No Fault Foot Fault

Smaller corporations often have their formal corporate existence terminate when they fail to make any one of a variety of annual filings. In Maryland, the failure to file tangible personal property tax returns will cause the corporate charter to be forfeit. However, if the failure is rectified and articles of revival filed, the corporation can spring back into life. Under Maryland law, all obligations incurred during the period that the charter was annulled are limited to corporate assets once the articles of revival have been filed. (By the way, this is not the case in other states, notably Virginia. If a Virginia corporation’s charter lapses, obligations incurred during the period in which the corporation remains out of existence are personal obligations of the corporate owners.)

Recently, in PLR 200252033, the Service ruled that the S election of a lapsed corporation remains in effect even though it is not formally revived in the original state of incorporation. Under the facts of that ruling, the corporate charter was forfeit in State X. Rather than “revive” the corporation in that state, the owners merely formed a new corporate entity in State Y. The IRS held that the new corporation was merely a reincorporation of the initial entity and, thus, the S election remained intact.