Who this is for
- US C corporations, usually formed in Delaware, from pre-seed to Series A
- GPU cloud, chip and data center software startups with founders in the US, Canada, Taiwan or elsewhere
- US parents of a Canadian subsidiary (in outline)
Not covered here
- Audits, reviews and quality-of-earnings reports
- 409A valuations and fundraising advice
- Legal cap table fixes and Delaware section 204 validations
- R&D credit and SR&ED claim studies
- Transfer pricing documentation and export controls
Before Series A due diligence, fix first the filings with large fixed penalties or penalties that keep growing: a Form 1120 for every year, even with no revenue; Form 5472 when one foreign person owns 25% or more ($25,000 per missed form); and Delaware's annual report and franchise tax, where a year unpaid voids the charter. Then states, payroll, 1099s, sales tax, equity forms and any Canadian subsidiary.
Any IRS, Delaware or state notice with a response date jumps the queue.
Which missed tax filings matter most, and in what order?
Work down this list, ranked by what a miss costs and how fast the cost grows.
| Order | Filing | Agency | What a miss costs | Fix page |
|---|---|---|---|---|
| 1 | Form 1120, every year, including no-revenue years | IRS | Late-filing penalty is a share of unpaid tax, so nothing in loss years; but with no return, the assessment period never starts | Unfiled business returns |
| 2 | Form 5472 | IRS | $25,000 per form per year, more after an IRS notice; the Form 1120 stays open | Missed foreign-owner filings |
| 3 | Delaware annual report and franchise tax | Delaware Division of Corporations | $200 plus 1.5% a month; charter void after 1 year | Delaware franchise tax |
| 4 | Registration where staff or servers sit | That state's Secretary of State and tax agency | State fees, penalties and back taxes | Registering in another state |
| 5 | California minimum tax (Form 100) | California Franchise Tax Board | $800 a year, penalties, suspension | California minimum tax |
| 6 | Payroll accounts, Forms 941 and 940, state withholding and unemployment | IRS and state agencies | 2% to 15% of late deposits; trust fund penalty on people personally | Behind on payroll taxes |
| 7 | Form 1099-NEC | IRS | $60 to $340 per form, again for the contractor's copy | Late contractor forms |
| 8 | Sales tax on compute or software | Each state's revenue department | Tax never charged, plus penalty and interest, paid by the seller | Uncollected sales tax |
| 9 | Founders' 83(b) copies | Filed by each founder; the company keeps a copy | Cannot be filed late; vesting taxed as pay | Founder shares that vest |
| 10 | Form 3921 | IRS | Same per-form penalties as 1099s | Fixed on this page, below |
| 11 | Canadian subsidiary's T2 and T106; parent's Form 5471 | CRA and IRS | T106 up to C$2,500; Form 5471 $10,000 per year | Unfiled Canadian returns |
| 12 | Beneficial ownership (BOI) report | FinCEN | None for US companies; a foreign company registered in a state still files (FinCEN) | — |
Do we have to file Form 1120 for years with no income?
Yes. Every domestic C corporation files Form 1120 each year "whether or not" it has taxable income, under the Form 1120 instructions. The late-filing penalty is 5% of unpaid tax per month, up to 25%, so a loss year usually owes no penalty.
The real cost is time: with no return, the IRS can assess tax "at any time" (26 U.S.C. 6501(c)(3)); once a return is filed, even late, the usual limit is 3 years from filing (6501(a)). And the Form 5472 or 5471 that belonged with it is missing too. Filing order: catching up on unfiled business returns. What goes on an empty year: a first return with no revenue.
A GPU server expensed before it went live, or left off Form 4562, is a correction to a filed return, not a missed filing: see writing off GPU servers.
Form 5472: did we miss it for a founder abroad?
Yes, if one foreign person owned 25% or more, the company had any reportable transaction with that founder in the year, and no Form 5472 was filed. A US corporation is a reporting corporation if one foreign person owns 25% or more of its vote or value at any time in the year (Form 5472 instructions). It files a separate Form 5472 for each related party it dealt with: a founder's loan, salary, or expenses the founder paid for the company.
The penalty is $25,000 per form. If the form is still missing 90 days after an IRS notice, another $25,000 applies for each 30-day period. Until the information is filed, and for 3 years after, the year's return stays open; if the failure had reasonable cause, only the related items stay open (6501(c)(8)).
Two traps: a filed Form 1120 that answered "No" to Schedule K question 7 while a founder abroad held the threshold still lacks its Form 5472. And a founder who is a US citizen or US resident, such as a green card holder or a visa holder taxed as a resident, is not a foreign person, even when living abroad. Relief requests belong to missed foreign-owner filings.
Is our Delaware corporation in good standing?
Only if every annual report is filed and all franchise tax is paid. Reports and tax are due March 1 of the following year. A late report costs $200 plus 1.5% interest a month on tax and penalty (Delaware Division of Corporations). A corporation that fails for 1 year to pay or to file a complete report has a void charter (8 Del. C. section 510).
Since August 1, 2025, the report must give a principal place of business that is not the registered agent's address (85 Del. Laws c. 48). Founders abroad who used the agent's address need a real one. An online status check is not a certificate of good standing (Online Status); for the certificate, see reinstating your company. A section 204 stock validation does not cut franchise tax for past periods.
A large bill based on authorized shares is often recalculated: see Delaware franchise tax. A void charter is revived through the same page.
Did we miss registering in states where staff work, and do we owe California's minimum tax?
You may have, if an employee works or an office sits in a state where the corporation never registered. Registration usually follows employees and offices. Servers in another state's colocation data center can count too: see servers in a data center in another state. The registration steps are in registering in another state.
California is the common miss. Every corporation incorporated, registered or doing business there pays the $800 minimum franchise tax (FTB). A Delaware corporation run from California is "commercially domiciled" there, so it is doing business there (FTB). A late Statement of Information adds $250. The first-year exception and the other doing-business tests are in California minimum tax.
Are payroll accounts and Forms 941 in place in every state where we pay people?
Each state where an employee works usually needs its own withholding and unemployment accounts, on top of federal Forms 941 and 940. Texas has no income tax, but an employer already liable for federal unemployment tax becomes liable for Texas unemployment tax once it pays wages to anyone working in Texas, and must register within 10 days (Texas Workforce Commission). Registration steps are in employees in another state.
Late federal deposits cost 2% to 15% of the deposit (IRS). Unpaid withheld taxes can be assessed against responsible people personally under the trust fund recovery penalty. Catching up: behind on payroll taxes.
Did we send every contractor a 1099, and which threshold applies?
The threshold depends on when you paid. Payments through the end of 2025 needed a Form 1099-NEC at $600 (2025 instructions); payments after that use $2,000 (current instructions). A contractor paid between the two amounts needed a form for the earlier year but not the later one.
A missed form costs $60 if filed within 30 days, $130 by August 1 and $340 after. The contractor's copy is a separate penalty (General Instructions). These amounts apply to forms due from 2026 on; forms due earlier used slightly lower amounts. Filing late forms: late contractor and employee tax forms.
Did we fail to charge sales tax on the GPU compute or software we sold?
You may have, if you sold into a state that taxes these sales and were required to register there. Which states tax GPU compute, hosting or SaaS differs: see sales tax on hosting and GPU compute and sales tax on SaaS. A seller that should have charged tax usually owes it itself, plus penalty and interest; whether customers can be billed later, and voluntary disclosure, are in catching up on uncollected sales tax. Servers bought without sales tax may owe use tax: see sales tax on GPU servers you buy.
Do we have each founder's 83(b) election?
The company should hold a signed copy for each founder who made one. Each founder files the election within 30 days of the stock transfer, by mail on Form 15620 or a written statement, and must give the company a copy. An election not filed within that window cannot be filed now. Without a valid election, each vesting is taxed as pay on that day's value, less what the founder paid, which for an employee-founder means wage reporting by the company. Late or missing elections, and founders in Canada or Taiwan: founder shares that vest.
Who files Form 3921, when is it due, and what if we missed it?
A corporation files one Form 3921 for each incentive stock option exercise in the calendar year (Instructions for Form 3921). The employee's copy is due January 31; the IRS copy is due the end of February on paper or March 31 electronically. Once the company files 10 or more information returns of all types in a year, it must e-file (General Instructions).
No form is needed for a nonresident alien employee who never needed a Form W-2 from the grant year through the exercise year. Penalties are the same per-form amounts as 1099s, charged for the IRS copy and again for the employee copy. Nonqualified options don't go on Form 3921; their spread is wages.
Did our Canadian subsidiary miss a T2 or T106, or the US parent its Form 5471?
Both countries require an annual return even with no tax, plus a related-party report. A resident Canadian corporation files a T2 "every tax year even if there is no tax payable" (CRA), and Form T106 once its transactions with the US parent pass C$1,000,000 (T4012).
| United States (parent) | Canada (subsidiary) | |
|---|---|---|
| Annual return | Form 1120, by the 15th day of the fourth month after year-end | T2, within six months of year-end |
| Files with no income | Yes | Yes |
| Related-party report | Form 5472 (foreign owner), Form 5471 (foreign subsidiary) | T106 above C$1,000,000 of transactions with the parent |
| Penalty for missing it | $25,000 (5472), $10,000 (5471) | C$25 a day for up to 100 days, minimum C$100, maximum C$2,500 (CRA) |
| Payroll year-end slips | Form W-2 by January 31 | T4 by the last day of February |
Catch-up steps: unfiled Canadian corporate returns, T106 rules and Form 5471 for a foreign subsidiary.
What sits outside these fixes?
Separate work, not tax filings: audits, reviews and quality-of-earnings reports; 409A valuations; investor readiness and fundraising advice; legal cap table fixes and section 204 validations; R&D credit and SR&ED claim studies; transfer pricing documentation; export controls.
Example
Illustrative figures in US dollars, except the Canadian amounts marked CAN.
GPU cloud with a founder in Taipei: $50,000 of Form 5472 exposure
A Delaware GPU cloud formed in 2024, majority founder in Taipei, servers in a Dallas colocation data center. No revenue in 2024; $600,000 of GPU compute sales and a loss in 2025; no Form 1120 for either year. The founder lent $300,000 in 2024, and $50,000 was repaid in 2025.
- First: the 2024 and 2025 Forms 1120, each with a Form 5472. Late-filing penalty: $0 (losses). Form 5472 exposure: 2 × $25,000 = $50,000.
- Next: Delaware. The 2024 report was filed and paid; the 2025 report, due March 1, 2026, is unfiled. 10,000,000 authorized shares give a notice of $85,165. Delaware's other method, using 8,000,000 issued shares and the $2,000,000 of total assets on the 2025 Form 1120's balance sheet, gives $2,500,000 of assumed par value capital, so tax of $1,200, plus the $50 fee, the $200 penalty and 1.5% a month on $1,400 ($21 a month); see Delaware franchise tax. Filed and paid before March 1, 2027, the charter does not go void; had the 2024 report also been missed, it would be void already.
- Then: Texas. Servers in a Dallas colocation data center can mean Texas registration and franchise tax reports: see servers in a data center in another state.
Chip startup run from San Jose: $800 a year of California minimum tax
Formed in Delaware in 2023, run from San Jose, never registered in California.
- California: $800 for each year it did business there: 2023, 2024, 2025 and the current year, before penalties. The first-year exception does not apply to a corporation never qualified with the California Secretary of State (Form 100 instructions).
- Texas: a remote engineer in Austin since 2025 means a Texas unemployment account.
- 1099s: two contractors paid $1,500 each in 2025 needed Forms 1099-NEC ($600 threshold). The same payments in 2026 need none ($2,000).
- Form 3921: three 2025 incentive stock option exercises, no forms. Filed now, after August 1: $340 × 3 for the IRS plus $340 × 3 for the employee copies, up to $2,040.
Software startup with a CAN $1,500,000 Toronto subsidiary
A wholly owned Toronto subsidiary of six engineers bills the Delaware parent CAN $1,500,000 a year for development.
- Canada: a T2 every year and a T106, since transactions pass CAN $1,000,000 (late: up to CAN $2,500 a year).
- US: Form 5471 with each Form 1120; $10,000 per missed year, and that year's Form 1120 stays open until 3 years after the Form 5471 is filed.
Different for you?
- Several years of Form 1120 are missing or tax is owed: catching up on unfiled business returns.
- A Form 5472 penalty notice arrived: missed foreign-owner filings and penalties.
- Interest or fees went to foreign investors or lenders without withholding: missed withholding on payments abroad.
- The Delaware charter is already void: reinstating your company.
- The company issued SAFEs or convertible notes: SAFEs and convertible notes.
- A founder in Canada or Taiwan got vesting stock: founder shares that vest.
- Founders want their stock to qualify for the gain exclusion: small business stock exclusion for startups.
- The books are on the cash method and need to switch: switching from cash to accrual.
- Several of these rows apply at once, or a foreign founder and a Canadian subsidiary are both involved: data center and AI infrastructure services.
Figures on this page
| Figure | Value | Source |
|---|---|---|
| Foreign ownership that makes a US corporation a Form 5472 reporting corporation At least this share of vote or value held by one foreign person, directly or indirectly, at any time in the tax year. A single-member LLC wholly owned by one foreign person is treated as such a corporation. | 25% | IRS: Instructions for Form 5472 Checked |
| Form 5472 penalty for failure to file or keep records For tax years beginning after December 31, 2017. Per reporting corporation, per tax year. A substantially incomplete Form 5472 counts as a failure to file. IRC 6038A(d)(1); Treas. Reg. 1.6038A-4(a). | $25,000 | IRS: Instructions for Form 5472 Checked |
| Delaware late corporate annual report penalty For not filing a complete annual franchise tax report on time | $200 | Delaware Division of Corporations: Annual Report and Tax Information Checked |
| Delaware monthly franchise and alternative entity tax interest Interest on unpaid corporation, LLC, and partnership tax and applicable penalties | 1.5% | Delaware Division of Corporations: Annual Report and Tax Information Checked |
| Delaware corporation charter-void delinquency period Unpaid franchise tax or an unfiled annual franchise tax report, absent more time granted by the Secretary of State | 1 year | Delaware Code: Title 8, Section 510 Checked |
| California minimum franchise tax Annual minimum for S corporations incorporated, registered or doing business in California; waived for the first taxable year of a newly formed or qualified S corporation | $800 | California Franchise Tax Board: S corporations Checked |
| US late payroll deposit penalty range IRC 6656 and IRS guidance: 2%, 5%, 10%, or 15% of the unpaid deposit depending on lateness and notice; rates do not stack | 2% to 15% | IRS: Failure to Deposit Penalty Checked |
| Penalty per information return or payee statement due in 2027, corrected within 30 days Applies separately to a return and a payee statement; forms for 2026 payments are due in 2027 | $60 Tax year 2027 | IRS: Revenue Procedure 2025-32 Checked |
| Penalty per information return or payee statement due in 2027, corrected after August 1 or not corrected Applies separately to a return and a payee statement; forms for 2026 payments are due in 2027 | $340 Tax year 2027 | IRS: Revenue Procedure 2025-32 Checked |
| Late-filing penalty for a foreign reporting return, maximum The daily amount for the 100-day cap | C$2,500 | CRA: Foreign reporting penalties Checked |
| Initial penalty for failure to file required Form 5471 information Per annual accounting period of each foreign corporation for information required by section 6038(a) | $10,000 | IRS: Instructions for Form 5471 Checked |
| Corporate income tax return late-filing penalty per month Percentage of unpaid tax for each month or part of a month a corporate income tax return is late, subject to the maximum and other rules. | 5% | IRS: Instructions for Form 1120 Checked |
| Corporate income tax return late-filing penalty maximum Maximum ordinary failure-to-file penalty as a percentage of unpaid tax; separate Form 5472 penalties can apply. | 25% | IRS: Instructions for Form 1120 Checked |
| Form 5472 continuation penalty wait after IRS notice Additional penalty starts when failure continues beyond this period after IRS notice | 90 days | IRS: Instructions for Form 5472 Checked |
| Form 5472 added penalty when a failure continues after IRS notice For tax years beginning after December 31, 2017. For each 30-day period (or part) the failure continues after 90 days from the IRS notice, per related party. No statutory cap. IRC 6038A(d)(2); Treas. Reg. 1.6038A-4(d). | $25,000 | US Code: 26 USC 6038A Checked |
| Form 5472 repeated continuation penalty period Each period or part of a period after the notice wait | 30-day period | IRS: Instructions for Form 5472 Checked |
| Delaware domestic corporation annual report and franchise tax due date Annual report and franchise tax for the prior calendar year; larger franchise-tax liabilities can require installments | March 1 of the following year | Delaware Division of Corporations: Annual Report and Tax Instructions Checked |
| California corporation or LLC late Statement of Information penalty Assessed after the Secretary of State certifies a delinquent corporation or LLC to the Franchise Tax Board; a waiver may be available | $250 | California Franchise Tax Board: Common Penalties and Fees Checked |
| Texas unemployment tax registration period After becoming a liable employer | 10 days | Texas Workforce Commission: Unemployment tax Checked |
| Form 1099-NEC nonemployee compensation reporting threshold for payments made through 2025 Box 1 nonemployee compensation of $600 or more, under the April 2025 instructions; payments after December 31, 2025 use the higher threshold. | $600 Tax year 2025 | IRS: Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025) Checked |
| Form 1099-NEC reporting threshold for payments made in 2026 Generally, reportable service payments to one payee during 2026; backup withholding can require filing at any amount | $2,000 Tax year 2026 | IRS: Am I required to file a Form 1099 or other information return? Checked |
| Penalty per information return or payee statement due in 2027, corrected after 30 days through August 1 Applies separately to a return and a payee statement; the IRS table prints August 1, 2026, but sections 6721(b)(2) and 6722(b)(2) put the cutoff in the due year | $130 Tax year 2027 | IRS: Revenue Procedure 2025-32 Checked |
| Section 83(b) election deadline After restricted property is transferred, not after it vests | 30 days | IRS: Publication 525, Taxable and Nontaxable Income Checked |
| Form T106 filing threshold Total fair market value of reportable transactions with all non-arm's-length non-residents in the year; filing is required when the total is more than this | C$1,000,000 | Income Tax Act, s. 233.1(4) Checked |
| Canadian corporation income tax return filing period After the corporation's taxation year end under paragraph 150(1)(a) | Six months | Income Tax Act, paragraph 150(1)(a) Checked |
| Late-filing penalty for a foreign reporting return, per day For each day the failure continues, up to 100 days | C$25 | Income Tax Act, s. 162(7) Checked |
| Late-filing penalty for a foreign reporting return, minimum The penalty is the greater of this and the daily amount | C$100 | Income Tax Act, s. 162(7) Checked |
Primary sources
- IRS: Instructions for Form 1120
- IRS: Instructions for Form 5472
- US Code: 26 U.S.C. 6501, limitations on assessment
- Delaware Division of Corporations: Annual Report and Tax Information
- Delaware Division of Corporations: How to Pay Franchise Taxes
- Delaware Division of Corporations: Online Status
- Delaware Code: Title 8, Chapter 5 (sections 502, 503 and 510)
- Delaware: 85 Del. Laws c. 48
- California FTB: Corporations
- California FTB: 2025 Form 100 instructions
- California FTB: Doing business in California
- Texas Workforce Commission: Determine tax account liability
- IRS: Failure to deposit penalty
- IRS: Employment taxes and the trust fund recovery penalty
- IRS: General Instructions for Certain Information Returns
- IRS: Instructions for Forms 1099-MISC and 1099-NEC
- IRS: Instructions for Forms 1099-MISC and 1099-NEC (Rev. April 2025)
- IRS: Instructions for Forms 3921 and 3922
- IRS: Form 15620, Section 83(b) Election
- FinCEN: Beneficial Ownership Information Reporting
- CRA: Corporation income tax return
- CRA: T4012, chapter 2, T2 return
- CRA: Foreign reporting, table of penalties
About this guide
Published by Cloud Accounting under standing professional approval. This version has no separately recorded personal review. It explains general rules for the tax year shown. It is not advice for your situation.
Changes
- : First published.