Do Corporations With No Transactions Need to File Taxes?

Unlike individuals who don't have to file returns when their income is below certain levels, corporations must file a tax return each year, regardless of whether their taxable income is zero or $1 million. A corporation may face penalties for not filing, even if it doesn't have a single transaction to report.

At the time a corporate entity is created, it's automatically subject to Subchapter C of the Internal Revenue Code and is commonly referred to as a C corporation. C corporations are required to file returns and pay income tax on its profits, or taxable income. This requirement to file a tax return – which is done on Form 1120 – isn't contingent on whether the business engages in transactions during the year that earns money for shareholders. When there are no transactions to report, filling out Form 1120 merely requires the repetitive entering of zeros for many of the line items and filling in the corporation's identifying information, such as its name and employer identification number.

The tax return filing deadline doesn't fall on the same day for all C corporations. Form 1120 is due on the 15th day of the third month immediately following the close of the tax year. For many corporations that use the calendar year for their financial records, with December 31 marking the end of the tax year, Form 1120 is due on March 15. If you use a fiscal year, such as March 31 for example, the corporate tax return would be due on June 15. However, an automatic six-month extension is available if you submit Form 7004 by the original filing deadline.

In years when the corporation has no transactions to report or the business incurs a lost, the maximum penalty the IRS may impose is a charge of $100 -- but only if Form 1120 is more than 60 days late. If you mistakenly believe that the corporation has no taxable income when it actually does, this late-filing penalty will cost the business an additional 5 percent of the unpaid tax for each month, up to five months, the return is late. Late-payment penalties will also accrue at the same time at the rate of 0.5 percent for each month the tax bill remains unpaid. However, if both penalties apply in the first five months, the maximum combined penalty the corporation can be charged may not exceed 25 percent of the unpaid tax.

Even if your corporation made an election to be taxed as an S corporation, a tax return still must be filed on Form 1120S although shareholders, rather than the corporation, would be responsible for the payment of income taxes had there been any transactions to report. The filing deadline and the opportunity to obtain a six-month extension is the same as it is for C corporations. However, if you fail to file Form 1120S, the late-filing penalty is more expensive. For each month the return is late, the monthly penalty is $195 multiplied by the number of shareholders.