The California Franchise Tax Board (FTB) has issued guidance on California Assembly Bill, A.B. 2503, which provides relief for LLC and corporations no longer doing business in California. Effective January 1, 2019, the FTB may administratively dissolve a domestic corporation or a domestic limited liability company (LLC) and abate any unpaid qualified taxes, penalties, and interest of a dissolved domestic corporation or a cancelled domestic LLC under two specified circumstances: Voluntary Administrative Dissolution and Involuntary Administrative Dissolution.
Historically, the FTB has lacked the statutory authority to administratively dissolve business entities that fail to complete the process required to legally dissolve in California. This has resulted in many of these entities remaining on the FTB’s accounting system, continuing to accrue taxes, interest, and penalties. Some of these entities have remained on the FTB systems accruing tax, penalties and interest for 20 years, which is the number of years it takes the FTB to legally discharge the uncollectable tax liability. This bill would, under the Corporations Code, allow the FTB to administratively dissolve certain domestic corporations and domestic limited liability companies (LLCs) without having to wait the required 20 years.
VOLUNTARY ADMINISTRATIVE DISSOLUTION
Qualified entities submitting requests for Voluntary Administrative Dissolution authorize the FTB to abate, upon written request by a qualified entity (FTB Form 3715 (Corps)), (FTB Form 3716 (LLCs)), the unpaid qualified taxes, interest and penalties for the taxable years in which the entity certifies that it has never done business, or has ceased doing business within California, has paid all taxes due for years when the business was in operation, filed all required returns prior to the cessation of business operations, and does not have any remaining assets in the business.
INVOLUNTARY ADMINISTRATIVE DISSOLUTION
Involuntary Administrative Dissolution authorizes the FTB to administratively dissolve those qualified entities that are suspended by the FTB, have ceased doing business, have been suspended for 60 or more consecutive months, and have paid all taxes and filed all returns due as of the date the entity ceased doing business. The FTB initiates the Involuntary Administrative Dissolution and notifies eligible domestic corporations and domestic LLC’s that meet specified criteria.
TWO PHASE IMPLEMENTATION PROCESS The first phase of the implementation process is set to take effect as of January 2019. It is during this phase that the FTB will begin receiving and processing requests submitted for Voluntary Administrative Dissolution. The second phase of the implementation process is scheduled to launch in January 2020. At that time, the FTB will begin initiating and processing the Involuntary Administrative Dissolution for eligible entity. The FTB indicated it will issue further information on this process in mid-2019.
QUESTIONS?
Please contact our Specialty Tax Group for additional guidance on how the new dissolution rules may apply to your company, or your client’s company.
SingerLewak LLP 2019.
Javier Ramirez
Partner, SingerLewak LLP
[email protected]
Peter Seidel
Director, SingerLewak LLP
[email protected]
Yukari Takahashi
Manager, SingerLewak LLP
[email protected]