California Looking for 100,000 Missing Business Returns

If you’ve got a dormant business that was registered or incorporated in California, but hasn’t filed a tax return, expect to get a letter soon from the Franchise Tax Board. On June 14th, the FTB announced that they were in the process of contacting 100,000 California business entities that hadn’t filed a 2010 tax return.

In the FTB’s letter, you’ll be asked to explain why your business didn’t need to file a return, or prepare and file one in 30 days. The state goes on to say that businesses who don’t respond will receive a tax assessment based on previous income.

This isn’t something new. The FTB regularly goes to the IRS and other departments to gather information on who’s earning money or doing business in the state, and then cross-references it against tax returns filed. In fact, the state reported that last year’s effort netted them about $21m in uncollected taxes, so there’s definitely momentum for the state to continue the practice.

I’m sure a lot of the 100,000 businesses have probably folded up, but the owners didn’t file the paperwork to dissolve them with the state. But in California, that’s a problem. The state has a mandatory privilege tax that all business pay, whether or not they are active, profitable, dormant, losing money, and so on. As long as you’re registered with the Secretary of State, the tax is due each year. It’s at least $800, and the only way to stop the clock is to go through the formal closing process. That means filing dissolution documents with the Secretary of State, and filing a final tax return with the FTB.

Plus, if you or your business is located within LA city limits, remember there’s a city tax obligation and account you also need to contend with. LA imposes its own tax on most sole proprietors and incorporated business owners, and you’ve got to close out your account with them too.

Doing nothing isn’t necessarily an option, especially if you are living in the state. You could see the state try to place a lien on your assets or the business’s assets, and if you wanted to start up a new business in the future, you could potentially have some problems with back-taxes owing, once the state connects you with the new business.

If you get a letter from the CA Franchise Tax Board, talk to your tax advisor before answering. Make sure you get some assistance in knowing what your options and obligations are. But do make sure that you answer the letter. Not acting isn’t going to make things any better.

Read more about California’s Franchise Tax Board letter here.
Read more about LA City Tax information here.

There are many variables when you’re structuring a business. That’s why it’s hard to go through a quick-service website. Unless you talk to someone who’s got some knowledge and experience on both the tax and the legal side, it’s hard to know what you don’t know. And that can leave you vulnerable.

Got questions? Contact us! We’re here for you.

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