Tax News
Short Form Cancellations for LLCs

 

California Code provisions allow limited liability companies (LLCs) to cancel and not be required to pay the first year annual tax if they meet certain conditions (Corporations Code Section 17350.5 and California Revenue and Taxation Code (R&TC) Section 17941(e)).

A domestic limited liability company (LLC) may use the Secretary of State’s form SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, to cancel (ceasing the LLC’s rights, powers, and privileges) if it is filed within twelve months from the date the Articles of Organization were filed with the SOS, and it meets the following requirements:

  • Owe no debts or liabilities, except for its final state income tax.
  • Filed or will file a timely final tax return.
  • Conducted no business since filing its articles of organization.
  • Distributed all remaining assets to the entitled persons after providing for payment of all debts and liabilities.
  • Voted to dissolve the LLC from a majority of the managers, members, or persons that signed the articles of organization.
  • Returned all payments received for interests to the investors.

The short form cancellation is operative for LLC’s that filed articles of organization with the SOS on or after January 1, 2004.

Effective for taxable years beginning on or after January 1, 2005, the LLC annual tax is not required for the first taxable year if an LLC filed the short form cancellation with SOS and is classified as a partnership or disregarded entity.

If an LLC files SOS Form LLC-4/7, Limited Liability Company Certificate of Cancellation, or is involved in a merger or conversion, it does not qualify for LLC short form cancellation even if it meets all of the requirements.

Currently, the minimum tax is not required for the first taxable year only if the LLC is classified as a corporation. 

We can only refund the annual tax or fee that was paid on or after the date the LLC filed the SOS Form LLC-4/8, Limited Liability Company Short Form Certificate of Cancellation, with the SOS.

Example 1: Annual Tax Unpaid

Needs Capital, LLC, filed articles of organization on August 1, 2011, with the SOS. The LLC later determined that it was unable to obtain sufficient funding to begin business operations. The LLC filed a short form cancellation (SOS Form LLC-4/8) with the SOS on December 14, 2011. It used a calendar tax year and did not pay any tax or fee.

The LLC would file a final 2011 Form 568 without self-assessing the annual tax.

Example 2: Payment Received Prior to the Cancellation Date
Use the same facts as in Example 1, except that the LLC made an annual tax payment on November 15, 2011.

The LLC would file a final 2011 Form 568 and self-assess the annual tax. We cannot refund annual tax payments received before the date the LLC filed the short form cancellation with the SOS.

Example 3: Payment Received On or After the Cancellation Date

Use the same facts as in Example 1, except that the LLC made an annual tax payment on January 15, 2012.

The LLC files a final 2011 Form 568 without self-assessing the annual tax. We will refund the annual tax payment since it was paid on or after the date the LLC filed the short form cancellation with the SOS.

Back to September 2012 Tax News