What was broken
A hospitality company had fallen years behind on its corporate registry filings, income tax returns, and indirect-tax compliances after a period of understaffed finance functions. Penalties were accumulating, and the backlog was beginning to threaten the company’s banking relationships and its standing with the authorities.
What we did
CapEasy prioritised and cleared the backlog systematically — reconstructing the records where needed, preparing and filing the overdue registry, income tax, and indirect-tax compliances in the correct sequence, and regularising the company’s standing. We then established a compliance calendar so filings would stay current going forward.
Where it landed
The company cleared its compliance backlog and returned to good standing with the authorities and its bank. Ongoing compliance moved from reactive fire-fighting to a proactive, managed calendar.
What "years behind" costs on a US federal return
A missed corporate filing does not sit still, and the mechanism depends on the form. On Form 1120, the failure-to-file penalty runs 5% of the unpaid tax for every month or partial month the return is late, capped at 25% — and it stacks against a separate failure-to-pay penalty of 0.5% per month, also capped at 25%. When both apply in the same month, the IRS does not charge both in full: the failure-to-file penalty is reduced by the failure-to-pay amount, so the combined rate still runs close to 5% a month until the return is actually filed. For returns due after December 31, 2025, an 1120 filed more than 60 days late faces a minimum penalty of $525 or the tax owed, whichever is less. Forms 1065, 1120-S, 1066 and 8985 work on a different mechanism entirely: since most of these filings carry no entity-level tax, the penalty is a flat $255 per partner or shareholder for every month or partial month the return is late, capped at twelve months — a percentage-of-tax measure would rarely apply. Multiple unfiled years do not average out; each year accrues its own penalty clock from its own due date.
Left unaddressed long enough, the IRS can prepare a substitute for return from third-party income data, issue a Notice of Deficiency, and move into collection — a lien on company assets or a levy on the bank account. None of that is the starting position most backlogs are in, but it is the direction an unfiled year travels if nobody works it.
The state side: filings, not just tax, keep the entity in good standing
The engagement’s registry-standing thread — a company’s registered standing, independent of the tax owed — has a direct US state-level equivalent. Delaware requires every domestic corporation to file an Annual Report and pay franchise tax by March 1 each year; missing it does not just cost money, it costs standing. The penalty is $200 plus 1.5% interest per month on the tax and penalty combined, and a corporation that stays delinquent loses its good standing with the Division of Corporations — the same status a bank, a landlord or an acquirer’s counsel will ask to see evidence of before doing business. Every state a company is registered in runs its own version of this clock; a multi-year backlog is rarely just a federal problem, it is a federal return plus a state annual report plus (for many businesses) state sales or franchise tax, each with its own due date and its own penalty accrual.
The sequence that actually clears a backlog
The method that worked on the multi-authority backlog transfers directly: work oldest year first, not most recent. A corporate return depends on the prior year’s ending balances — retained earnings, depreciation schedules, carryforward losses, accumulated adjustments account for an S corporation — so a return prepared out of order has to be redone once the earlier year is finally reconciled. Reconstructing the books in date order, one period at a time, produces a set of years that tie to each other; filing them out of sequence produces a stack of returns that will not survive a second look.
CapEasy’s part in that sequence is the reconstruction: rebuilding the ledger period by period from bank and source records, preparing the schedules each return needs, and handing over a reconciled, year-by-year file. The returns themselves — federal Forms 1120/1120-S/1065, and any state returns — are filed by the partner CPA firms we work with across 15 US states, in the order the reconstructed books support.
What to take from it
- Unfiled years each carry their own penalty clock from their own due date — on a 1120, the failure-to-file and failure-to-pay penalties combine to run close to 5% of the unpaid tax per month, capped at 25%; on a 1065 or 1120-S, it is a flat per-partner monthly amount instead.
- A corporate (1120) return filed more than 60 days late carries a minimum penalty regardless of the tax owed; a partnership or S-corp return carries its own flat per-partner monthly penalty regardless of tax owed — reconstruct and file even a break-even or loss year.
- State standing runs on its own clock alongside federal tax: Delaware’s annual report and franchise tax delinquency carries its own penalty and interest, and can cost the company its good standing.
- Work the oldest unfiled year first — later years depend on the prior year’s closing balances, so filing out of order means redoing work.
- A compliance calendar after the catch-up is what keeps a backlog from recurring; the recovery only pays off if the next due date does not get missed the same way.