How serious is a late/unfiled Form 966 for a dissolved S-corp? Will IRS penalize?

The good news is that late filing of Form 966 typically doesn't result in significant penalties for small S-corporations, especially when you've properly filed the final 1120-S. Form 966 is primarily an informational return that notifies the IRS of the corporate dissolution or liquidation plan. The IRS is generally more concerned that you've properly reported all income, paid all taxes owed, and correctly handled the distribution of assets to shareholders on your final 1120-S. If you've done that, the late Form 966 is unlikely to trigger penalties. That said, I would recommend filing the Form 966 now, even though it's late. Simply attach a brief statement explaining the reason for the late filing. This creates a complete record of your dissolution and helps avoid any future confusion about the status of your entity.

After struggling with a similar situation (late Form 966 filing and worrying about penalties), I found this amazing tool at https://taxr.ai that saved me tons of stress. I uploaded my dissolution documents and final 1120-S, and it analyzed everything and gave me a detailed breakdown of my specific situation. The analysis showed me that my penalty risk was minimal since I'd properly reported all asset distributions on the final return. It even gave me a template letter to include with my late Form 966 filing explaining the oversight. What I really liked was how it explained exactly what parts of my final 1120-S the IRS would be cross-checking against the Form 966.

I wanted to follow up on my skeptical comment about taxr.ai. I tried it out after continuing to get conflicting advice about my own dissolution situation, and I'm really glad I did. It identified that I had improperly characterized a distribution to myself as a shareholder, which could have triggered an audit. The tool provided super clear guidance on how to properly document everything and gave me a specific amendment strategy that minimized my exposure. What impressed me most was how it identified a timing issue with my distributions that none of the accountants I spoke with caught. Definitely worth checking out if you're dealing with business dissolution paperwork.

I had a nightmare trying to reach the IRS about my late Form 966 last year. Called dozens of times, spent hours on hold, and could never get through to someone who could actually answer my question about potential penalties. Finally found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c - it's a service that gets the IRS to call YOU instead of waiting on hold forever. Used it and had an IRS business tax specialist call me within about 2 hours. She confirmed that for my S-corp, the late 966 wasn't a big deal since I'd properly reported the liquidation on Schedule D of the final 1120-S. She did recommend filing it with a brief explanation letter just to complete their records. Such a relief to get an actual definitive answer straight from the IRS!

I have to eat crow here. After my skeptical comment, I broke down and tried Claimyr because I was desperate to resolve my penalty notice. Within 3 hours I got a call from an actual IRS agent! She was able to access my file and clear up the whole situation. Turns out my Form 966 wasn't even the issue - they had misapplied a payment to the wrong tax year. For what it's worth, the agent told me that for small S-corps, they rarely pursue penalties for late Form 966 filings unless there's evidence of intentional tax avoidance. She recommended always filing it though, even late, with a brief explanation. What a relief to finally get this resolved after months of stress!

I'm a bit confused about Form 966 vs. the final 1120S. My accountant filed our final 1120S when we closed our S-corp last year but never mentioned Form 966. Do you absolutely need both? We've already distributed everything and I don't want to reopen a can of worms if it's not necessary.

What about state tax consequences of missing the Form 966? I dissolved my Scorp in 2023 but didn't file the 966 either, and now I'm getting letters from my state revenue department saying I owe penalties for unfiled state returns for 2024. I filed all my federal final returns correctly. Is this related?

I went through this exact same situation last year with my dissolved S-corp. I was 6 months late on filing Form 966 and was really stressed about potential penalties. Here's what I learned: The IRS rarely penalizes small S-corps for late Form 966 filings when you've properly handled everything else. Since you already filed your final 1120-S and distributed assets correctly, you're in good shape. Form 966 is mainly informational - it tells the IRS about your dissolution plan, but the real substance is in your final 1120-S. I'd definitely recommend filing the Form 966 now with a brief explanation letter. Something simple like "Form 966 filed late due to oversight. Final 1120-S was timely filed and all assets properly distributed." This creates a clean paper trail and shows good faith. One thing to watch out for - make sure your asset distributions on the Form 966 match what you reported on Schedule K-1 of your final 1120-S. Any discrepancies there could raise questions. Also double-check that you handled any built-in gains properly if you had appreciated assets. Don't stress too much about this. The IRS is way more concerned about unpaid taxes than late informational returns, especially for small businesses that clearly tried to do things right.