Failure to File Tax Returns
If a corporation or LLC fails to file their tax returns, pay their taxes, or pay any fees and interest their rights, powers, and privileges could be suspended.
An LLC is considered a pass-through entity and is not required to pay income tax. However, it has to file a California tax return and pay a minimum $800 per year. Even a single member LLC labeled as a disregarded entity must do this. An S Corporation pays taxes in California and files a California tax return even though it doesn’t pay federal income tax.
If an LLC or corporation in California has powers, rights, and privileges suspended they no longer can conduct business. If parties operate a business they are at risk for being personally liable. If an LLC or corporation does not file a tax return, the Franchise Tax Board (FTB) can impose a penalty of $2,00 per taxable year.
If state taxes, penalties and interest that is owed is paid back, the entity can obtain a revivor (lifting of the suspension).
Abandonment vs. Dissolution of the Entity
There is an obligation to file annual statements and tax returns. Do not ignore the statutory requirements because the state will suspend the LLC or corporation. The president of the corporation has a statutory obligation to make sure that they file tax returns. Failure to file tax returns can leave the president personally responsible for a penalty of $5,000 per year.
