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AB 2341 - Specific Provisions

On September 29, 2006, the Governor signed Assembly Bill 2341 eliminating the need for a tax clearance certificate. After September 29, 2006, see How to Dissolve, Surrender, or Cancel Your Business Entity.

Affected entities:

  • Corporations,
  • Limited liability companies (LLC),
  • Limited liability partnerships (LLP),
  • Limited partnerships, and
  • Not-for-profit corporations and certain exempt entities.

Effective/operative date:

  • Effective September 29, 2006.
  • Operative for taxable years beginning on or after January 1, 2006.

Specific provisions:

  • Eliminates the tax clearance certificate beginning September 29, 2006.
  • Allows entities to avoid the minimum franchise tax or annual tax for the current taxable year if all of the following requirements are met:
    1. The entity files a timely final franchise or annual tax return for the preceding taxable year, including extension.

      Taxable nonprofit corporations and tax-exempt corporations are required to file a final return if the gross receipts 3-year average exceeds $25,000, or is a private foundation, or has non-member or unrelated business income.

      Exceptions: to the final filing requirement are nonprofit tax-exempt churches and tax-exempt corporations with a gross receipts 3-year average of less than $25,000.

    2. The entity does not conduct any business after the end of the preceding taxable year.
    3. Within 12 months of the filing date of the timely final franchise or annual tax return, the entity files appropriate paperwork with the California Secretary of State (SOS).
  • For corporations, consider the filing of a final franchise tax return a request for information to dissolve or withdraw.
  • Does not allow SOS to file an entity’s documents if the entity is suspended or forfeited with the Franchise Tax Board. These entities must pay all outstanding balances due, file any delinquent returns, and then request that the entity be revived to good standing.

If you would like to read more about AB 2341, please visit the following:

To see the provisions that applied to taxable years that began prior to 1/01/2006, refer to Archive - Tax Clearance prior to 1/01/2006.

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