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2005 Instructions for Form 568, Limited Liability Company Return of Income

References in these instructions are to the Internal Revenue Code (IRC) as of January 1, 2005, and to the California Revenue and Taxation Code (R&TC).

Table of Contents

For more information related to Hurricane Katrina,

possible to include all requirements of the R&TC

visit the FTB Website at and see

in the tax booklets. Taxpayers should not consider

General Information . . . . . . . . . . . . . . . . . . . . 2

Disaster loss under the Filing tab.

the tax booklets as authoritative law.

Instructions for Form 568 . . . . . . . . . . . . . . . . 9

California Use Tax

Form 568, Schedule B, line 4 through line 12 have

Instructions for Schedule K (568) and

If your LLC made purchases from out-of-state

been updated to reflect the separation of the lines

Schedule K-1 (568) . . . . . . . . . . . . . . . . . . . 13

sellers and owes California use tax, the LLC may

to report gains and loses. Net amounts are no

Limited Liability Company Income

report and pay the tax on its Limited Liability

longer reported on these lines. The lines that

Worksheet . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Company Return of Income. See page 9,

included repairs, rent, and taxes have been

Form 568 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Additional Information, “California Use Tax” for

eliminated and will now be included in line 21

Schedule K-1 (568) . . . . . . . . . . . . . . . . . . . . 27

more information.

(Other Deductions). Due to the addition of the

Schedule D/FTB 3885L . . . . . . . . . . . . . . . . . . 29

new lines all the subsequent line numbers have

California Tax Information on the Internet

Instructions for Schedule D/FTB 3885L . . . . . 31

been updated.

You can download, view, and print California tax

Member’s Instructions for

forms and publications from our Website at

Environmental Tax Credit – For taxable years

Schedule K-1 (568) . . . . . . . . . . . . . . . . . . . 33

beginning on or after July 1, 2005, California

FTB 3832 and Instructions . . . . . . . . . . . . . . . 41

allows an environmental tax credit in an amount

Federal Tax Information on the Internet

FTB 3537 and Instructions . . . . . . . . . . . . . . . 45

equal to five cents ($.05) for each gallon of ultra

The IRS has federal forms and publications

FTB 3522 and Instructions . . . . . . . . . . . . . . . 47

low sulfur diesel fuel produced during the taxable

available to download, view, and print. The IRS’s

How to Get California Tax Information . . . . . . 48

year by a small refiner at any facility located in

Website is

California. The aggregate credit cannot exceed

General Information

State Agencies' Websites

25 percent of the qualified capital costs incurred

Access other state agencies' Websites through

What’s New

by the small refiner with respect to that facility,

the State Agency Index on California's Website

Recently enacted legislation changes California's

reduced by the aggregate credits determined for

specified date of conformity to federal income tax

all prior taxable years with respect to that facility.

Joint Agency Website

laws from January 1, 2001 to January 1, 2005.

See form FTB 3511, Environmental Tax Credit, for

For additional business tax information, visit the

This date change, in general, conforms to

more information.

California Taxes Information Center Website,

numerous changes made in the federal income

Recently enacted law provides for taxable years

sponsored by the BOE, Employment Develop-

tax law during that four-year period. For the most

beginning on or after January 1, 2005, the tax

ment Department (EDD), FTB, and IRS. The Joint

current information regarding specific provisions

may be reduced by the amount of tax previously

Agency Website is located at

of conformity and non-conformity as it relates to

withheld and paid by the limited liability company

Providing California and Federal Returns

this date change, please visit our Website at

with respect to each nonconsenting, nonresident

The FTB may request a copy of California or federal

and search for conformity.

member.

returns that are subject to or related to a federal

California conforms to federal law for the

Recently enacted law provides clarification and

examination. Generally, the California statute of

following:

relief for taxpayers who participated in the 2005

limitations is four years from the due date of the

• Modification of unrelated business income

California state Amnesty program. For more

return or from the date filed, whichever is later.

limitation on investment in certain small

information visit our Website at

However, the statute is extended in situations in

business investment companies; and

and search for the Amnesty link.

which an individual or a business entity is under

• Expensing of certain reforestation

examination by the IRS. For additional information

Natural Heritage Preservation Credit

expenditures.

concerning the extended statute of limitations, due

The funding for the Natural Heritage Preservation

to a federal examination, see General

California does not conform to federal law for

Credit is available beginning January 1, 2005,

Information J, Amended Return.

the following:

until June 30, 2008. Complete FTB 3503, Natural

Heritage Preservation Credit, to claim the credit.

The FTB recommends keeping copies of returns

• Deduction relating to income attributable to

and records that verify income, deductions,

domestic production activities;

To get updated information regarding current

adjustments, or credits reported, for at least the

• 2-year extension of increased expensing for

funding, qualified contributions of property, or the

minimum time required under the statute of

small business;

awarding of credits, contact the Wildlife

limitations. However, some records should be

• Recovery period for depreciation of certain

Conservation Board at (916) 445-8448. Or go to

kept much longer. For example, members should

leasehold improvements and restaurant

their Website at

keep records substantiating their basis in a LLC

property;

A Important Information

and LLCs should keep records to figure the basis

• Modification of application of income forecast

of its assets.

method of depreciation;

In general, California law conforms to the Internal

• Special rules for certain film and television

Substitute Schedule K-1 (568)

Revenue Code (IRC) as of January 2005.

productions; and

The FTB recommends filing paperless substitute

However, there are continuing differences

• Extension of expiring provisions – Expensing

Schedules K-1 (568), Member's Share of

between California and federal law. When

of environmental remediation costs.

Income, Deductions, Credits, etc. Since software

California conforms to federal tax law changes,

is most often used to prepare Form 568 and

we do not always adopt all of the changes made

Katrina Tax Relief Act – As of the date of

Schedules K-1 (568), you may already have the

at the federal level. For more information

publishing, California has not conformed to any of

information needed to prepare paperless

regarding California and federal law, visit our

the federal law changes made under the Katrina

Schedules K-1 (568). Once the information is in

Website at and search for

Emergency Tax Relief Act of 2005. However,

a database or spreadsheet, it's easy to transfer

conformity. Additional information can be found

California will follow federal policy by allowing

to the required record layout and then download

in FTB Pub. 1001, Supplemental Guidelines to

special tax relief for California taxpayers affected

it to a CD or diskette.

California Adjustments, the instructions for

by Hurricane Katrina in the federally declared

California Schedule CA (540 or 540NR), and the

disaster areas for the items listed below:

Get approval from the FTB to use substitute

Business Entity tax booklets.

Schedules K-1 (568), if the LLC:

• Extended due dates for filing tax returns and

Note, the instructions provided with California tax

paying taxes;

• Wants to use paperless Schedules K-1 (568);

forms are a summary of California tax law and are

• Donations of approved employee leave time

• Does not use the official California

only intended to aid taxpayers in preparing their

program;

Schedule K-1 (568) prepared by the FTB; or

state income tax returns. We include information

• Qualified distributions from qualified pension

• Does not use a software program with an

that is most useful to the greatest number of

plans.

FTB-approved Schedule K-1 (568).

taxpayers in the limited space available. It is not

Page 2 Form 568 Booklet 2005

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 2

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