All about business September 2019 Tax News

It’s that time of year - make sure your clients that closed a business complete the process

The filing of a final return will not legally terminate a business and will not end its requirement to file and pay taxes. The entity is still required to submit the Certificate of Dissolution/Cancellation document to the California Secretary of State (SOS)  to close/withdraw their business. If your client filed a corporate or Limited Liability Company (LLC) return (100, 100S, 100W, or 568) and marked it final the next step is to make sure the proper documents have been filed[1] with the SOS.
Simple 3-step process:

  • Step one: Go to the California SOS bizfile page.
  • Step two: find your entity

    You can search by either the LP/LLC/Corporation Name or Entity Number[2].

  • Step three: confirm the entity’s status[3]

If the status is Active, now is the time to talk to your client. 
Your client’s business entity may avoid the minimum franchise or annual tax[4] for current and subsequent taxable years if it fulfills all of the following requirements:

  • File its final franchise or annual tax return timely, including extension, for the preceding taxable year and mark it final.
  • Conduct no business after the last day of the preceding taxable year.
  • File the appropriate termination documents[5] with the SOS within 12 months of the filing date of its final tax return.

As stated in our June 2019 - All about business article SOS’ bizfile allows authorized individuals to terminate LLCs Online. [6]
What if your client filed a timely return, but did not check the box as a final return?  If the return for the preceding taxable year is their final return, no worries. Send to us all of the following (applies to all entities):

  • A letter stating the entity did not conduct any business after the last day of the preceding taxable year.
  • Attach a copy of the Certificate of Dissolution, Surrender, or Cancellation showing the date SOS granted the dissolution, surrender, or cancellation and that it was done within 12 months of the filing date of the timely final tax return.
Send the letter and documentation to:
Franchise Tax Board
P.O. Box 942857
Sacramento, CA 94257-0540

Suspended or forfeited entities

If your client’s business entity is suspended or forfeited, the SOS cannot accept termination documents. You must complete all of the following requirements before you submit your termination documents to SOS:

  • Pay all outstanding balances due
  • File any delinquent tax returns
  • File FTB 3557 BC, Application for Certificate of Revivor, (Banks and Corporations), FTB 3557 LLC, Application for Certificate of Revivor, (LLCs), or FTB 3557 E, Application for Certificate of Revivor, (Tax-Exempt Corporations)

For more information regarding the revivor process,

Website
ftb.ca.gov
Phone
888-635-0494
916-845-7033

[1] See California Corporate Code 110

[2] Corporations need to put a “C” before their assigned number

[3] The status should generally be either dissolved, merged out, surrender, or canceled, if the status is active, suspended or forfeited the entity has not been legally terminated/canceled.

[4] California law generally requires a business entity to pay the minimum franchise tax whether it is incorporated or organized in the state (domestic entities); qualified or registered to do business in the state (foreign entities); or doing business in the state without having incorporated, organized, registered or qualified. We require a minimum franchise tax from all business entities (Corporation, S-Corp, Limited Liability Company, or Limited Partnership) whether active, inactive, and operating at a loss or filing a short-period return (less than 12 months).

[5] A California or foreign (out–of–state or out–of–country) business entity can dissolve, surrender or cancel by filing the applicable termination forms with the California SOS. Please refer to the California SOS for complete filing forms, instructions, fees, any additional requirements and relevant statutory filing provisions.

[6]At this time the SOS does not have an online service for the termination of corporations.