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Suspension and Revivor 101 - Part 3

So far we have discussed how a corporation or LLC becomes suspended or forfeited, and how to revive them back into compliance. In this article, we discuss three penalties that are closely associated with suspension and forfeiture.

Secretary of State Penalty (CR&TC 19135)

The Secretary of State (SOS) imposes a penalty for failure to file:

  • Statement of Information by Domestic Stock Corporation annually.
  • Statement of Information by Foreign Corporation annually.
  • Statement of Information by Domestic Non-Profit Corporation every other year (biennially).
  • Statement of Information by Domestic or Foreign LLCs every other year (biennially).

The penalty amount varies depending on the business entity:

  • Domestic and foreign corporations - $250.
  • Domestic and foreign limited liability companies - $250.
  • Domestic nonprofit corporations - $50. (This amount applies for any entity incorporated as a nonprofit corporation, whether or not the corporation is tax-exempt.)

Interest is not charged on the SOS penalty or allowed on the refund of an SOS penalty payment.

We only collect the penalty for SOS. To have the penalty waived, you must contact the SOS directly. SOS does notify us when they waive the penalty. It takes us 30 to 90 days from the date of the SOS letter to update our files for the abatement. You can contact SOS at:

CALIFORNIA SECRETARY OF STATE
STATEMENT OF INFORMATION
PENALTY UNIT
PO BOX 944230
SACRAMENTO CA 94244-2300
916.657.5448

sos.ca.gov

Be aware there are several business scams being operated by private companies advising business entities to file their Statements of Information by submitting fees and documents to them rather than filing them directly with the SOS. For information regarding these scams go to the SOS website.

NonQualified, Suspended, or Forfeited Penalty (CR&TC 19135)

We impose a $2,000 penalty per tax year on nonqualified, suspended, or forfeited corporations doing business in California, if they do not file a tax return within 60 days after we send them a legal demand (i.e. FTB 4684 or FTB 4685) to file their corporate return. The penalty is in addition to the demand and delinquent penalties and the filing enforcement fee. The penalty does not apply to limited liability companies.

We charge Interest on the penalty from the original notice date of the penalty assessment to the date paid.

The penalty may be waived for reasonable cause. To request a penalty waiver you must submit a written statement with supporting documents listing the facts that support reasonable cause exists.

Demand Penalty (CR&TC 19133)

We impose a demand penalty if a corporation or LLC (not classified as a corporation) does not file a tax return after we send them a formal legal demand (i.e. FTB 4684 or FTB 4685) to do so. The demand penalty also applies to individuals. In this article, we only discuss the demand penalty for business entities and their failure to file a return.

The amount of the demand penalty is 25 percent of the lesser of the tax shown on the:

  • Notice of Proposed Assessment (NPA), before applying any payments or credits or
  • The tax shown on the return before applying any payments or credits.

If the corporation or LLC (not classified as a corporation) files its original return after the NPA goes final and the tax on the return (before refundable credits) is less than the proposed assessed tax, we will reduce the penalty. Please note that since the penalty is computed before applying credits and payments, your entity may owe penalty and interest even if the tax return shows that a refund is due.

We charge interest on the penalty from the NPA issue date to the payment received date.

The penalty may be waived for reasonable cause. To request a penalty waiver submit a written statement with supporting documents listing the facts that support reasonable cause exists.

Next month, in the final part of the series, we will cover contract voidability and the relief of contract voidability penalty.

Back to October 2010 Tax News