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

LLCs must report interest paid on municipal

The paid preparer must:

an LLC investment partnership if the qualifying

bonds that are issued by a state other than

• Complete the required preparer information;

securities were purchased with working capital of

California or a municipality other than a California

• Sign in the space provided for the preparer’s

a trade or business the nonresident owns an

municipality that are held by California taxpayers.

signature; and

interest in and that is conducted in California

Entities paying interest to California taxpayers on

• Give the LLC a copy of the return in addition

(R&TC Section 17955).

these types of bonds are required to report

to the copy to be filed with the FTB.

Corporations that are members in an LLC

interest payments aggregating $10 or more paid

An individual who prepares the return and does not

investment partnership are not generally taxed on

after January 1, 2005. Information returns will be

charge the LLC should not sign the LLC return.

their distributive share of LLC income, provided

due June 1, 2006. Get form FTB 4800, Federally

that the income from the LLC is the corporation’s

N Group Returns

Tax Exempt Non-California Bond Interest and

only California source income. However, if the

Interest-Dividend Payment Information, for more

corporation:

Nonresident members of an LLC doing business

information.

• Participates in the management of the

or deriving income from sources in California

LLCs must use form FTB 3834, Interest

investment activities of the LLC investment

may elect to file a group nonresident return

partnership; or

Computation Under the Look-Back Method for

(R&TC Section 18535). Get FTB Pub. 1067,

Completed Long-Term Contracts, to report

• Has income derived from or attributable to

Guidelines for Filing a Group Form 540NR, for

interest due or to be refunded under the look-

sources within this state other than income

more information.

back method on long-term contracts.

from the LLC investment partnership,

O Investment Partnerships

Any information returns required for federal

then the corporation will be taxed on its

Income of nonresident members, including banks

purposes under IRC Sections 6038, 6038A, and

distributive share of California source income

or corporations, derived from “ qualifying

6038B are also required for California purposes.

from the LLC.

investment securities ” of an LLC that qualifies as

Attach the information returns to the Form 568

P Nonresident Members

an “ investment partnership ” is considered income

when filed. If the information returns are not

from sources other than California, except as

provided, penalties may be imposed under R&TC

An LLC with multiple members is required to file

noted below. Therefore, nonresident individuals

Sections 19141.2 and 19141.5

form FTB 3832 with Form 568 when one or more

or foreign members generally will not be taxed on

of its members is a nonresident of California.

All information returns, unless otherwise noted,

this income. The LLC should inform its nonresi-

Form FTB 3832 is signed by the nonresident

are mailed separately from the Form 568.

dent individuals or foreign members if all or a

individuals and foreign entity members to show

Information returns should be sent to:

portion of their distributive share of income is

their consent to California’s jurisdiction to tax

FRANCHISE TAX BOARD

from “qualifying investment securities” of an

their distributive share of income attributable to

PO BOX 942857

“investment partnership” and whether it is

California sources.

SACRAMENTO CA 94257-0600

sourced to California. See the instructions for

Form FTB 3832 is required to be filed:

L Special Items

Question K on page 9 of this booklet for

• For the first taxable period for which the LLC

definitions of “ investment partnership ” and

California LLC tax law generally follows federal

became subject to tax; and

“ qualifying investment securities .”

partnership tax law for LLCs classified as

• For any taxable period in which the LLC had a

However, for apportioning purposes income from

partnerships, in the areas of:

nonresident member not previously listed on

an LLC that is an investment partnership (LLC

• IRC Section 702(a) items;

form FTB 3832.

investment partnership) is generally considered

• Elections;

Separate forms for an individual (or groups of

business income (see Appeal of Estate of Marion

• Distributions of unrealized receivables and

individuals) are permissible. The LLC must

Markus, Cal. St. Bd. of Equal., May 6, 1986). LLC

inventory;

maintain and have available for examination a

investment partnerships that are doing business

• Members’ dealings with the LLC;

form FTB 3832 signed by each nonresident

within and outside California should apportion

• Contributions to the LLC;

member.

California source income using California

• Income of foreign nonresident members

The LLC must pay the tax for every nonresident

Schedule R, Apportionment and Allocation of

subject to withholding-at-source, Form 592,

member that did not sign a form FTB 3832. The

Income. LLC investment partnerships that are

Form 592-A, and Form 592-B;

LLC is responsible for paying the tax on that

doing business solely within California should

• Basis and at-risk rules;

nonresident member’s distributive share of

treat all business income of the LLC investment

• Passive activity limitations;

income determined at the highest marginal rate

partnership as California source income.

• Net operating loss deduction by a member of

for that member. See General Information F,

the LLC (an LLC is not allowed the deduction);

LLC investment partnerships that have California

Limited Liability Company Tax and Fee, for more

• Publicly traded partnerships;

source income should show on Schedule K-1

information.

• Long-term contracts;

(568), column (e) each member’s distributive

For taxable years beginning on or after January 1,

• Installment sales;

share of California source income.

2005, the tax may be reduced by the amount of

• Vacation pay;

Generally, members who are nonresident

tax previously withheld and paid by the limited

• Amortization of past service costs;

individuals would not record this income as

liability company with respect to each

• Distributions of contributed property by an

California source income. However, there are two

LLC; and

nonconsenting, nonresident member.

exceptions to the general rule when a nonresident

• Recognition of precontribution gain in certain

If the LLC fails to timely pay the tax of such

individual may have California source income

LLC distributions to members.

nonresident member, the LLC shall be subject to

from an LLC investment partnership. Nonresident

penalties and interest (R&TC Sections 19132 and

See the instructions for federal Form 1065 for

individual members will be taxed on their

19101). Any amount paid by the LLC on behalf of

specific information about these areas.

distributive shares of income from the “LLC

a nonresident individual or foreign entity member

investment partnership” if the income from the

M Signatures

will be considered a payment made by the

qualifying investment securities is interrelated

member.

Form 568 is not considered a valid return unless

with:

it is signed by an authorized member or manager

• Any other business activity of the nonresident

An LLC may recover from the nonresident

of the LLC. If a receiver, trustee in bankruptcy, or

member; or

member the tax it paid on behalf of the nonresi-

assignee controls the organization’s property or

• Any other entity in which the nonresident

dent member.

business, that individual must sign the return.

member owns an interest that is separate and

To claim credit for the tax, the nonresident member

distinct from the investment activity of the

Paid Preparer’s Information

needs to attach a copy of the Schedule K-1 (568)

partnership and that is conducted in

Anyone who is paid to prepare the LLC return

to their California income tax return.

California.

must sign the return and complete the “Paid

Nonresidents or Part-year Residents

Preparer’s Use Only” area of the return.

Nonresident individual members will be taxed on

For taxable years beginning on or after January 1,

their distributive share of investment income from

2002, California law was changed to clarify the

Page 6 Form 568 Booklet 2005

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 6

Related Articles

Related forms

Related Categories