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State of California Franchise Tax Board

Tax News
Should I File my Business Entity Tax Return Even Though I Do Not Have the Money to Pay?

If you owe, but cannot pay your taxes by the due date, you should file your tax return on time and pay as much as you can. Although penalties for late payment of tax apply, the penalty for late filing of the tax return is usually higher.[1]

This statement is especially true for pass-through business entities, such as partnerships, LLCs,[2] and S corporations.

Similar to the federal law (IRC Sections 6698 and 6699), California law (Revenue and Taxation Code (R&TC) Sections 19172 and 19172.5) imposes a partnership/shareholder late filing penalty for the late filing of pass-through business entities tax returns (Forms 565, 568 and 100S) or if you file the tax returns without required information.[3] We impose these penalties even if all taxes have been paid or (as is the case with a general partnership) no taxes are imposed.

For tax returns filed on or after January 1, 2011, the partnership, LLC, S-corporation late filing penalty will be $18 for each month or part of a month (for a maximum of 12 months) multiplied by the total number of partners, members, or shareholders in the entity during any part of the taxable year for which the tax return is filed after its due date. This penalty is in addition to the existing late filing penalty under R&TC Section 19131.

Although federal and California law both impose late filing penalties on pass-through business entities tax returns, as we outline in the following chart, there can be a significant difference when these penalties start to accrue and how much will be imposed.

Partnership Federal California

Form

1065

565

Due Date
(Calendar Year Filer)

April 15th
(15th day of 4th month)

April 15th
(15th day of 4th month)

Application to Extend

Application Required

Automatic
(if the tax return is filed within 6 months of original due date)

Extension Due Date

Sept 15th
(5-month extension)

Oct 15th
(6-month extension)

Penalty Per Partner

$195 per month
(or fraction thereof)

$18 per month
(or fraction thereof)

Limited Liability Company Federal California
Form 1065 568
Due Date (Calendar) April 15th
(15th day of 4th month)
April 15th
(15th day of 4th month)
Application to Extend Application Required Automatic
(if in good standing and the tax return is filed within 6 months of original due date)
Extension Due Date Sept 15th
(5-month extension)
Oct 15th
(6-month extension if in good standing)
Penalty Per Partner/Member $195 per month
(or fraction thereof)
$18 per month
(or fraction thereof)
S Corporation Federal California

Form

1120S

100S

Due Date (Calendar)

April 15th
(15th day of 3rd month)

April 15th
(15th day of 3rd month)

Application to Extend

Application Required

Automatic
(if in good standing and the tax return is filed within 7 months of the original due date)

Extension Due Date

Sept 15th
(6-month extension)

Oct 15th
(7-month extension if in good standing)

Penalty Per Shareholder

$195 per month
(or fraction thereof)

$18 per month
(or fraction thereof)

After the tax return is processed, we will send a bill, including penalties and interest. If the business entity is unable to pay the balance in full by the due date on the notice, the business entity can enter into an installment agreement if it cannot pay the total balance in 90 days due to a financial hardship. Under this program, the business entity would agree to pay a specified amount on a specified day each month.

Requirements to qualify for an installment agreement, the business entity:

  • Must file any delinquent tax returns.
  • May need to complete and mail to us a financial condition form. If necessary, we may require other financial documentation.
  • Must pay a $50 fee to set up an installment agreement. We will add the fee to the business entity's balance due.

Our staff will determine if an account qualifies for an installment agreement and the time period allowed.

For more information about these notices is available, go to ftb.ca.gov and search for installment agreements - business.

[1] All late filed returns may be subject to a late filing (R&TC Section 19131), which is based on amount of unpaid tax due. This may be assessed with other penalties, such as the partnership or S-corporation late filing penalty.

[2]Limited Liability Companies – This article addresses LLCs that are treated for tax purposes as a partnership. Single Member limited liability companies and LLCs which have elected to be treated as corporations are not addressed in this article.

[3] Failure to File a Timely Return or Provide Information Unless failure is due to reasonable cause, a penalty will be assessed against the partnership if it is required to file a partnership return and one of the following occur:
It fails to file the return on time, including extensions.
It files a return, including Schedules K-1 (565), that fails to show all the information required.
Interest will be charged on the penalty from the date the notice of tax due is sent by the FTB to the date the return is filed.
For “small partnerships,” as defined in IRC Section 6231, the federal exception to the imposition of penalties for failure to file partnership returns, does not apply for California purposes. For more information see R&TC Section 19172.

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