All about business August 2019 Tax News

Reminder: S Corporations need to file their form 100S by September 16, 2019

A corporation, or a limited liability company (LLC) that has elected to be treated as a corporation and has a valid federal S election in effect, automatically becomes an S corporation for California franchise and income tax purposes. This applies whether or not the corporation or LLC treated as a corporation is qualified or registered with California’s Secretary of State.

Since the corporation becomes an S corporation automatically for California purposes, the corporation does not need to file a separate California S corporation election, but attaches a copy of its federal S election confirmation letter with its first California return. The federal S corporation election is binding and the corporation cannot make a separate state election to be treated as a C corporation for California tax purposes.

The original due date of the S corporation's return is the 15th day of the third month following the close of the S corporation's taxable year, generally March 15, and the six-month extended due date, generally September 15, [1] is the same as the extended due date for the S corporation's federal return.

The six-month extension allowed to file the S corporation return does not extend the period in which the corporation is required to pay its tax liability. The S corporation is required to pay its tax liability by the original due date of March 15, regardless of whether it files its return later using the six-month extension.[2]

The six-month extension is automatic and the S corporation does not have to file a written request for an extension.  However, if the corporation does not file its return by the extended filing deadline, then the extension does not apply and any applicable late return penalties will be measured from the original non-extended filing due date, e.g., March 15. Regulation 18567 states, “The granting of the extension is conditioned solely upon the filing of a return within the automatic extension period. If the return is not filed within six months of the original due date, no extension is allowed.”[3]

If the S corporation misses the due date for filing the return, it can receive a penalty even if no taxes are due. Similar to federal law, California law imposes a late filing penalty for the late filing of an S corporation’s tax return (Form 100S) that is computed solely based on the number of shareholders during the taxable year.[4] We are required to impose this penalty even if all taxes have been paid, unless the taxpayer can establish there was reasonable cause for filing late. For tax returns filed on or after January 1, 2011, the late filing penalty under R&TC section 19172.5 is $18 multiplied by the total number of shareholders in the S corporation during its taxable year multiplied by the number of months (including partial months) that the return is late. This penalty is in addition to the late filing penalty imposed under R&TC Section 19131 that applies if the S corporation did not fully pay its tax by the original due date.

For a comprehensive list of all the penalties in the R&TC, go to and search for FTB 1024 or penalty chart. This chart also lists the available defenses to the penalties.

California Group Nonresident Return (aka Composite Returns)
California law imposes a tax on the income of a nonresident taxpayer that is derived from or attributable to sources within this state. Generally, a nonresident taxpayer will file a Form 540NR, California Nonresident or Part-Year Resident Income Tax Return. Form 540NR requires a nonresident to report their income on a world basis (total taxable income or total TI) and identify their California sourced income. A ratio is determined based on the “tax on total TI” over “total TI” and is applied against California-sourced taxable income to determine the nonresident’s tax liability.

California’s group nonresident return, is an individual return filed by the pass-through entity. The return reports the state income of nonresident owners or, in California’s case, the electing members, as one group return by the business entity (S corporation, partnership, or limited liability company) and pays the tax on behalf of the electing nonresident individuals for their convenience. California also allows a corporation to report the electing nonresident directors’ wages, salaries, fees, or other compensation from that corporation for directors’ services performed in California.

An S corporation that is electing to file California’s group nonresident return for its nonresident shareholder(s) or nonresident directors do have until October 15, 2019, as this return is filed under the Personal Income Tax law (Section 18567).

For instructions and more information related to California’s group nonresident return go to our California group nonresident tax return webpage.

[1] When the due date falls on a weekend or holiday, the deadline to file and pay is extended to the next business day. For the 2018 calendar taxable year, the extended filing due date for an S corporation is September 16.  (See 18 Cal. Code Regs. section 18566 (return due dates); Calif. Civil Code section 11 (general rule that action performed on the next business day after a weekend or holiday is timely); Cal. Code of Civil Proc. section 12 (computation of time for performing acts required by law).)

[2] R&TC section 18604(b).

[3] See R&TC, Sections 18567 and 18604. Section 18604 is the law that address corporate taxpayers. See also opinion in Appeal of KidzArt Texas, LLC, 2019–OTA–060, nonprecedential, Mar. 13, 2019, footnote 5.

[4] R&TC Section 19172.5.