Revenue: $0.
Expenses: More than you'd like to admit.
Founder optimism: Still going strong.
You incorporated your startup, opened a bank account, bought a domain, paid for some software, and maybe started building your product.
No customers yet. No sales. Definitely no profits.
So naturally, you're thinking: We didn't make any money. Why would we need to file a tax return?
Unfortunately, the IRS doesn't measure your filing obligations by how successful your startup has been.
And in some cases, that tax return is required even if your company's biggest accomplishment this year was choosing a name.
01Does a startup with no revenue have to file a tax return?
Yes, in many cases. A U.S. C corporation generally must file a federal income tax return every year, even if it has no revenue, no taxable income, and no business activity.
For LLCs and partnerships, the answer depends on how they're taxed, who owns them, and whether they had any income, deductions, or credits.
There's also an important difference between not owing taxes and not having to file a return. Those are two very different things.
02What if your startup is a Delaware C corporation?
If you formed a Delaware C corporation, as many venture-backed startups do, the IRS generally expects Form 1120 every year.
It doesn't matter whether the company made $1 million or $0, launched its product or is still developing it, or has employees or just a founder working nights and weekends.
Even a corporation formed in December that did nothing before year-end generally has a federal filing obligation for that short tax year.
There's a narrow exception for corporations that received a charter but never perfected their organization, conducted no business, and had no income. However, the corporation must establish those facts with the IRS to obtain relief from filing. Simply being inactive doesn't qualify.
The IRS filing rules for corporations generally require domestic corporations to file whether or not they have taxable income.
Your pitch deck might say you're pre-revenue. The IRS doesn't have a checkbox for that.
03What if you formed an LLC or an S corporation instead?
This is where things get more interesting.
An LLC is a legal structure, not necessarily a separate federal income taxpayer. Its filing requirements depend on its tax classification.
Here's how the rules generally work when there's no revenue.
C corporation: Form 1120
Generally must file an annual federal corporate income tax return, even with no revenue or taxable income.
S corporation: Form 1120-S
Generally must file every year while its S election is in effect, even without revenue. A late-filing penalty may apply even if the S corporation owes no federal income tax.
Multi-member LLC taxed as a partnership: Form 1065
Generally must file if it has income or expenditures treated as deductions or credits for federal income tax purposes.
However, a domestic partnership with no income and no expenditures treated as deductions or credits generally isn't required to file Form 1065 for that year.
Single-member LLC owned by a U.S. individual and taxed as disregarded
Generally doesn't file a separate federal income tax return. Applicable business activity is reported on the owner's individual return. Other filing obligations may still apply.
Foreign-owned single-member LLC taxed as disregarded: Form 5472
May need to file Form 5472 with a pro forma Form 1120 if it has reportable transactions, even without revenue.
So yes, a completely inactive partnership might not have to file a federal return.
A C corporation? Generally, no such luck.
For the partnership exception, see the IRS instructions for Form 1065.
04What if your startup is foreign-owned?
Now we get to one of the more expensive surprises.
Suppose you're a foreign person for U.S. tax purposes and you formed a U.S. single-member LLC.
The company has no revenue. Maybe it doesn't even have customers.
But you transferred money into the LLC to cover formation costs, operating expenses, or other startup needs.
Those transactions may trigger Form 5472 reporting, even though the LLC has no revenue.
A foreign-owned U.S. disregarded LLC with reportable transactions generally must file Form 5472 attached to a pro forma Form 1120.
Certain transactions involving the formation, funding, acquisition, or dissolution of the entity can be reportable, including contributions from its foreign owner.
U.S. C corporations with at least 25% foreign ownership may also have Form 5472 obligations when they engage in reportable related-party transactions.
The penalty for failing to file a required Form 5472 starts at $25,000.
Yes, a $25,000 penalty for a business that earned $0.
And filing a substantially incomplete Form 5472 can trigger the same penalty. Additional penalties may apply if the failure continues after IRS notification, potentially for each related party.
This is why foreign ownership and related-party transactions should be reviewed before deciding that an inactive company doesn't need to file.
See the IRS instructions for Form 5472.
05What if your startup owns a foreign subsidiary?
Here's another situation that catches founders by surprise.
You formed a Delaware C corporation and established a subsidiary in the UK, Germany, or another country.
The foreign subsidiary has no revenue. No customers. Maybe it hasn't even opened a bank account.
So you assume there's nothing to report.
Not necessarily.
If your U.S. company owns a foreign corporation, it may need to file Form 5471, even if that foreign company had no income, no expenses, and no business activity during the year.
Form 5471 can also apply to U.S. individuals who own certain interests in foreign corporations. The reporting requirements depend on ownership, control, and the foreign entity's U.S. tax classification.
And the penalties aren't small.
Failure to file a required Form 5471 can result in a $10,000 initial penalty, with additional penalties possible if the failure continues after IRS notification.
There is a simplified reporting procedure for certain qualifying dormant foreign corporations under Revenue Procedure 92-70. But dormant doesn't automatically mean exempt from filing.
One important distinction:
Form 5472 generally addresses certain transactions involving foreign-owned U.S. entities.
Form 5471 generally addresses U.S. persons' ownership and other specified relationships with foreign corporations.
Different forms. Different requirements. Both easy to overlook when everyone assumes that no activity means no paperwork.
See the IRS instructions for Form 5471.
06Why bother filing if there's no revenue?
Because tax returns aren't only about paying taxes.
Startups often spend significant amounts before generating their first dollar in revenue.
You may have paid for software development, contractors, legal fees, cloud hosting, or other costs while building the business.
Depending on the circumstances, some expenditures may result in tax deductions, losses, or credits. Others, including certain startup and organizational costs, may need to be capitalized and recovered over time.
Research and development expenses have their own rules, including different treatment for domestic and foreign research.
Properly reporting these items can affect the tax benefits available in future years.
You don't want to discover three years later, when your startup is finally profitable, that nobody properly tracked its early expenses or tax attributes.
But there's another reason to file, and founders often don't think about it until something goes wrong.
07Why your filing history matters, even when you owe $0
Filing a tax return isn't just about calculating this year's tax bill. You're also building your company's compliance history.
And that history can matter later, sometimes years after you've forgotten what your startup was doing in its first year.
A good filing history may help with future penalty relief
Nobody plans to miss a tax deadline.
But businesses get busy, accountants change, founders travel, and sometimes things fall through the cracks.
If your company has a history of timely filing and payment, that history may help it qualify for relief from certain IRS penalties in the future.
In 2026, the IRS introduced Automatic Exemption from Penalty (AEP), a new program replacing the previous First Time Abate process for eligible returns.
AEP generally considers whether a taxpayer met the applicable filing and payment requirements for the previous three years.
Eligible business returns include Forms 1120, 1120-S, and 1065, along with certain employment tax returns.
Relief may apply to specified failure-to-file, failure-to-pay, and failure-to-deposit penalties. When AEP applies, the IRS generally provides relief automatically during return processing.
The program doesn't cover every penalty. In particular, Form 5472 information-return penalties aren't covered by AEP.
A brand-new startup generally won't have three prior years of filing history yet, but establishing that history now may be valuable as the company grows.
Think of it as building a credit history, except nobody is sending you rewards points for filing Form 1120.
Read more about IRS administrative penalty relief.
Investors may want to see your tax returns
Imagine this.
You've spent two years building your startup. The product is working, customers are finally interested, and you're raising your first significant round.
An investor starts due diligence and requests copies of the company's previously filed tax returns.
You respond: "We didn't file. We weren't making any money."
That might lead to a few more questions than you expected.
Tax returns are among the documents investors or their advisors may request when evaluating a company.
They may want to understand whether the company has complied with its filing obligations, whether there are outstanding tax liabilities or unresolved notices, and whether reported losses and credits are properly documented.
Not every investor will request every prior-year tax return. But having those returns available can make the review process easier.
And when your company is finally raising money, the last thing you want to do is spend weeks reconstructing three years of missing tax filings.
The IRS may eventually notice your missing returns
You might think that if you don't owe taxes, the IRS won't care about a missing return.
Sometimes the IRS disagrees.
When a business obtains an Employer Identification Number (EIN), the IRS may establish filing requirements based on the information provided.
If an expected return isn't filed, the IRS may eventually issue a notice requesting it.
One example is IRS Notice CP259, which tells a business that the IRS has no record of a required return for a particular tax period.
The notice can involve different types of business returns, including corporate income tax and payroll tax returns.
These notices can arrive well after the original filing deadline.
And by then, you may have changed accountants, moved offices, or forgotten what happened during that tax year.
Not every IRS request for a missing return is necessarily correct. Sometimes the IRS has an outdated filing requirement on its records, or a return wasn't actually required.
If that's the case, you may need to respond and explain why the filing wasn't necessary.
But ignoring the notice isn't a good strategy. You may continue receiving requests until the matter is resolved.
The good news is that the IRS may have forgotten about your startup for a while.
The bad news is that it has a much better reminder system than most founders.
See the IRS explanation of Notice CP259.
08And don't forget the states
Federal taxes are only part of the story.
Your company may have state tax filing and payment obligations even when it has no revenue or federal income tax liability.
Delaware: Annual reports and franchise taxes
Delaware corporations generally must file an annual report and pay franchise taxes, regardless of revenue. Domestic corporation annual reports and franchise taxes are generally due March 1 for the preceding year.
Delaware LLCs don't file the same annual report, but they generally owe an annual tax.
For the 2026 tax year, Delaware increased the annual LLC tax from $300 to $400. The $400 tax is due June 1, 2027, while the annual tax for 2025 was $300.
The increase was enacted under Delaware House Bill 400, signed in May 2026.
So if you incorporated a Delaware company but haven't launched your product, you still need to pay attention to Delaware's annual requirements.
See the Delaware Division of Corporations and Delaware House Bill 400.
California: The $800 surprise
California has its own rules.
Corporations subject to California's franchise tax generally owe an $800 annual minimum tax, even if they're inactive or operating at a loss.
Newly incorporated or qualified corporations are generally exempt from the minimum franchise tax in their first taxable year, although tax on any taxable income may still apply.
California LLCs generally owe an $800 annual tax if they're organized, registered, or doing business in the state, subject to limited exceptions.
California also generally requires LLCs subject to its filing rules to file Form 568, even if they're disregarded for federal income tax purposes.
These are separate rules from federal income tax filing requirements.
So your startup could have $0 revenue, $0 federal income tax, and still owe California $800.
Apparently, the state doesn't accept "we're still working on our MVP" as a payment method.
See the California Franchise Tax Board's corporation guidance and LLC guidance.
09What if the company never really started operating?
Maybe you incorporated, opened a bank account, and then abandoned the idea.
Or your cofounder left and the project never got off the ground.
That doesn't automatically eliminate the company's filing requirements.
For a domestic C corporation, federal income tax filing obligations generally continue until the corporation is properly terminated, with a final return when required.
State obligations can also continue until the entity has been formally dissolved or otherwise closed under the applicable state rules.
Simply abandoning a company isn't the same as dissolving it.
Unfortunately, ghosting your corporation doesn't make it disappear.
If you're no longer planning to operate the company, it's worth reviewing the proper closure procedures rather than allowing filing obligations and potential penalties to accumulate.
10The bottom line: $0 revenue doesn't mean $0 paperwork
If you formed a U.S. company, don't assume that no revenue means no tax filing obligations.
The answer depends on your entity type, ownership, activity, tax classification, and the states where the business is registered or operating.
For some businesses, no federal income tax return may be required.
For others, particularly C corporations and certain foreign-owned entities, filing may be required even when absolutely nothing happened during the year.
And beyond the current year's obligations, timely filing helps establish your company's tax history, document its early expenses, prepare for investor due diligence, and potentially qualify for future penalty relief.
At Talara, we work with early-stage startups, including pre-revenue C corporations and foreign-owned businesses. We help founders determine which federal and state returns are required, even before their startup makes its first sale.
Because making $0 in revenue is perfectly normal for a startup.
Getting a $25,000 tax penalty for missing paperwork? That's a milestone nobody wants.
This article is general information, not tax or legal advice. The rules are fact-specific, change over time, and depend on details unique to your company. Talk to us about how they apply to your situation.