Single Member Limited Liability Company (SMLLC) Late Filing Penalty – Repayment of Amounts Collected Outside the Statute of Limitation
In the February 2014 Tax News edition, we reported that we were processing refunds for a penalty applied to certain SMLLCs due to misapplication of the Late Filing Penalty under Revenue and Taxation Code Section 19172 (Late Filing Penalty) to SMLLCs treated as disregarded entities for tax purposes. We also reported that the refund or credit of the penalty will include interest. But the refund or credit would be restricted to those tax years and/or payments made within the statute of limitations (SOL) for refunds as of June 26, 2013.
As a result of further analysis, we determined that a payment made by an SMLLC for the Late Filing Penalty that is outside the SOL will be treated as an “over collection,” meaning we can repay the SMLLC Late Filing Penalty payments that would otherwise be nonrefundable due to the SOL.
An “over collection” occurs when the amount collected exceeds the amount actually due under the law. It’s not considered a payment toward tax, as no tax liability exists at the time of the collection. Because an “over collection” is not a payment towards tax, return of the “over collection” is not barred by the SOL. Likewise, since an “over collection” is not considered a payment towards tax, it is not eligible to receive interest.Beginning in May 2014 and through the subsequent 12 months, affected SMLLC taxpayers that had this penalty “over collected,” and are in good standing, will receive a letter from us indicating their eligibility for repayment without interest, with a warrant (check) to follow.