Discussion:CA LLC Fee deductable?
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| 14 March 2007 | |
| Several years ago, client organized an LLC in CA to start a business. After identifying the type of business to do, business never really took off as market changed, investors could not be found. Now client disolves LLC and pays all fees totaling about $4,000 (excluding interest and penalties). Can this be deducted and where/how? Or is it an investment expense to be C/F to offset investment income?
Thanks. James | |
| 14 March 2007 | |
| interest must be ordinary and necessary to deduct, penalties are never deductible. | |
| 14 March 2007 | |
| If I am understanding your question: the $800 minimum tax is n/d for CA but deductible for fed. The LLC fee is deductible for both. Don't forget to file protective claim for refund in case the fee is declared unconstitutional - there's at least one but I believe two cases working through the court system. Spidell has information re how to file the claim. The FTB just needs a letter faxed to them w/ certain info. They don't want every LLC operating in this state to file amended returns. | |
| 14 March 2007 | |
| Thanks JAD for the info on the protective claim, I'll work on that. Anyway, I'm still not sure that in this case with the details presented above there is a deduction allowable. If so, how would you take it? File a schedule C with no income and only the 800 minimum tax? | |
| 14 March 2007 | |
| Ok there's the part of the question that I didn't understand...the LLC never began business? Or there was some business in the prior years, and the taxpayer simply didn't pay the LLC fee?
If the LLC was had a trade/business in a prior year, I think you have late payment of an operating expense. On another one of these pages, I asked about interest expense related to a partnership interest that the taxpayer sold, and someone knew of a RR where that interest was still deductible on the same schedule that the partnership income had been reported (Sch E). This seems similar. I would probably take on Sch C. If there never was a trade/business, then I think you have a more complicated situation. These fees may be start-up costs, and I'm not sure what happens to start-up and organizational costs for a business that never gets started. But I'm sure this is something discussed in the various research services. And I'd bet that others will have ideas.... | |
| 15 March 2007 | |
| What if the business actually began, well there were attempts to make sales without any, and then after about a month or so the owners threw in the towel? | |
| 15 March 2007 | |
| If it was that short of a life, then why are the LLC fees so high? | |
| March 15, 2007 | |
| I know the Ralite decision is used to get out of the $800 Corp Min Tax, but does anyone know if Ralite can also be applied to past due LLC fees. | |
| 15 March 2007 | |
| It sounds like the fees have already been paid anyway. I would probably deduct on page 1 of the 1040, other income, and describe as past due LLC fees related to terminated business. But first I would communicate audit risk to my client and make sure that he understands and is comfortable with that risk. | |
| 17 March 2007 | |
| PVVCPA, the Ralite logic should apply to an LLC, since the owners have similar liability protection to corporate stockholders. Unless an LLC member received a transfer (without consideration) from the LLC after the tax accrued, there would be no transferee liability for the accumulating annual $800 minimum taxes. There's no case or ruling specifically on the LLC question, though, AFAIK.
The same is not true for a limited partnership, however, since the general partner(s) would always be liable. | |
| 27 March 2007 | |
| Thought I would jump into this discussion as I too have a similar problem but not with an LLC but a Limited Partnership. I really need some expertise in this field. In 1994 my limited partnership went out of business. We lost the real estate and all assets related to this partnership in a way of foreclosure. My CPA completed all taxes up to and including 1994 for State and Federal. However, he failed to submit the limited partnership certificate of cancellation with the Secretary of State of California. In 2005 I discovered a tax lien was recorded against me as an individual. I paid the tax lien related to the $800.00 fee and assumed all was okay. I have now discovered that due to partnership not being canceled in 1994, I have to file taxes from 1995 to present day. There has been no income nor operation in the name of this limited partnership since Dec. 31st, 1994. In no way has the State ever attempted to contact me. I have the following questions:
a) do i have to file these tax forms for the period time in question; b) is there anyone out there that has gone through this situation before; c) Form 565 indicates an $800.00 fee, if I fill the form out without any taxes owed do I still have to pay this fee? d) how do i approach FTB in making a settlement to resolve this issue? e) do i have to submit the form before attempting to settle? f) should i seek a special attorney for this situation? g) is there any case law related to this situation? | |
| 27 March 2007 | |
| "In no way has the State ever attempted to contact me."
I am so sorry. CA is unbelievable. Get yourself some professional help. You need someone who has experience w/ CA and had dealt with these issues before, and not all of us CA CPAs have both (I don't). Someone here might. Good luck. | |
