Close a Delaware C Corp From Abroad: Dissolve or Walk Away?

Can I just walk away from a Delaware C corporation?

You can stop paying, but walking away does not close the corporation or its tax file. Delaware voids the charter after 1 year of unpaid franchise tax or an unfiled annual report (8 Del. C. 510), yet the unpaid tax stays collectible: Delaware's Attorney General can pursue franchise taxes and penalties from void corporations (section 517). On the federal side, every domestic corporation must file Form 1120 whether or not it has taxable income.

What makes a closing not simple:

• A foreign owner. A corporation with a foreign person owning at least 25% of its vote or value must attach Form 5472 for any year with a reportable transaction with a related party. Each missing form can cost $25,000 (IRS instructions).
• Missed years. Dissolving now does not file the years before it.
• Money still in the company. Cash left in a US account keeps the corporation in existence for tax until it is paid out.

Gather before you start: the EIN assignment letter, every bank statement since formation, any returns already filed, Delaware notices and annual reports, the stock ledger, and a record of every payment between you and the company.

What does walking away leave behind?

Walking away leaves three things open: Delaware tax that keeps growing, federal returns the IRS still expects, and accounts that cannot be closed cleanly.

Whether a void corporation that never dissolved still owes federal returns is not settled by a single rule. The regulation says a corporation is not in existence "after it ceases business and dissolves, retaining no assets" (26 CFR 1.6012-2(a)(2)). A void charter is not the same as a dissolution the owners chose, and a company with money in its account still holds assets. The same regulation lets a corporation that never completed its organization, did no business and had no income ask the IRS to be relieved of filing, but only after presenting the facts.

Which final returns does a foreign-owned corporation file when it closes?

A closing foreign-owned C corporation files Form 966, a final Form 1120 marked as final, Form 5472 if it had a reportable transaction in the final year, and Delaware's final annual franchise tax report. If it paid cash out to a foreign shareholder, it also files Forms 1042-S and 1042.

Check the final-return box only for the return after which the corporation will no longer exist. A corporation that still holds cash or a claim it plans to pursue has retained assets and continues to exist for tax (26 CFR 1.6012-2). For annual filing rules, see foreign-owned C corporation filing; for signing, e-filing and mailing from abroad, see filing a corporate return from abroad.

Do I need a final Form 5472 if the company had no income?

Income does not decide it; transactions with you do. A corporation needs Form 5472 for the final year only if it had a reportable transaction with a foreign or US related party, such as a loan from you, interest, fees for services, or other amounts that affect its taxable income (Form 5472 instructions; 26 CFR 1.6038A-2(b)(3)).

Where your payments land depends on what they were:

• Company bills you paid and expect repaid. These create a loan from you. Line 17, amounts borrowed, reports the opening and closing balance or a monthly average, and a balance in place at the start of the year counts.
• Money you put in for shares or as capital. The regulation's rule for contributions and distributions names only foreign-owned disregarded entities, not C corporations. See putting money into your US corporation from abroad.
• Anything paid for less than full value, or in property. Part VI asks for a description and estimated value.

Because the IRS treats a substantially incomplete or missing form as a failure carrying $25,000, check every transfer between you and the company in the final year before deciding no form is needed.

If earlier Forms 5472 were never filed, does closing make the penalties go away?

No. Dissolving the corporation does not erase penalties for years already missed. The penalty is $25,000 for each tax year with a failure, and if the failure continues more than 90 days after an IRS notice, a further $25,000 applies for each 30-day period it continues (26 U.S.C. 6038A(d)).

The statute allows reasonable cause to be shown, but that is a separate request with its own evidence. Filing the missing years, answering a notice and asking for relief are covered in missed foreign-owner filings and penalties. Deal with missed years before or alongside the final return, not after the EIN is closed.

How do I pay Delaware and dissolve the corporation from abroad?

Pay all franchise tax and file all annual reports first; Delaware will not dissolve a corporation until the tax for the entire month of dissolution is paid and a final annual report is filed (8 Del. C. 277). Delaware requires corporate annual reports to be filed online and accepts payment by card or bank debit (Delaware), so living abroad does not block this step.

The order, in short:

1. The board and stockholders approve dissolution, or all voting stockholders consent in writing (8 Del. C. 275). A corporation that never issued shares or never started business may use the shorter section 274 route.
2. File Form 966 within 30 days of that approval.
3. Pay the corporation's debts and Delaware tax, and file the final annual report.
4. File the certificate of dissolution. The state filing fee is $224 (fee schedule).
5. Pay out what is left, file the final Form 1120 and any Forms 1042-S and 1042, then close the EIN account and the bank account.

A void charter can be revived under section 312, which brings back the corporation's debts and duties along with its rights; whether to revive before dissolving is covered in reinstating your company. Approvals, notices and the filing order in detail are in dissolving a Delaware corporation.

How do I get money left in the US account back to myself?

Cash returned to you when the corporation closes is a liquidating distribution, which the tax law treats as payment for your shares, not as a dividend (26 U.S.C. 331). Pay the corporation's debts and Delaware tax first; a stockholder of a dissolved Delaware corporation can be liable for its claims up to the amount distributed to that stockholder (8 Del. C. 282).

A corporation withholds on a distribution to a foreign shareholder unless it elects to reduce withholding, and it may elect not to withhold to the extent the distribution is payment in exchange for stock (26 CFR 1.1441-3(c)). Even with no withholding, the whole distribution is generally reported on Form 1042-S, with a Form 1042, both due March 15 of the following year (26 CFR 1.1461-1(b) and (c)). If your shares are a US real property interest, for example because the corporation mainly held US real estate, the corporation generally withholds 15% of the amount distributed (Publication 515).

If part of the cash repays a loan you made, it is a loan repayment, not a distribution; keep the two apart in the records. For paying yourself while the company still runs, see paying yourself as a foreign owner.

How do I close the EIN and stop the registered agent's bills?

An EIN cannot be cancelled, only deactivated, and only after all required returns are filed and taxes paid. Send the IRS a letter with the corporation's legal name, EIN, address, reason for closing and a copy of the EIN assignment notice if you have it, to an address on the IRS's EIN page. The IRS closing a business page lists the same contents.

The registered agent's authority ends when the certificate of dissolution takes effect, except for legal papers it received before then (8 Del. C. 275(h)). Until then, every Delaware corporation must keep a registered agent in the state (8 Del. C. 132), so end the service contract after the certificate is filed, not before. Billing terms are set by your contract with the agent.

Keep the corporation's records after closing. A dissolved Delaware corporation continues for three years to wind up and to defend claims (8 Del. C. 278), and the IRS can still ask about open years.

Do I owe anything personally in the US once it is closed?

The Form 5472 penalty and the corporation's tax are owed by the corporation, not by you directly. But a stockholder who receives the corporation's assets in liquidation can be pursued for its unpaid federal taxes as a transferee, generally until one year after the IRS's time to assess the corporation ends (26 U.S.C. 6901(c)). Under Delaware law, a stockholder's total liability for a dissolved corporation's claims cannot exceed what was distributed to that stockholder (8 Del. C. 282).

On your own gain or loss on the shares, a nonresident is generally not taxed by the US on gains from selling capital assets that are not connected with a US business, unless present in the US for 183 days or more in the year or the shares are a US real property interest (Publication 519). Your home country may tax the gain or allow the loss. If you live in Canada, see closing a US startup as a Canadian founder.

Example

All figures are illustrative and in US dollars.

A clean close after one quiet year

A founder in India formed a Delaware corporation last year. She paid $3,000 of formation and registered agent fees personally and the company earned nothing. Last year's Form 1120, with any Form 5472 those payments required, must be filed too if it was not. She and the board approve dissolution and file Form 966 within 30 days. If she expects the $3,000 back, it is a loan: the final Form 5472 shows it on line 17. If it was capital, she documents that instead and checks whether any other related-party transaction occurred. She pays the Delaware franchise tax and files the final annual report, then the certificate of dissolution, then the final Form 1120 with the final-return box checked.

Three quiet years and a penalty notice

A founder in Germany stopped looking after his corporation three years ago. He lent it money in its first year and never filed Form 5472. A $25,000 penalty notice arrives for one year. Dissolving now does not remove that penalty or file the other two years. He files the missing returns, responds to the notice within its deadline and makes a separate reasonable-cause request, then closes the corporation.

Money left in the account

A founder in China has $20,000 left in the corporation's US account and no debts other than Delaware tax. The corporation pays the Delaware tax, files the certificate of dissolution, and sends her the remaining cash as a liquidating distribution, treated as payment for her shares. It elects not to withhold because the whole payment is in exchange for her stock, and it holds no US real estate, so the real property withholding does not apply. Its final Form 1120 covers the period through the distribution, it reports the distribution on Form 1042-S with a Form 1042 by March 15 of the next year, and her preparer reviews whether anything else that year belongs on Form 5472.

Different for you?

• Forms 5472 were missed or a penalty notice arrived: see missed foreign-owner filings and penalties and get corporate tax help before closing.
• The charter is already void: see reinstating your company.
• You need Delaware's approval steps in detail: see dissolving a Delaware corporation.
• You live in Canada: see closing a US startup as a Canadian founder.
• Your company is a single-member LLC, not a corporation: see foreign-owned single-member LLC filing and the general closing checklist.
• The corporation also registered in another state: that state has its own closing steps; see dissolving a Delaware corporation.
• The company had investors, employees or sales: the final return and payouts need more review; get corporate tax help.