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entities. Other special business entities under the

income attributable to the activities of the SMLLC.

• Does not use the official California Schedule

IRC include publicly traded partnerships, REMICs,

The limitation on the SMLLC’s credits is the

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

financial asset securitization investment trusts

difference between: 1) The regular tax liability of

• Does not use a software program with an

(FASITs), or regulated investment companies

the single owner computed with the items of

FTB-approved Schedule K-1 (568).

(RICs). An eligible entity with two or more owners

income, deductions, etc., attributable to the

If computer software is used, please read the

will be a partnership for tax purposes unless it

SMLLC; and 2) The regular tax liability of the

company's user manual to ensure you have the

elects to be taxed as a corporation. For tax

single owner computed without the items of

necessary hardware and printer fonts to produce

purposes, an eligible entity with a single owner

income, deductions, etc., attributable to the

FTB-approved forms. All printing should be done to

will be disregarded. If the separate existence of an

SMLLC. It is the responsibility of the single owner

the standards specified in FTB Pub. 1098,

to limit the credits on the owner’s tax return. The

entity is disregarded, its activities are treated as

Guidelines for the Development and Use of

activities of the owner and reported on the

single owner should be prepared to furnish

Substitute, Scannable, and Reproduced Tax Forms.

appropriate California return. An LLC with a

information supporting the use of any credits

LLCs are subject to penalties for failure to file the

husband and wife as the sole members may be

attributable to the SMLLC.

appropriate Schedule K-1 (568). See General

considered an eligible entity with multiple

The owner of the SMLLC should perform the

Information G, Penalties and Interest.

members, or an eligible entity with a single

following steps to determine the SMLLC’s credit

To participate in the FTB's substitute forms

member.

limitation:

program, get FTB Pub. 1098, and form FTB 1096,

Exceptions

• Compute the owner’s tax with the SMLLC

Agreement to Comply with FTB Pub. 1098.

There is an exception to the general rule. The

income, and the owner’s tax without the

exception exists in the case of an eligible

Paperless Schedule K-1 (568)

SMLLC income.

For procedures, formatting specifications, and

business entity, other than one which, within the

• Complete Schedule P (100, 100W, 540,

record layouts required to program paperless

60 month period preceding January 1, 1997:

540NR, or 541), up to the line where the

Schedules K-1 (568) get FTB Pub 1062, Guide for

• Was not doing business in California;

credit is to be taken.

Filing Paperless Schedules K-1 (565 or 568).

• Did not derive income from sources within

• Determine the credit to be utilized. The

California; or

amount allowed is the lesser of:

The transmittal form FTB 3604 must accompany

• Had no members who were residents of

paperless Schedules K-1 (568) submitted on CD

1. The total credit or the limitation based on the

California;

or diskette. Form FTB 3604 is included in FTB

LLC’s business income; or

Pub. 1062 or in a fillable format on our website at

and that was properly classified as an association

2. The net tax balance that may be offset by

taxable as a corporation, see R&TC

credits on Schedule P (100, 100W, 540,

Section 23038(b)(2)(c).

540NR, or 541) on the line above the line

K-1 (565 or 568) TestWare is also available at no

where the credit is to be taken.

charge. K-1 (565 or 568) TestWare helps identify

These entities are generally:

The following example shows the credit limit

and correct errors during programming and

1) Business trusts that were classified as

before submitting the paperless schedules.

calculation for an SMLLC that is owned by a

corporations under California law, but were

C corporation. The SMLLC has a Research credit

K-1 (565 or 568) TestWare includes two programs:

classified as partnerships for federal tax purposes

of $4,000. The computation of the C corporation’s

for taxable years beginning before January 1,

• K-1 Verify, edits Schedules K-1 (568) records

regular tax liability with the SMLLC income is

1997; and

to ensure the fields are the correct length and

$5,000. The computation of the C corporation’s

position the FTB requires and produces an

2) Previously existing foreign SMLLCs that were

regular tax liability without the SMLLC income is

edit report; and

classified as corporations under California law but

$3,000. The difference in tax is $2,000, which is

claimed to be partnerships for federal tax

• K-1 Convert, converts spreadsheet formats to

the C corporation’s credit limitation on all LLC

standard fixed length formats so you can use

purposes for taxable years beginning before

credits. The owner of the SMLLC then performs

them with K-1 Verify.

January 1, 1997.

the following steps:

Once verification is made to ensure paperless

These business trusts and previously existing

1. Completes Schedule P (100), Side 2 down to

Schedules K-1 (568) pass the K-1 Verify program,

foreign SMLLCs will continue to be classified as

line 4, column (c). The amount is $1,000.

send the schedules to the FTB using form

corporations for California tax purposes and must

2. Enters the limitation amount from Schedule P

FTB 3604, which contains mailing instructions.

continue to file Form 100, unless they make an

(100), Side 2, line 4, column (c) in column (f).

Multiple LLCs can be put on the same CD or

irrevocable election to be classified or disre-

3. Enters the following amounts from the table

diskette. It is not necessary to provide a separate

garded the same as they are for federal tax

on this page on the Schedule P (100):

CD or diskette for each LLC. However, provide each

purposes. See form FTB 3574, Special Election

• $4,000 from column (d) of the table on

for Business Trusts and Certain Foreign Single

LLC name, FEIN, and the number of K-1’s for that

this page, to Schedule P (100), Side 2,

LLC in the space provided on form FTB 3604.

Member LLCs, and Cal. Code Regs., tit. 18

line 5, column (a);

sections 23038(a)-(b).

If the LLC files paperless Schedules K-1 (568),

• $1,000 from column (f) of the table on this

please file all Schedules K-1 (568) for that LLC

California regulations make the classification of

page, to Schedule P (100), Side 2, line 5,

using the paperless format. Do not file paper

business entities under federal regulations (Treas.

column (b);

Schedules K-1 (568) with Form 568 if the LLC

Reg. Sections 301.7701 through 301.7701-3)

• $3,000 from column (g) of the table on

has or will file paperless Schedules K-1 (568).

generally applicable to California. If an eligible

this page, to Schedule P (100), Side 2,

entity is disregarded for federal tax purposes, it is

line 5, column (d).

Note: Do not file Schedules K-1 (568) on

also disregarded for state tax purposes, except

microfiche or file federal Schedules K-1 (1065)

(a)

(b)

(c)

(d)

(e)

(f)

(g)

that a SMLLC must still pay a tax and fee, file a

with the Form 568.

Credit

Total

Limitation Credit

Carry

return, and limit tax credits.

name

amount

prior

credit:

based

used on col. (d)

To get the publications and K-1 (565 or 568) visit

year

add

on LLC

Sch R,

minus

Filing Requirements for Disregarded Entities

credit

col. (b)

business but not

the

our Website at and search for

A SMLLC needs to complete Form 568, Side 1

carry- & col. (c)

income

greater smaller of

testware.

over

than col. col. (e)

and Side 3 (Schedule K), LLC Income worksheet,

(d) or

Assistance is available from our e-file Help Desk

Schedule B, and pay the annual tax and LLC fee.

col. (e)

col. (f)

at (916) 845-0353.

SMLLCs do not need to complete Schedule K-1

Research $4,000

$4,000

$2,000

$1,000

$3,000

(Form 568). The LLC should have filed by the

U Property Subject to IRC

15th day of the 4th month of the taxable year. The

T Substitute Schedules

Section 179 Recapture

single owner would include the various items of

income, deductions, credits, etc., of the SMLLC

LLCs or their tax professional must get approval

Effective for taxable years beginning on or after

on the tax return filed by the owner.

from the FTB to use a substitute schedule, if the

January 1, 2003, California will follow the revised

LLC:

Note: Utilization of credits attributable to the

federal instructions (with some exceptions) for

reporting the sale, exchange or disposition of

SMLLC is limited to the regular tax liability on the

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

Page 8 Form 568 Booklet 2005

Instructions For Form 568 - Limited Liability Company Return Of Income - State Of California Franchise Tax Board - 2005 Page 8

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