Instructions For Form 568 - Limited Liability Company Return Of Income

Form 568 Instructions

If the LLC fails to timely pay the tax of such nonresident

FTB has administrative authority to allow reduced withholding

member, the LLC shall be subject to penalties and interest

rates, including waivers, when requested in writing. These

(R&TC Section 19132 and Section 19101). Any amount paid by

authorizations may be one-time, annual or for a longer period.

the LLC on behalf of a nonresident member will be considered a

Waivers or reduced withholding rates will normally be approved

payment made by the member.

when distributions are made by publicly-traded partnerships and

on distributions to brokerage firms, tax-exempt organizations

An LLC may recover from the nonresident member the tax it

and tiered LLCs.

paid on behalf of the nonresident member.

No withholding of tax is required if the distribution is a return of

S Cancelling a Limited Liability Company

capital or does not represent taxable income for the current or

prior years. Although a waiver is not required in this situation, if

LLCs are required to pay the $800 annual LLC tax and file a

upon examination FTB determines that tax withholding was

California return until the appropriate cancellation papers are

required on a distribution, the LLC may be liable for the amount

filed with the SOS. In order to cancel an LLC, the following

that should have been withheld and penalties.

steps must be taken:

Send waiver requests and inquiries to:

1. File a Form LLC-4/7, Certificate of Cancellation, with the

NONRESIDENT WITHHOLDING SECTION

SOS. The SOS also requires a domestic LLC to file a

FRANCHISE TAX BOARD

Form LLC-3, Certificate of Dissolution. Please contact the

PO BOX 651

SOS for more details;

SACRAMENTO CA 95812-0651

2. Pay the $800 annual LLC tax to FTB;

3. File a final California LLC return with FTB; and

Telephone: (916) 845-4900

4. File form FTB 3555L, Request for Tax Clearance Certificate

The tax withholding should be reported on and paid with Form

Limited Liability Company or Limited Liability Partnership,

592, Form 592-A and/or Form 592-B.

with the FTB.

The taxable income of nonresident members is the distributive

For additional information, contact the SOS by mail at:

share, not the distributed amount. For more information, get

LIMITED LIABILITY COMPANIES

FTB Pub. 1017, Nonresident Withholding — Partnership

OFFICE OF THE SECRETARY OF STATE

Guidelines.

PO BOX 944228

U Substitute Schedules

SACRAMENTO CA 94244-2280

Telephone: (916) 653-3795

If the LLC does not use an official FTB Schedule K-1 (568) or a

Or on the Internet at:

software program with an FTB-approved Schedule K-1 (568), it

must get approval from the FTB to use substitute Schedule K-1

T Withholding Requirements

(568). Get FTB Pub. 1098, Guidelines for the Development and

Use of Substitute, Scannable and Reproduced Tax Forms, for

Foreign Nonresident Members

more information.

As described in IRC Section 1446 and modified by R&TC

Note: Do not file Schedule K-1s (568) on microfiche.

Section 18666, if an LLC has any income or gain from a trade

If you use a computer software product, please read the

or business within California, and if any portion of that income

company’s user manual to make sure you have the necessary

or gain is allocable under IRC Section 704 to a foreign

hardware and printer fonts to produce FTB approved forms. To

nonresident member, the LLC is required to withhold tax on the

ease processing, all printing must be courier, standard OCR-A

allocable amount.

font or standard print font with a minimum 10 pitch (pica

State and Federal Differences

spacing).

California generally conforms to IRC Section 1446 and

Penalty for Failure to File Appropriate Schedule K-1 (568)

corresponding federal rulings and procedures. The main

Beginning in 1997, LLCs are subject to penalties for failure to

differences between California and federal laws in this area are:

file the appropriate Schedule K-1 (568).

a. The California withholding rate is 8.84% for corporations,

1.5% for S corporations and 9.3% for individuals,

Specific Instructions

partnerships, LLCs and fiduciaries.

b. Income attributable to the disposition of California real

Form 568

property is subject to withholding under R&TC

Section 18666.

Fill In All Applicable Lines and Schedules

Domestic Nonresident Members

Enter any items specially allocated to the members on the

R&TC Section 18662 requires an LLC to withhold funds for

appropriate line of the applicable member’s Schedule K-1 (568)

income or franchise taxes when it makes a distribution of

and the total amount on the appropriate line of Schedule K

income to a domestic nonresident member. This includes prior

(568). Do not enter these items directly on Form 568, Side 2, or

year income that should have been, but was not previously

on Schedule A or Schedule D.

reported as income from California sources on the member’s

Name, Address, FEIN and SOS File Number

California income tax return. However, withholding is not

The LLC may use its legal or trade name (DBA) on all tax

required if distributions of income from California sources to the

returns and other documents filed. Print the LLC’s legal or trade

member are $1,500 or less during the calendar year or if FTB

name, address, FEIN and SOS file number on the appropriate

directs the payor not to withhold.

lines.

Domestic nonresident members include individuals who are

nonresidents of California and corporations that are not qualified

Item C – Beginning in 1998, California will use the revised 6-digit federal

to do business in California or do not have a permanent place

Principal Business Activity (PBA) Code based upon the North

of business in California. Domestic nonresident members also

American Industrial Classification System (NAICS). Please see

include nonresident estates and trusts, partnerships and LLCs

the PBA Code chart contained in the federal Form 1065 booklet

that do not have a permanent place of business in California.

for the appropriate 6-digit code.

Foreign nonresident members covered under R&TC

Common trust funds are required to use the PBA code 525920.

Section 18666 are not domestic nonresident members.

Investment clubs are required to use PBA code 523910.

LLCs with income from both within and outside California must

make a reasonable estimate of the ratio, to be applied to the

Item F – Total Assets at End of Taxable Year

distributions, that approximates the ratio of California source

See the instructions for Question R before completing this item.

income to total income. The ratio for the prior year will generally

If the LLC is required to complete this item, enter the total

be accepted as reasonable in determining the California part of

assets at the end of the LLC’s taxable year, as determined by

the distribution subject to withholding. LLCs are required to

the accounting method regularly used in maintaining the LLC’s

withhold tax at a rate of 7% of Distributions (including property)

of income from California sources made to domestic nonresident

books and records. If there are no assets at the end of the

members. For more information, get California Schedule R.

Form 568 Booklet 1998

Page 7

Instructions For Form 568 - Limited Liability Company Return Of Income - 1998 Page 6

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