Tax clearance: how to deal with the 15-day rule and avoid an additional $800 in minimum tax
Differences exist in the statutory language and administration of the Corporations Code by the Secretary of State (SOS), and the Revenue and Taxation Code by the Franchise Tax Board (FTB) concerning when a document is considered to be "filed." The SOS date-stamps and processes documents as of the date received without regard to postmark. FTB accepts documents as timely if the postmark is no later than the due date of a return or payment (or the next business day if the due date falls on a weekend or holiday).
The following guidelines reconcile these differences and provide business entities treatment consistent with other FTB filing and payment policies.
Guidelines for tax clearance when the 15th day of the taxable year falls on a weekend or holiday.
To avoid entering another tax period and owing the minimum franchise or annual tax, a corporation that is dissolving or surrendering, or an LLC or LLP that is canceling or withdrawing must conduct no activity during the new tax year, and that year must be 15 days or less (R&TC Sections 17946, 17948.2, and 23114).
If the dissolving or canceling entity's 15th day of the next taxable year falls on a weekend or holiday, FTB may accept a postmark date of the next business day for a request for tax clearance as deemed filing on or before the 15th day if the entity can provide proof of postmark by:
- Sending dissolution, surrender, or cancellation forms (including 3555 or 3555L) by registered or overnight shipping directly to the SOS using a method that documents the date of mailing as well as the date of delivery.
- Providing evidence that documents were shipped to the SOS before the 15th of the month and that the 3555 was "received" by the SOS within one business day of the documented delivery of that package.
FTB will then accept it as a timely request for tax clearance. Postage marks without supporting delivery confirmation (such as regular ground mail) are not acceptable.
Guidelines for tax clearance when the business is forced to close as a result of a Presidentially declared disaster.
The R&TC provides special treatment for taxpayers impacted by a Presidentially declared disaster. Business entities forced to dissolve as a result of a declared disaster often incur an additional year minimum franchise or annual tax due to the 15-day rule since nothing specific is provided in the R&TC for these circumstances. For purposes of a tax clearance request, FTB will process the request as being received the last day of the entity's final taxable year, if all of the following conditions are met:
- The dissolving or canceling entity's business was located within a Presidentially declared disaster area or a qualified disaster area as provided under R&TC Sections 17207 and 24347.5.
- The entity was not doing business after the last day of the final tax year.
- The entity filed all required returns and payments within the extension period provided for disaster treatment under the R&TC.
- Any necessary dissolution or cancellation paperwork is filed with the SOS including FTB Form 3555 or 3555L within the extension period provided for disaster treatment under the R&TC.
For general information about obtaining Tax Clearance, visit our Website at www.ftb.ca.gov and search for tax clearance FAQs. You may also contact the tax clearance unit directly at (916) 845-4124.