Refund of Late-Filing Penalty for Single-Member LLCs

For income tax purposes, a single-member limited liability company (SMLLC) is treated as a disregarded entity. That means that the income or loss of the entity is reported by an individual taxpayer on Schedule C of the taxpayer’s tax return. That also means that the entity is not required to file a partnership income tax return. The Franchise Tax Board recently announced that it has discovered that it had misapplied a partnership late-filing penalty to SMLLC’s that had been treated as disregarded entities.

The Franchise Tax Board plans to issue a refund (or a credit) to the affected taxpayers to cancel the unpaid penalty and interest. A separate refund check will be issued for each tax year. In some cases, the Franchise Tax Board may apply the refund to an outstanding liability on another tax year or to another state department.

Refunds will be made to taxpayers who paid the late-filing penalty within the applicable statute of limitations as of June 26, 2013, which is the date the Franchise Tax Board says that it discovered the misapplication of the penalty.

The Franchise Tax Board will not provide a refund as to those years barred by the statute of limitations, but it has announced that it is exploring alternative relief options, including potential legislation.

If the entity was suspended by reason of this incorrectly applied penalty, the Franchise Tax Board will reinstate the entity.

More information can be found at the following link:

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