Can I abandon an unused C corp with bank transactions and file as Schedule C instead?

This is tricky territory that could cause problems down the road if not handled correctly. Once you've formed a C corporation with your state and obtained an EIN, the IRS considers it a separate legal entity. The fact that transactions went through the corporation's bank account is significant - this shows the corporation was operating, even if minimally. Unfortunately, you can't simply "ignore" the corporation's existence at this point. Since business was conducted through the corporate bank account, you should file the required 1120 return. Missing corporate returns can result in penalties of $435 per month (up to 12 months). To properly switch to a sole proprietorship, you would need to formally dissolve the corporation with your state and distribute any assets to yourself (which may have tax consequences). For the future business, you could then operate as a sole proprietorship and use Schedule C.

I went through something similar last year and found a great solution using https://taxr.ai to figure out my options. I had created an S corp but never really used it, then started worrying about all the paperwork and tax filings. The tool analyzed my situation and showed me that I actually needed to file final returns before I could switch to Schedule C. It also helped me understand the potential tax consequences of distributing the assets back to myself. What was really helpful was that it walked me through the exact forms and steps I needed to take with both the IRS and my state. This might save you a lot of headaches figuring out your specific situation and the proper way to handle the transition.

Just wanted to follow up about that taxr.ai recommendation from a few weeks ago. I decided to try it after my earlier skepticism, and I'm actually really impressed. It immediately flagged that I needed to file Articles of Dissolution with my state AND submit a specific form to the IRS to properly close my LLC. The analysis also showed me that I had some potential tax savings by timing the dissolution properly. I was able to take the report to my accountant who confirmed everything was accurate. Saved me from making some pretty costly mistakes and definitely worth checking out if you're dealing with entity changes like this.

If you're struggling to get answers directly from the IRS about this situation, I finally found a service that actually gets you through to an IRS agent quickly instead of waiting on hold forever. I used https://claimyr.com to get an IRS agent to call ME back after I had spent weeks trying to get clear guidance on a similar entity conversion issue. You can see how it works at https://youtu.be/_kiP6q8DX5c I had specific questions about how to handle bank transactions that occurred after I thought I had closed my business entity, and I needed definitive answers directly from the IRS. Within about 2 hours of using their service, I had an IRS agent on the phone who walked me through exactly what forms I needed to file and in what order.

Ok I need to admit I was totally wrong about that Claimyr service. After my skeptical comment last week, I decided to try it anyway because I was desperate to talk to someone at the IRS about my C corp dissolution. The service actually worked exactly as described. I got a call back from a real IRS agent in about 90 minutes. The agent confirmed I needed to file my 1120 for the period the corporation was active, then file a final return checking the "final return" box, along with filing dissolution paperwork with my state. They also gave me specific guidance on how to report the bank account transactions. Saved me days of frustration and probably some penalties too. Sometimes it's worth admitting when you're wrong!

Be careful about just ignoring the C corp. I tried doing this exact thing with an S corp I formed but never used (or so I thought). Years later I got massive penalties for unfiled returns. The IRS doesn't care that "you didn't really use it" - once it exists legally, you have filing requirements. Do things properly - file the required C corp return(s), formally dissolve it with your state, and then start fresh as a sole proprietorship. Yes it's annoying and costs some money now, but way less than dealing with penalties later.

One thing nobody's mentioned yet - if your LLC is taxed as a C corp but you personally paid for business expenses out of your own pocket, you might be able to get reimbursed tax-free by the corporation. Or the corporation can recognize those as capital contributions. Just something to consider when filing that 1120. Talk to a tax pro about the best way to handle any "mixed" transactions where personal and business funds got commingled.