If you have a limited liability company operating or doing business in California and filed a California LLC tax return (Form 568) for 2004, the time to file a protective refund claim for the LLC fee is running out. The statute of limitations to request a refund of any or all of the 2004 LLC fee will expire on April 15, 2009.
Background
If you are asking yourself, why would I file a refund claim? Here is why (this is a summary published in California's April 2009 edition of the Tax News):
Prior to the enactment of Assembly Bill 198 (Stats. 2007, Ch. 381, effective on October 10, 2007, and operative for taxable years beginning on or after January 1, 2007), LLCs paid an annual fee based on the LLC's total income from all sources reportable to this state.
The constitutionality of the LLC fee under former Revenue and Taxation Code Section 17942 has been challenged in three separate court cases:
1. Northwest Energetic Services, LLC v. Franchise Tax Board – The LLC in this case registered with the Secretary of State but did no business in California. The Court of Appeal held that assessing an LLC fee on an entity that had no income attributable to activities in California was unconstitutional and the fee should be refunded. This case is now final with respect to the constitutional issue.
2. Ventas Finance I, LLC v. Franchise Tax Board, Court of Appeal, First Appellate District, A116277, A117751 - The LLC in this case had income attributable to activities within and without California. A decision was issued but is not final. (This is the case I mentioned a couple of posts earlier).
3. Bakersfield Mall, LLC v. Franchise Tax Board, San Francisco Superior Court CGC-07-462728 - The LLC in this case alleges it conducted all of its activities in California. The case is ongoing.
Criteria for Filing a Refund Claim
If you filed an LLC tax return (form 568) and paid a fee based on worldwide total income, regardless of where that income was sourced, you may want to file a claim for refund. If you want to file a claim for refund, there is a time limit to request a refund known as the statute of limitations. Generally, you can file a refund claim four years from the due date of the return or one year from the date of overpayment which ever occurs later.
Note: These cases have been going on for a couple of years now, and most taxpayers have filed protective refund claims for tax years prior to 2004 when the statute of limitations were still open.
Process for Filing a Protective Refund Claim (as provided by California):
If an LLC wants to file a refund claim based on recent court cases, the representative or LLC should fax a letter at 916.845.9796 with the following information:
1. The LLC name and identification number issued by the Secretary of State. Unregistered LLCs use the identification number issued by the FTB.
2. This is a claim for refund.
3. The tax years involved.
4. A description of the issue (stating that the LLC fee is unconstitutional is enough).
5. The amount of the claim, which should match the amount of the annual fee that the LLC paid. 6. Name of person to contact, phone number, and fax number.
The letter must be signed by a representative with a valid power of attorney or signed by the LLC's managing member.
California will provide a confirmation of the faxed refund claim receipt. The refund claim will be held pending result of the court's final decision on this issue. FTB cannot email information since the letter will contain confidential information.
Although California prefers a fax, you can send claims for refund for this issue by sending a letter or an amended return to the following address:
Franchise Tax Board PO Box 942867 Sacramento CA 94267-8888
Because the decision in Northwest with respect to the LLC fee is final, California is processing refund claims for LLCs that have the same facts as were involved in the Northwest case, i.e., an LLC that conducted no activities in California.
Both the Ventas and Bakersfield cases are still pending and action on claims for LLCs that have the same facts as were involved in either of these cases will be held pending the final court decision.
For more information, go to California's website and search for FTB Notice 2008-2.
Here is the link to California's April 2009 Tax News:
http://www.ftb.ca.gov/professionals/taxnews/2009/0409/Tax_News_April_2009.shtml
As always, if you have any questions or would like help in filing a protective refund claim, please contact me at leveragesalt@earthlink.net.
