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Suspension and Revivor 101 - Part 4

Suspension or forfeiture, and contacts made by the entity in California will be voidable at that time.

Relief Period

Relief period is the period of time that taxpayers can request to have their contracts relieved of contract voidability.

Relief Period - During Revivor

During the revivor process, you can choose when the relief period begins. The relief period ends on the date of revivor. The relief period can start on either the:

  • Beginning of the tax year of suspension/forfeiture, or
  • Beginning of a tax year after the tax year of the suspension of forfeiture.

Example: Harp, Inc., a calendar year filer, was suspended in 2006 and revived on June 19, 2010. The corporation can choose to start the relief period from the beginning of any the 2006 through 2010 tax years. If the corporation chooses the 2008 tax year to start the relief period, the relief period would be January 1, 2008 to June 19, 2010.

Relief Period – After Revivor

After the revivor process, the relief period starts with the tax year the corporation or LLC was suspended. The relief period ends on the date of revivor.

Example: Cello, Inc., a calendar year filer, was suspended in 2007. The LLC revived on April 1, 2009. The corporation did not request relief of contract voidability. On March 1, 2010, the corporation requests relief of contract voidability. The corporation’s relief period is January 1, 2007 to March 1, 2010.

Figuring the Contract Voidability Penalty

The contract voidability penalty is $100 a day for the relief period. The penalty cannot exceed the tax due for the relief period. When a tax return is not due, the minimum franchise tax is considered the tax due for the period.

Example: Flute, Inc., a calendar year filer, was suspended in 2006. The corporation revived on April 1, 2010. The corporation requests a relief period from January 1, 2008 to April 1, 2010. The corporation’s contract voidability penalty for each year of the relief period is:

TAX YEAR RETURN TAX CONTRACT VOIDABILITY PENALTY
2010 $800 $800
2009 $20,000 $20,000
2008 $10,000 $10,000
Total Penalty $30,800

Nonqualified Corporations OR LLCs with an FTB Assigned Number

When a foreign corporation or LLC with an FTB assigned number fails to pay taxes, penalties, and interest, or fails to file a the return, we send them a File Notice Before Contract Voidability. If they do not comply within 60 days from the mail date, we send them Notice of Contracts Subject to Voidability, and contracts made by the entity in California will be voidable at that time.

Relief Period – During and After Bringing the Entity into Compliance

You can choose the beginning tax year of the relief period. The relief period ends on the date the taxpayer brings themselves into compliance. The relief period can start on either the:

  • Beginning of the tax year the contracts become voidable, or
  • Beginning of a tax year after the contracts became voidable.

Figuring the Contract Voidability Penalty

Example: On January 25, 2000, Drum, Inc. (a nonqualified corporation) receives Notice of Contracts Subject to Voidability and their contracts become voidable. Drum, Inc. is a calendar year filer. On December 14, 2009, the corporation files all its missing tax returns and pays all the outstanding amounts they owe. At that time the corporation did not request relief of contract voidability. On March 1, 2010, the corporation contacts us and asks for relief from contract voidability starting with the 2008 tax year.

The corporation’s relief period is January 1, 2008 to December 14, 2009 (date of compliance).

The corporation’s contract voidability penalty for each year of the relief period is:

TAX YEAR RETURN TAX CONTRACT VOIDABILITY PENALTY
2009 $5,000 $5,000
2008 $10,000 $10,000
2000 to 2007 Did not request relief from contract voidability for these tax years.
Total Penalty $15,000

Foreign Corporations or LLCs not Qualified and not Filing Returns

When a foreign corporation or LLC is not qualified to do business in California does not have an FTB assigned account number, and fails to file tax returns, any contract entered into within the state can be declared voidable during the applicable period.

Applicable Period

The applicable period begins on the later of:

  • January 1, 1991.
  • The first day of the tax year for which the corporation or LLC has failed to file a tax return or pay taxes.

The applicable period ends on the earlier of the date the corporation or LLC:

  • Qualifies to do business with the Secretary of State
  • Obtains an account number from us

Relief Period

The relief period is the same as the applicable period.

Voluntary Disclosure Program

Corporations and LLCs that have fully complied with their voluntary disclosure agreements, will be considered to have applied for and been granted relief from contract voidability. Go to our website for additional information on the Voluntary Disclosure Program.

Interest

Interest on the contract voidability is charged from the original notice date of the penalty assessment to the date paid.

Penalty Waiver or Abatement

The contract voidability penalty cannot be waived for reasonable cause.

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