Merger involving moving a California S-Corp to Nevada...

[MikiD]

Hello,

I'm hoping to get some clarification about a client S-Corp merger. Here are the details and questions. I would appreciate any advice and guidance I can get. Thank you in advance.

Until about June of last year, my client had a S-Corp in California. Then he decided to take it out of California and move it to Nevada. What he did was he formed a Nevada corporation and then merged the existing California corporation into the new Nevada corporation. For the purposes of California Secretary of State, the old CA corporation is "merged out" and does not exist as a California entity. The company now has a new name and new address in Nevada, but according to their lawyer who put the merger together, they retained the old EIN number to use for tax purposes. The lawyer's advice to my client was to have the 1120-S "name change" and "address change" boxes checked. Does this sound right?  My reservations are because the corporation now has a new state of jurisdiction and new date of incorporation. In addition, it does not look like they filed Form 2553 (S-Corp election) for the new corporation, and my understanding tells me that this should have been done before the merger...? For TY 2022, is this a C Corp for tax purposes? And, if we use the existing EIN as the lawyer suggested, will this raise a flag, or do I continue to file 1120-S return (per lawyer's recommendation) and file the election with the return (if needed)? 

[sjrcpa]

Was it really a merger?

Or a redomestication?

[MikiD]

It was a merger. 

[abctax55]

OT... but if the 'new' entity still has a nexus in CA a California return will be required.

[BobKamman]

Nexus is a term usually used in determining sales tax liability.  The question is, are they still doing business in California?  In any case, they need a new EIN, and a Form 2553 should have been filed for the new corporation.  

[MikiD]

That is what makes sense to me...

They retained a warehouse in California for storage purposes of their product, though they have no sales in California and no employees in the state. In my opinion, I don't think having the storage warehouse qualifies as "doing business in California". They also did not file to be a qualified foreign corporation with the Secretary of State.

[sjrcpa]

Maybe not doing business but physical presence = nexus.

@BobKamman nexus very much applies in the income tax context, too.

[BobKamman]

In other words, no one ever goes to that warehouse to deliver goods.  No one ever goes there to retrieve goods.  There are no people working at the warehouse, just robots.  If no one in California ever buys what they keep in it, what is the purpose of having it there?

[MikiD]

I was told that the warehouse in California is there only to store the goods until they can bring them into their Nevada warehouse used for distribution. They were not able to move everything at once, limited spacing I guess.

Having said that, if it turns out to be different, can I file a state return without a secretary of state number and an entity number that is no longer active? What is required for nonqualified foreign corporations for tracking purposes?

Also, if we are retaining a new EIN would I need a "final" tax return for the old corporation, to close out the accounts?