Limited Liability Company Short Form Cancellation

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Purpose of bulletin

To revise the provisions for a domestic limited liability company (LLC) canceling with the Secretary of State’s (SOS) SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation.

Background

California Corporations Code Section 17350.5 and Revenue and Taxation Code Section 17941(e) have provisions that allow LLCs to cancel and not be required to pay the first year annual tax if they meet certain conditions.

Requirements to obtain a short form cancellation

A domestic LLC may use the SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, to cancel if it is filed within twelve months from the date the Articles of Organization were filed with the SOS, and they meet the following requirements:

  • The LLC has no debts or liabilities, other than for FTB taxes.
  • A timely final tax return has been or will be filed with FTB.
  • The LLC has not conducted any business since organizing.
  • All remaining assets have been distributed to the entitled persons after payment of, or providing payment for all debts and liabilities.
  • A majority of the managers, members, or persons that signed the articles of organization have voted to dissolve the LLC.
  • All payments the LLC received for interests have been returned to the investors.

The short form cancellation is operative for LLC’s that filed Articles of Organization with the SOS on or after January 1, 2004.

LLC annual tax exclusion

Effective for taxable years beginning on or after January 1, 2005, the LLC annual tax is not required for the first taxable year if an LLC filed the short form cancellation with SOS, and is classified as a partnership or disregarded entity.

If an LLC files SOS Form LLC-4/7, Limited Liability Company Certificate of Cancellation,or is involved in a merger or conversion, it does not qualify for LLC short form cancellation even if it meets all of the requirements.

Currently, the minimum tax is not required for the first taxable year if the LLC is classified as a corporation.

LLC annual tax and fee refund

FTB can only refund the annual tax or fee that was paid on or after the date the LLC filed the SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, with the SOS.

Example 1: Annual tax unpaid

Needs Capital, LLC filed the Articles of Organization on August 1, 2011, with the SOS. The LLC later determined that it was unable to obtain sufficient funding to begin its business operations. The LLC filed the short form cancellation with the SOS on December 14, 2011. They use a calendar tax year and did not pay any tax or fee.

The LLC would file a final 2011 FTB Form 568 without self-assessing the annual tax.

Example 2: Payment received prior to cancellation date

Use the same facts as in Example 1, except that the LLC made an annual tax payment on November 15, 2011.

The LLC would file a final 2011 form 568 and self-assess the annual tax.  We cannot refund annual tax payments received before the date the LLC filed the short form cancellation with the SOS.

Example 3: Payment received on or after the cancellation date

Use the same facts as in Example 1, except that the LLC made an annual tax payment on January 15, 2012.

The LLC would file a final 2011 form 568 without self-assessing the annual tax.  FTB will refund the annual tax payment since it was paid on or after the date the LLC filed the short form cancellation with the SOS.

 

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