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State of California Franchise Tax Board

Update: Revenue and Taxation Code (R&TC) Section 19172 per Member Penalty for Certain Single Member Limited Liability Companies (SMLLC)

April 2, 2014

Purpose of Bulletin

To inform staff of our refunds, repayments, and/or abatements issued for a misapplied Late Filing Penalty (R&TC Section 19172) for disregarded SMLLCs.

Background

We discovered that the Late Filing Penalty under R&TC Section 19172 was misapplied to certain SMLLCs.  The Late Filing Penalty is a maximum of $50 ($10 per member x 5 months) for tax years 2010 and prior, and $216 ($18 per member x 12 months) for 2011 and later. 

We will abate any misapplied late filing penalties applied to SMLLCs treated as disregarded entities.

We anticipate that refunds, repayments or credits for affected SMLLCs will be completed over a period of several months.

Refunds Within SOL

We will send affected SMLLC taxpayers a letter indicating their eligibility for a refund, with a refund warrant to follow.  Only active, restored, or revived SMLLCs are eligible for a refund or offset.

Payments within the statute of limitations (SOL) as of June 26, 2013, can be refunded or offset.  Refund or credit of the penalty will include applicable interest and is restricted to those tax years and/or payments made within the SOL for refunds as of June 26, 2013. See R&TC Section 19306, for information regarding the SOL.

Repayment of Amounts Outside the SOL

We will send affected SMLLC taxpayers a letter indicating their eligibility for a repayment/credit, with a warrant to follow.  Only active, restored, or revived SMLLCs are eligible for a repayment or offset.  When we abate an unpaid penalty, we will send affected SMLLC taxpayers a letter notifying them of the abatement.

Payments made toward the penalty that are outside the SOL will be treated as an “over collection,” thereby enabling a repayment of the amount of SMLLC Late Filing Penalty payments, which would otherwise be nonrefundable due to the SOL.

An over collection occurs when the amount collected exceeds that amount actually due under the law.  An over collection is not considered a payment toward tax, as no tax liability exists at the time of the collection.  Because an over collection is not a payment towards tax, return of the over collection is not barred by the SOL.  In the same respect, since an over collection is not considered a payment towards tax; it is not eligible to receive interest.

Claims for Refund

We are identifying and processing refunds for affected SMLLCs without further action by the SMLLCs; however, a SMLLC may also file a claim for refund to one of the addresses below:

For regular mail, send to:

BUSINESS ENTITY NON-REMIT RETURN MS A311
FRANCHISE TAX BOARD
PO BOX 942857
SACRAMENTO CA 94257-0500

For private carrier or overnight delivery service, send to:

BUSINESS ENTITY NON-REMIT RETURN MS A311
FRANCHISE TAX BOARD
SACRAMENTO CA 95827-1500

Taxpayer Inquiries

Follow your established unit procedures.

Taxpayers can call us at 800.852.5711, weekdays, 7 a.m. to 5 p.m., except state holidays.

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