AB 2341 Frequently Asked Questions
- How will I know if my entity is dissolved or surrendered?
You can contact the Secretary of State (SOS) at (916) 657-5448 or visit their website at www.sos.ca.gov. According to the SOS, it could take up to six weeks for your status to be updated.
- Do I still need to complete a Request For Tax Clearance, FTB Form 3555, 3555L, 3555T or 3555A?
No. AB 2341 eliminated the tax clearance certificate requirement. However, your entity is required to file a final return and pay any liabilities associated with the return. The termination documents filed with the SOS include this final return requirement.
- To avoid an additional year of minimum franchise tax or annual tax, AB 2341 provides that I have 12 months from the date I file my timely final return to file my termination documents with SOS. What if I file my termination documents with SOS before I file my final return?
AB 2341 provides a window for entities to avoid incurring additional minimum franchise or annual tax. It did not change when an entity may file its termination documents. Many entities file their termination documents before they file their final return. This is the preferred practice and ensures that the entity will not incur any future minimum franchise or annual tax. However, the entity remains liable for filing the final return and paying any liabilities, even after the entity has terminated its existence.
- What happens to corporations that are conditionally dissolved?
AB 2341 allowed all “conditionally dissolved” corporations to become dissolved without a tax clearance certificate. Even though a corporation is dissolved, the corporation and its transferees remain liable for any outstanding returns or tax liabilities per Cal. Code of Regs. §23151.
- What happened to my Certificate of Surrender filed before 09/29/06?
If you have not received a response with regard to your Certificate of Surrender, please contact the SOS at (916) 657-5448 for information about the filing and your entity’s status.
- How long will it take for the SOS to process my termination documents?
According to the SOS, it could take up to six weeks for your documents to be processed.
- What happens to any outstanding liabilities or SOS penalties assessed to my corporation when it dissolves?
All outstanding liabilities from tax, penalties, and interest remain due regardless of an entity terminating its presence in California.
- If a corporation has a conditional dissolution status with the SOS, does the corporation need to contact the SOS to have their status updated?
No, the corporation does not have to contact the SOS. If the corporation believes that they may owe a liability or may need to file a return with FTB, they should call 1-800-852-5711.
- What happens if I don’t file or pay outstanding liabilities?
If you do not file the necessary returns or pay the outstanding liabilities, FTB will suspend or forfeit your business entities status. As a result, the SOS will not accept any termination documents you file.
- My corporation is suspended. What do I need to do to dissolve or surrender the corporation?
You should contact FTB and request that your corporation be revived to good standing. To be revived, all returns and tax liabilities, including interest and penalties must be filed and paid. Once your entity is revived, the SOS will accept the filing of your Certificate of Dissolution or Certificate of Surrender. Reviving to dissolve or surrender a corporation does not qualify for a walk through revivor process. Please allow 2 – 4 weeks to process the corporation revivor request after FTB receives the missing returns/payments.
- I filed my final return and filed a Certificate of Dissolution with the SOS. Why am I still required to file and pay?
California law provides that termination of a business entity in California does not relieve that entity of any outstanding liabilities. As a result, the entity and or its transferees remain liable for any outstanding returns or tax liabilities, Cal. Code of Regs. §23151.
- My corporation is about to be merged into another entity and that entity will no longer do business in California. How do I know if that entity has filed all of its returns and paid its liabilities?
You can request that the entity obtain a letter of good standing from FTB. A letter of good standing is a statement that all appropriate returns and taxes have been filed and paid. However, the disappearing entity’s returns do remain subject to audit until expiration of the normal statute of limitations. The surviving corporation would be liable for any additional tax that may be assessed.
Note: FTB does not issue a letter of good standing for limited partnerships, limited liability partnerships or general partnerships. However, a Certificate of Good Standing for a limited partnership or limited liability partnership may be obtained from the SOS for a fee. For further information, please call the SOS (916) 657-5448.
- In April of 2006, I filed my 2005 final return and paid the $800 minimum franchise tax for the 2006 taxable year. I received a tax clearance certificate and my corporation’s existence was terminated with the SOS effective March 1, 2006. As a result of AB 2341, can I request a refund of the $800 paid for the 2006 taxable year?
Yes, you can request a refund of the $800 for the 2006 taxable year. Since you filed a timely final return and terminated your entities existence within 12 months of the filing of that final return, you would not owe the minimum franchise tax for the 2006 taxable year. Call 1-800-852-5711 for the information on how you can request your refund.
- Can FTB send me a document, which would reflect that my business entity is not liable for $800 minimum franchise or annual tax for the next taxable year?
No. However, your entity will receive a Final Return Information Letter upon receipt of a return that has the box checked “FINAL”. The letter informs you how to avoid the minimum franchise or annual tax for current and subsequent taxable years if all of the following requirements are met:
- Your final franchise or annual tax return was filed timely, including extension, for the preceding taxable year.
- Conduct no business after the last day of the preceding taxable year.
- File the appropriate documents with the SOS within 12 months of the filing date of your final tax return.
- Will the business entity receive a letter stating that their status has been changed to dissolved, surrendered, or cancelled?
No. However, you can contact the SOS at 657-5448 or visit their website at www.sos.ca.gov. Per the SOS, it could take up to six weeks for your status to be updated.
- Where can I find information regarding closing a business entity?
Please see FTB Pub. 1038 Guide to Dissolve, Surrender, or Cancel a Business Entity for information on closing a business entity. Telephone assistance is available by calling the Franchise Tax Board at (800) 852-5711. You can also visit www.sos.ca.gov for specific requirements, instructions and forms or call (916) 657-5448.
- Do I have to file and pay for the current year if I don’t file the termination documents with the Secretary of State by January 15th of the current year?
No. However, by filing the termination documents by the 15th of January, it ensures that you will not incur any future minimum franchise or annual tax. In addition, your final franchise or annual tax return for the preceding taxable year must be filed timely, including extension.
- Which business entities does the new law affect?
- Limited liability companies (LLCs),
- Limited liability partnerships (LLPs),
- Limited partnerships (LPs),
- Not-for-profit corporations, and
- Certain exempt organizations.
- Our business entity filed a timely final return. However, we did not check the FINAL return box on the return. How do we correct this situation?
If the last return was timely filed, send a letter (applies to all entities) to FTB containing all of the following:
- The return for the preceding taxable year is our final return.
- The entity did not conduct any business after the last day of the preceding taxable year.
- Attach a copy of the Certificate of Dissolution, Surrender, or Cancellation showing the date SOS granted the dissolution, surrender, or cancellation and that it was done within 12 months of the filing date of the timely final franchise or annual tax return.
Send the letter and documentation to:
Franchise Tax Board
P.O. Box 942857
Sacramento, CA 94257-0540