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

Note: The FTB does not accept the federal

you fail to file IRS Forms 8886, 8264, or any

person in carrying out business affairs. California

Schedules K-1 (1065) as a substitute schedule.

other required information.

law, however, does not allow the formation or

registration of LLCs (foreign or domestic) in

For more information, see General Information T,

Tax Shelter Filing

California to render any type of professional

Substitute Schedules.

Franchise Tax Board

service for which a license, certification, or

PO Box 1673

Federal/State Differences

registration is required under the Business and

Sacramento CA 95812-1673

For LLCs classified as partnerships, California

Professions Code or the Chiropractic Act, with the

tax law generally conforms to federal tax law in

For more information, see Registration and

exception of insurance agents and insurance

the area of partnerships (IRC, Subchapter K —

Reporting Requirements under Abusive Tax

brokers.

Partners and Partnerships). However, there are

Shelters on our Website at

California law requires LLCs not organized in the

some differences:

Net Operating Loss (NOL)

state of California to register with the California

• An $800 annual tax is generally imposed on

For taxable years beginning on or after January 1,

Secretary of State (SOS) before entering into any

limited partnerships (LPs), LLCs, limited

2004, California reinstated the NOL carryover

intrastate business in California. The laws of the

liability partnerships (LLPs), and real estate

deductions.The carryover periods for an NOL

state or foreign country in which the LLC is

mortgage investment conduits (REMICs) that

incurred in years:

organized generally govern the internal affairs of

are partnerships or classified as partnerships

• beginning before January 1, 2002, has been

the LLC. The SOS may not deny recognition of an

for tax purposes.

extended for two years.

LLC because the laws of the organization’s home

• Distributions to certain nonresident partners

• beginning on or after January 1, 2002, and

state or foreign country differ from California’s

are subject to withholding for California tax.

before January 1, 2003, has been extended

laws, except in the case of professional service

• Deductions for taxes paid to other states are

for one year.

LLCs, which are not allowed to register as LLCs

not allowed.

in California.

• California follows federal law by requiring

For taxable years beginning on or after January 1,

2004, 100% of the NOL may be carried forward.

partnerships to use a required tax year.

For more information about organizing and

For more information, get form FTB 3805V, Net

However, California does not conform to the

registering an LLC, contact:

Operating Loss (NOL) Computation and NOL and

federal required payment provision.

LIMITED LIABILITY COMPANIES

Disaster Loss Limitations - Individuals, Estates,

• California law has specific provisions

CALIFORNIA SECRETARY OF STATE

and Trusts.

concerning the distributive share of partner-

PO BOX 944228

ship taxable income allocable to California,

Claim of Right – If the LLC had to repay an

SACRAMENTO CA 94244-2280

with special apportionment formulas for

amount that was included in income in an earlier

Telephone: (916) 653-3795

professional partnerships.

year, under a claim of right, the LLC may be able

or contact the SOS on its Website at

• California law modifies the federal definitions

to deduct the amount repaid from its income for

for unrealized receivables and substantially

the year in which it was repaid. Or, if the amount

appreciated inventory items.

C Purpose

the LLC repaid is more than $3,000, the LLC may

• California does not conform to the electing

be able to take a credit against its tax for the year

Use Form 568:

large partnership provisions.

in which it was repaid. For more information, see

• Partnerships cannot electronically file their

• To determine the amount of the LLC fee

the Repayment section of federal Pub 525,

California partnership returns. However,

(including a disregarded entity’s fee) based on

Taxable and Nontaxable Income.

partnerships can file Schedules K-1 (568) via

total income;

Punitive Damage Awards – For court actions

CD or diskette – (See General Information T,

• To pay the LLC fee;

filed after August 16, 2004 and the final

Substitute Schedules, for more information.)

• To report the annual tax;

determination rendered by June 30, 2006, the tax

• California has not conformed to the provi-

• To pay any nonconsenting nonresident

treatment of punitive damages differs between

sions relating to the Tax Equity and Fiscal

members’ tax; and

federal and State. For California purposes, the

Responsibility Act (TEFRA).

• To report income, deductions, gains, losses,

amount of punitive damages paid to the director

• California has not adopted the federal

etc., from the operation of a multiple member

of the Department of Finance shall be excluded

definition of small partnerships, as defined in

LLC that has elected to be classified as a

from income and the attorney fees associated

IRC Section 6231.

partnership. Form 568 is the return for

with the amount paid are not deductible.

calendar year 2005 or any fiscal year

Note: This list is not intended to be all-inclusive

B Introduction

beginning in 2005.

of the federal and state differences. For additional

information, please consult California’s R&TC.

D Who Must File

The Beverly-Killea Limited Liability Company Act

Conversion to a Limited Liability Company (LLC)

of 1994 (SB 469; Stats.1994, Ch. 1200)

Every LLC that is:

A partnership (or other business entity) that

authorized the formation of LLCs in California and

• Doing business in California;

converts to an LLC during the year must file two

recognized out-of-state LLCs doing business in

• Organized in California; or

California returns. Even if the partners/members

California. LLCs combine traditional corporate

• Organized in another state or foreign country,

and the business operations remain the same, the

and partnership characteristics. LLC members are

partnership should file Form 565, Partnership

but registered with the SOS;

afforded:

Return of Income, (or the appropriate form) for the

must file Form 568 unless the LLC: 1) has elected

• Limited liability with the extent of a member’s

beginning of the year to the date of change. For the

to be taxed as a corporation for federal tax

liability limited to the member’s equity

remainder of the year, the newly converted LLC

purposes or 2) is a single member limited liability

investment;

must file Form 568, Limited Liability Company

company (SMLLC) that was treated as an

• Flexible management alternatives; and

Return of Income. See General Information I,

association taxable as a corporation prior to

• Liberal membership qualification

Accounting Periods, for further instructions.

January 1, 1997, for California tax purposes, and

requirements.

Tax Shelter

did not elect to change that tax treatment in the

LLCs classified as partnerships, for tax purposes,

If the LLC has been involved in a potentially

current taxable year.

generally will determine their California income,

abusive tax shelter, then you may have a

Regardless of where the trade or business of the

deductions, and credits under the Personal

disclosure, registration, and/or a list mainte-

LLC is primarily conducted, an LLC is considered

Income Tax Law. They will be subject to an annual

nance requirement. Attach the IRS Form 8886 to

to be doing business in California if any of its

tax (due on the 15th day of the 4th month of the

the back of your California return along with

members, managers, or other agents are

LLC’s taxable year) as well as the LLC fee based

your other supporting schedules. If this is the

conducting business in California on behalf of the

on total income. See General Information F,

first time the reportable transaction is disclosed

LLC. For additional information get FTB

Limited Liability Company Tax and Fee, for more

on the return, then send a duplicate copy of the

Pub. 1063, California Corporation Tax Law — A

information.

Form 8886 to the address below. The Franchise

Guide for Corporations.

LLCs organized in California are vested with all

Tax Board may impose several new penalties if

the rights and powers enjoyed by a natural

Form 568 Booklet 2005 Page 3

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 3

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