the corporation has dissolved.

It is sort of like keeping a checking account for a deceased person.  That person is no long alive and cannot maintain a checking account.  Same for a business account.

Hope this helps.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Thanks for the info. I have another question.  You said one way to discover
There's a checking account is if bank issue a 1099 for intetest paid.
There are checking account nowdays that has 0 percentage interest.
What would happen in the case when checking account doesn't produce
Any interest?  The bank will not send 1099 since there is no interest.
What other way can irs find out there's activity in that account if still open after
Dissolved of scorp and no interest generated.

The only way I can think of is if more than 10000 dollars is deposited.
But then again what if anyone stay below the limit?

Answer
When a business is terminated, the IRS requires notification so that they can deactivate the Tax ID number.  If the business starts anew, the IRS will reactivate the number.  

Chances are that nothing will occur if you don't deactiviate the number. But there are two significant possibilities.  One, I mentioned above that the IRS could determine that the business is still in existence based on the activity in the checking account.  Secondly, if the number remains active, there is always a possibility of identity theft.

Closing the checking account and deactivating the tax ID number are simple procedures.  If you want to take the risk of an encounter with ID theft or IRS investigation, leave it open.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA

Expertise

I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at www.mybaldcpa.com. I also offer seminars and consultations to churches and clergy on their tax issues at www.churchtaxsolutions.com Also visit my blog, www.thetaxdocspot.com. I am listed on Tax Connections at https://www.taxconnections.com/profile/John-Stancil/12258973 Prepare and file your own taxes at www.1040stancilcpa.com

Experience

I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

Organizations
FICPA, NATP, NCPE Fellowship, Lakeland Business Leaders

Publications
The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

Education/Credentials
DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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