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2. No less than 90% of the partnership’s gross

(916) 323-5685 or their Website at

Effective for taxable year 2003, the amount of

income is from interest, dividends, and gains

gain from the sale, exchange or disposition of

from the sale or exchange of “ qualifying

property for which an IRC Section 179 expense

Question P

investment securities .”

deduction was claimed in a prior year is no longer

California requires taxes to be withheld from

included in line 1 of the worksheet. To properly

“Qualifying investment securities,” include:

certain payments or allocations of income and

report the total income, enter the gain on

• Common and preferred stock, as well as debt

sent to the FTB (R&TC Sections 18662 and

line 17d.

securities convertible into common stock;

18666). If upon the examination, the FTB

• Bonds, debentures, and other debt securities;

Note: The definition of “Total Income” excludes

determines that tax withholding was required, the

• Foreign and domestic currency deposits or

allocations, distributions, or gains to an LLC from

LLC may be liable for the tax and penalties.

equivalents and securities convertible into

another LLC, if that allocation, distribution, or

The reference to Forms 592, 592-A, and 592-B

foreign securities;

gain was already subject to the LLC fee. Use

relates to LLC withholding. If you need additional

• Mortgage-backed or asset-backed securities

line 1b to exclude these amounts.

information concerning LLC withholding, please

secured by governmental agencies;

LLCs with ownership interest in a pass-through

see General Information K, Required Information

• Repurchase agreements and loan

entity must report their distributive share of the

Returns, and General Information R, Withholding

participations;

pass-through entity's “Total Income.” Their

Requirements, in this booklet.

• Foreign currency exchange contracts and

distributive share cannot include any deductions

Question U

forward and futures contracts on foreign

that are subtracted from gross ordinary income to

See General Information S, Check-the-Box

currencies;

obtain net ordinary income. Also, the matching

Regulations, for the filing requirements for

• Stock and bond index securities and futures

cost of goods sold must be entered on line 18d.

disregarded entities.

contracts, and other similar securities;

Contact the pass-through entity to get the

• Regulated futures contracts; and

necessary information for lines 3, 9c, 10c, 13b,

Question V

• Options to purchase or sell any of the

14b, 15b, 16b, 17b, and 18d.

Federal Form 8271, Investor Reporting of Tax

preceding qualified investment securities,

Shelter Registration Number, is required to be

LLCs that are disregarded entities compute the

except regulated futures contracts.

attached to any return on which a deduction, loss,

“Total Income” on the LLC Income Worksheet.

“Qualifying investment securities” do not include

credit, or any other tax benefit is claimed or

Use the applicable lines. Ignore the line items that

an interest in a partnership, unless the partner-

reported, or any income reported, from an

address Schedule B.

ship qualifies as an “investment partnership.”

interest in a registration-required tax shelter. If

LLCs that own a disregarded entity report the

the LLC is required to file this form with the

See R&TC Sections 17955 and 23040.1 and

disregarded entity items on Schedule B. Do not

federal return, attach a copy to the LLC’s

General Information O, Investment Partnerships,

enter any amounts in the disregarded entity lines.

Form 568. Do not attach copies of federal

for more information.

Note: Attach a copy of the completed LLC Income

Schedule K-1 (1065).

Question M

Worksheet to the LLC's return.

A Reportable Transaction is any transaction as

If Question M is answered “Yes,” see the federal

defined in RTC Section 18407 and Trea. Reg.

partnership instructions concerning an election to

Specific Line Instructions

1.6011-4 and includes, but is not limited to:

adjust the basis of the LLC’s assets under IRC

Section 754.

• A Confidential Transaction, which is offered to

Form 568, Side 1

a taxpayer under conditions of confidentiality

Question O

Line 1 – Total Income from the LLC Income

and for which the taxpayer has paid a

Answer “Yes” to Question O if:

Worksheet

minimum fee.

Under R&TC Section 64(c):

Enter the LLC's “Total Income” as computed on

• A transaction with contractual protections

which provides the taxpayer with the right to a

the LLC Income Worksheet, page 17, line 19. The

• The percentage of membership interests,

amount entered must be a positive number.

full or partial refund of fees if all or part of the

including interests in both the capital and

intended tax consequences from the

profits, of this company or in any of its

Line 2 – Limited Liability Company Fee

transaction are not sustained.

subsidiary(ies) owned by one person or one

Enter the amount of the LLC fee. See General

• A loss transaction under Section 165, which is

entity cumulatively surpassed 50% during this

Information F, Limited Liability Company Tax and

at least $10 million in any one-year or $20

year;

Fee.

million in any combination of tax years.

• The total membership interests, including

Line 3 – 2005 Limited Liability Company Tax

(Those numbers would be reduced to $2

capital and profits interests, transferred to one

Enter the $800 annual tax. This tax was due the

million and $4 million on the Form 100S,

irrevocable trust cumulatively surpassed 50%

15th day of the 4th month (fiscal year) or

California S Corporation Franchise or Income

during this year;

April 17, 2005 (calendar year), after the beginning

Tax Return.)

• One or more members transferred the control

of the LLC’s 2005 tax year and paid with the 2005

• A transaction with a significant book-tax

of, or the interests in, more than 50% of the

form FTB 3522. If the annual LLC tax was not

difference.

total membership interests, including capital

paid within the prescribed time period, penalties

• A transaction where the taxpayer is claiming a

and profits interests, to one person or one

and interest are now due. See General Informa-

tax credit of greater than $250,000 and held

entity during this year;

tion G, Penalties and Interest, for more details.

the asset for less than 45 days.

• This company’s cumulative ownership or

Line 4 – Nonconsenting Nonresident Members’

control of the membership interests, including

A Listed Transaction is a specific reportable

Tax Liability

capital and profits interests, voting stock or

transaction, or one that is substantially similar,

Enter the total tax computed on Schedule T. The

other ownership interests in any other legal

which has been identified by the Internal Revenue

LLC is responsible for paying the tax of

entity surpassed 50% during this year; or

Service or the Franchise Tax Board to be a tax

nonconsenting nonresident members and

avoidance transaction.

Under R&TC Section 64(d):

nonconsenting owners of disregarded entities.

Treat a nonconsenting owner of a disregarded

A Registered Tax Shelter is any investment, which

• Cumulatively more than 50% of the total

entity in the same manner as a nonconsenting

is required to be registered with the Internal

membership interests, including capital and

nonresident member. See the Specific Line

Revenue Service under IRC Section 6111.

profits interests, in this company have been

Instructions for Schedule T.

transferred this year in one or more transac-

LLC Income Worksheet Instructions

tions that have occurred since March 1, 1975.

Note: The nonconsenting nonresident members’

“Total Income” for the LLC fee means the gross

tax paid by an LLC on behalf of a nonresident is

If the answer is “Yes,” file BOE-100-B, Statement

income plus the cost of goods sold that are paid

allocated to the nonresident member on

of Change in Control and Ownership of Legal

or incurred in connection with the trade or

Schedule K-1 (568).

Entities, with the State Board of Equalization

business (R&TC Section 17942). Compute the

(BOE), or substantial penalties may result. Get

LLC's “Total Income” from all sources before

Line 8 – Nonresident Withholding Credit

forms and information from the BOE at

taking into consideration any apportionment and

If the LLC was withheld upon by another entity,

allocation.

the LLC can either allocate the entire withholding

Page 10 Form 568 Booklet 2005

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 10

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