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Tax News
Software reminder for final business return

We are working with software vendors to make it easier for tax preparers to cancel, or dissolve a business entity. Several software vendors agreed to include a diagnostics application within their software, which issues a reminder whenever a tax preparer selects “final return” on a California Corporation Franchise or Income Tax return. It reminds practitioners that the $800 annual/minimum tax continues to accrue until the business entity formally dissolves, or cancels with the Secretary of State. We urge all software developers to include these software diagnostics and dialogues within their software for the 2006 filing year.

Update: On September 29, 2006, the governor signed Assembly Bill 2341, eliminating the need for a tax clearance certificate. This legislation streamlined the process for dissolving, or canceling the existence of business entities. Before this law was enacted, certain business entities, i.e., foreign corporations had to meet requirements of FTB, before the Secretary of State (SOS) would grant the business’s request to terminate. Passage of AB 2341 remedies this situation. Please refer to the November 2006 issue of Tax News for additional discussion of this issue, and continue reading this article for information that continues to remain relevant.

You can find additional information requirements under “closing your business” on the California Tax Service Center Website (

For a smooth and successful process:

  • Submit complete and accurate paperwork to the Secretary of State. Errors or incomplete paperwork cause your request to be returned without a valid dissolution date (domestic corporations), or cancellation date (limited liability companies).
  • Avoid an additional $800 annual or minimum franchise tax by filing a timely final return, including extension, and filing the required paperwork with the Secretary of State within 12 months of the date the final return was filed. 
  • File all outstanding tax returns, and pay all balances due. Inactive business entities remain liable for filing returns and paying additional tax if not officially granted closure by the Secretary of State.
  • Provide a correct and legible telephone number and address that will be available for several months after the business entity ceases its operations.
  • Complete and provide the required financial statement.

We are updating Publication 1038 Guide to Dissolve, Surrender, or Cancel a California Business Entity to reflect the changes enacted by AB 2341. The new publication will contain information for the following types of entities:

  • Domestic corporations.
  • Qualified foreign and qualified foreign tax-exempt corporations.
  • Domestic limited liability companies organized in California.
  • Foreign limited liability companies.
  • Domestic and foreign limited liability partnerships.
  • Domestic and foreign registered limited partnerships.
  • Domestic taxable nonprofit corporations and domestic tax-exempt corporations.
  • Non-qualified tax-exempt organizations.

Please contact the Secretary of State ( for additional information.