What happens if my US corporation files Form 1120 late?
There is exposure for the late return itself, and it is measured by reference to the filing and the delay rather than only to the tax, so the size of the problem is not proportionate to the size of the profit. A year with no tax to pay can still be costly to have left unfiled. Beyond the direct exposure there are consequences that often matter more to a business: lenders and buyers ask for filing histories, and a gap has to be explained. The practical answer is to file the outstanding year now and stop the clock, then deal with the explanation.
Is there a penalty for a late 1120 when the company made nothing?
Usually yes, and this catches dormant US subsidiaries of foreign groups more than any other kind of company. The return is due because the corporation exists, so a nil result is a nil return rather than a reason not to file. Reasoning backwards from the tax — nothing was owed, so nothing was needed — is what produces a run of unfiled years discovered all at once, typically during a financing or a sale. If the position genuinely is nil, that is an easy return to prepare and a cheap gap to close. It becomes expensive only by being left.
We have not filed for several years — where do we start?
With the facts of each year, not with the forms. The first task is to establish what the company actually did in each period, because a dormant year and a trading year are different pieces of work and it is common to find both in the same backlog. We take the bank records as the starting point, since they are the one source that exists whatever became of the bookkeeping. The returns are then prepared and filed in date order, so that opening positions carry forward correctly, with the explanation for the delay going in alongside them.
Does an extension stop the late filing penalty?
An extension, properly filed, moves the date the return is due. It does not move the date the tax is due, so a company that extends and pays nothing has dealt with one exposure and not the other. Two practical points follow. First, an extension only helps if it was actually filed, and groups often believe one exists because a previous adviser habitually filed them; that is worth checking rather than assuming. Second, an extension is not a substitute for information. It buys time to prepare a return properly, and if the bookkeeping is not begun in that time the position is unchanged.
Can the treaty help with a penalty on our US subsidiary's late return?
No. The treaty does not reduce a US corporation's own tax, because the company is a US resident, and the exposure on a late return attaches to the filing rather than to the tax in any event. Groups sometimes reach for the treaty here because it is the instrument that has helped them elsewhere in the structure, on withholding and on the parent's own position. It has nothing to say about this. What does help is filing the outstanding years, paying what is owed on them, and putting a clear explanation of the delay in with the returns.
Will filing one late year raise questions about earlier years?
It can, so it is better to know what is in the earlier years before the first return goes in than afterwards. A late filing that sits on top of a clean history is an ordinary event. A late filing that is the first thing anyone has seen from a company incorporated years earlier invites the obvious question. We look at the whole life of the company first, decide which periods need returns, and then file in order, so that the sequence tells a coherent story instead of raising one question at a time.
Can I set up a trust that works in two countries?
You can, but the two systems classify and tax trusts differently enough that a structure which is efficient in one is often a reporting problem in the other — a Canadian family trust with a US beneficiary, or a US revocable trust holding Canadian property, are the classic pairs. Canada's twenty-one-year deemed disposition, the US grantor rules and each country's reporting have to be read together, before drafting rather than after. See cross-border wills and trusts.
Do I need to report a foreign business I own?
Almost certainly, and on more than one form. Canada requires reporting of foreign affiliates on the T1134; the United States has a family of returns keyed to the entity type and your level of control, and several carry penalties that apply whether or not any tax is owed. These are information returns, so the obligation follows the ownership rather than the profit. See T1134.
