Tax News
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Suspended/Forfeited Business Entities Revivors

Did you know suspended/forfeited business entities continue to accrue tax, along with penalties and interest until the business entity is formally cancelled?

Until the business entity formally terminates their legal existence, the entity continues to exist. Likewise, their filing and annual tax requirements continue to exist. Not filing timely tax returns or paying the annual tax usually leads to the business entity getting suspended or forfeited by us. Once we suspend or forfeit the business entity, the business entity no longer has any rights or privileges and the Secretary of State (SOS) cannot accept termination documents until the entity is revived to good standing.

When a business entity forms in California or qualifies to do business with the SOS, the entity continues to have an obligation to file and pay taxes. Left unresolved, a suspended or forfeited business entity can accumulate a substantial amount of tax, penalties, fees, and interest which need to be paid before the entity can be formally terminate or resume doing business in California.

The cost depends on the business entity’s actual facts and business type. The following is an example of the amounts:

Example: In this example, all business entities were assumed to only owe the minimum tax. Each entity was suspended for failure to file and pay their annual/minimum tax for the tax year 2009, and was owned by two shareholders/members, with no payments made, including estimate payments. This chart also assumes that each entity did not receive a notice and demand penalty pursuant to Revenue and Taxation Code (R&TC) Section 19133, non-qualified, suspended, or forfeited penalty pursuant to R&TC section 19135, or had a filing enforcement fee imposed. Other penalties may apply. To be revived the entity will need to file and pay all taxes, penalties and interest currently due by August 1, 2012, and file a Form 3557, Application for Certificate of Revivor. This chart does not include all filing fees or costs for expedited services by us or SOS.

2009

Corporation

S Corporation

Limited Liability Company
(LLC)

Subtotal: $1,129 $1,129 $1,215
Tax: $800 $800 $800
Delinquent Penalty: 200 200  
Underpayment/monthly:     200
Member Penalty:     100
Estimate Penalty: 35 35  
Interest to 8/1/12: 94 94 115

 

2010

Corporation

S Corporation

Limited Liability Company
(LLC)

Subtotal: $1,080 $1,512 $1,454
Tax: $800 $800 $800
Delinquent Penalty: 200 200  
Underpayment/monthly:     152
Shareholder / Member Penalty:   $432 $432
Interest to 8/1/12: 51 51 71

 

2011*

Corporation

S Corporation

Limited Liability Company
(LLC)

Subtotal: $1,040 $1,220 $1,084

 

Totals

 

$3,249

 

$3,861

 

$3,743

Tax: $800 $800 $800
Delinquent Penalty: 200 200  
Underpayment/monthly:     104
Estimate Penalty: 25 25  
Shareholder / Member Penalty:   180 144
Interest to 8/1/12: 15 15 36

We assess a failure to comply late filing penalty for each shareholder or member of the S-Corporation or LLC (in addition to the other applicable penalties) required to be filed with the return. This penalty is applicable to S corporations beginning with returns required to be filed after January 1, 2011. Also as of January 1, 2011, the penalty increased to $18 per shareholder or member, for each month or fraction of the month the return is late or incomplete, up to a maximum of 12 months. Prior to January 1, 2011, the penalty was $10 per month per member for each month the return was late or incomplete, up to a maximum of five months.

Although we can waive both types of late filing penalties for reasonable cause, to get the business entity revived the penalties need to be paid. If the business entity can show they meet the reasonable cause exception, they need to file a written request to get the penalties waived.

* A business entity must be revived on or before the original due date of the return to avoid late filing penalties. A suspended or forfeited business entity loses its powers, rights, and privileges has no an extension of time to file its return.

The Revivor Process

The revivor process starts with a phone call to our Revivor Unit at 888.635.0494 to determine what your client needs to do to bring their corporation or LLC into compliance (aka “good standing”).

Mail-In Revivor

After you contact us, we send you or your client:

  • Written revivor requirements.
  • Application for Certificate of Revivor.
  • Information on contract voidability.

It takes approximately six weeks to process the revivor request once we receive the entity’s information.

After a one-time registration process, you can use Web Pay for Businesses to make corporation, partnership, and LLC payments online. Businesses can make payments 24 hours a day, 7 days a week.

Back to July 2012 Tax News