Looking for a California Franchise Tax Board Forms And Templates? Download it for free!

Member’s Instructions for Schedule K-1 (568)

A husband and wife that own 100% of an LLC as community property that

General Information

is not treated as a corporation may elect to be a single member or for each

In general, California law conforms to the Internal Revenue Code (IRC) as

spouse to be separate members. If the couple elects to be a single member

of January 2005. However, there are continuing differences between

the LLC will be a disregarded entity. If the spouses elect for each to be

California and federal law. When California conforms to federal tax law

separate members, the LLC will be treated as a partnership for tax

changes, we do not always adopt all of the changes made at the federal

purposes.

level. For more information regarding California and federal law, visit our

Nonrecourse Loans

Website at and search for conformity. Additional

Liabilities of the LLC for which none of the members have assumed any

information can be found in FTB Pub. 1001, Supplemental Guidelines to

personal liability.

California Adjustments, the instructions for California Schedule CA (540 or

Qualified Nonrecourse Financing

540NR), and the Business Entity tax booklets.

Any financing for which no one is personally liable for repayment that is

Note, the instructions provided with California tax forms are a summary of

borrowed for use in an activity of holding real property and that is loaned

California tax law and are only intended to aid taxpayers in preparing their

or guaranteed by a federal, state, or local government, or borrowed from a

state income tax returns. We include information that is most useful to the

“qualified person.”

greatest number of taxpayers in the limited space available. It is not

California Business Situs

possible to include all requirements of the California Revenue and Taxation

The place at which intangible personal property is employed as capital in

Code (R&TC) in the tax booklets. Taxpayers should not consider the tax

California; or the place where the property is located if possession and

booklets as authoritative law.

control of the property is localized in connection with the taxpayer’s

For taxable years beginning on or after January 1, 2003, California will

business that is within this state so that substantial use or value attaches

follow the revised federal instructions (with some exceptions) for reporting

to the property.

the sale, exchange or disposition of an asset for which an IRC Section 179

Apportionment

expense was claimed in a prior year by a partnership, limited liability

The process by which business income from a trade or business is

company, or S corporation.

conducted in two or more states (an apportioning trade or business) is

Members should follow federal reporting requirements as detailed in

divided between taxing jurisdictions. The apportionment percentage is

federal Form 1065, U.S. Return of Partnership Income, and Form 4797,

determined by reference to the property (including rent), payroll, and sales

Sale of Business Property instructions.

factors of the apportioning trade or business.

A Purpose

Unitary

A method of taxation by which all of the activities comprising a single trade

A limited liability company (LLC) that has elected to be treated as a

or business are viewed as a single unit, regardless of whether those

partnership for tax purposes, uses Schedule K-1 (568) to report your

activities are conducted by divisions of a single entity or by commonly

distributive share of the LLC’s income, deductions, credits, etc. Please

owned or controlled entities. For further information about unitary

keep the Schedule K-1 (568) for your records. Information from the

business principles, get FTB Pub. 1061, Guidelines for Corporations Filing

Schedule K-1 (568) should be used to complete your California return.

a Combined Report.

However, do not file the schedule with your California return. The LLC has

filed a copy with the Franchise Tax Board (FTB).

Election

The ability to choose a particular accounting method for tax reporting

As a member of the LLC, you are subject to tax on your distributive

purposes. Generally, the LLC decides how to compute taxable income from

share of the LLC income, whether or not distributed.

its operations. For example, it chooses the accounting method and

The amount of loss and deduction you are allowed to claim on your

depreciation methods it will use.

California return may be less than the amount reported on Schedule K-

1 (568). Generally, the amount of loss and deduction you are allowed to

However, certain elections are made separately on your California return

claim is limited to your basis in the LLC and the amount for which you are

and not by the LLC. These elections are made under the following IRC

considered at-risk. If you have losses, deductions, or credits from a

Sections, to which the R&TC conforms:

passive activity, you also must apply the passive activity loss and credit

• IRC Section 108(b)(5) (income from discharge of indebtedness); and

rules. It is the member’s responsibility to consider and apply any appli-

• IRC Section 617 (deduction and recapture of certain mining exploration

cable limitations. See Specific Instructions C, Loss Limitations.

expenditures, paid or incurred).

You should also read the federal Schedule K-1 (1065) instructions before

completing your California return with this Schedule K-1 (568) information.

C Reporting Information from Columns (d) and (e)

For additional information on the treatment of LLC income, deductions,

If the LLC derives income from activities conducted both within and

credits, etc., get the following federal publications:

outside California, the LLC will complete Schedule R, Apportionment and

Allocation of Income, to determine the LLC income from California

— Publication 541, Partnerships, and

sources. Resident members will use only the information in column (c)

— Publication 535, Business Expenses.

and column (d) to report their share of the LLC’s income or loss.

Any information returns required for federal purposes under IRC Sec-

Nonresident, corporate, and other entity members must report their share

tions 6038, 6038A, and 6038B are also required for California purposes.

of income apportioned or allocated to California as indicated on

Attach the information returns to your California return when filed. If the

Schedule K-1 (568). Special rules apply if a member and the LLC are

information returns are not provided, penalties may be imposed under

engaged in a unitary business. See Cal. Code Regs., tit. 18 sections 17951

R&TC Sections 19141.2 and 19141.5.

and 25137-1 for more information. Also see General Information E.

Internet Access

Nonresident, corporate, and other entity members (other than members that

You can download, view, and print California tax forms and publications

are unitary with the LLC) will use the information in columns (c), (d), and (e)

from our Website at .

to report their distributive share of income (losses) or credits. Residents,

Access other state agencies’ websites through the State Agency Index on

part-year residents, and some nonresidents may qualify for a credit for taxes

California’s Website at

paid to other states on income that is apportioned or allocated to a state

other than California. For more information get Schedule S, Other State Tax

B Definitions

Credit.

Member

Nonapportioning LLCs do not need to fill out column (e) on

An individual or entity owning an interest in the LLC whose potential

Schedule K-1 (568) if the member is a resident and the “No” box is

personal liability for LLC debts is limited to the amount of money or other

checked on Question H. However, the final determination of residency is

property that the member contributed or is required to contribute to the

made at the member level. If the LLC is uncertain as to the residency

LLC.

status of the member, it should fill out column (e) for that member.

Schedule K-1 (568) Instructions 2005

Page 33

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 20

Related Articles

Related forms

Related Categories