Inactive LLC gets tax bill

[Louise95]

Articles of Organization for a California LLC were filed 7 years ago with the Secretary of State's office, but no Agreement between the Members was ever established. No account was ever opened. Not a cent of income was ever made. The existence of the LLC was pretty much forgotten until recently because we received a tax bill -- with penalties.

The quote-Members-unquote want to put this away permanently by filing a Certificate of Dissolution and a Certificate of Cancellation. But our accountant says we'll then owe back taxes (plus penalties & interest) for the 7 years gone by! He believes we should just ignore all the notices and the LLC will just "disappear."

Question 1: If we file Dissolution & Cancellation certificates, will we really owe back taxes, penalties & interest?
Question 2: If we just do nothing, will this really "just go away" as the accountant says? How long will that be -- before we stop getting tax notices, for example.
Question 3: Any other suggestions out there?

 

[tranquility]

Articles of Organization for a California LLC were filed 7 years ago with the Secretary of State's office, but no Agreement between the Members was ever established. No account was ever opened. Not a cent of income was ever made. The existence of the LLC was pretty much forgotten until recently because we received a tax bill -- with penalties.

The quote-Members-unquote want to put this away permanently by filing a Certificate of Dissolution and a Certificate of Cancellation. But our accountant says we'll then owe back taxes (plus penalties & interest) for the 7 years gone by! He believes we should just ignore all the notices and the LLC will just "disappear."

Question 1: If we file Dissolution & Cancellation certificates, will we really owe back taxes, penalties & interest?
Question 2: If we just do nothing, will this really "just go away" as the accountant says? How long will that be -- before we stop getting tax notices, for example.
Question 3: Any other suggestions out there?

I agree with the accountant. True, the fees (not taxes) are owed. But, it is the LLC that owes them. The fees are not trust fund taxes and I don't see the state going after the members for them.

 

[LdiJ]

I agree with the accountant. True, the fees (not taxes) are owed. But, it is the LLC that owes them. The fees are not trust fund taxes and I don't see the state going after the members for them.

I am not in CA, but I know Tranq that either you are or you are very familiar with CA. In my state a simple form could be filed to show that the LLC never actually operated. Is there nothing like that in CA?

 

[tranquility]

I am not in CA, but I know Tranq that either you are or you are very familiar with CA. In my state a simple form could be filed to show that the LLC never actually operated. Is there nothing like that in CA?

That's one reason I mentioned it is not a tax but a fee. The fee is owed by the LLC from the time of registration until it is cancelled.

 

[LdiJ]

That's one reason I mentioned it is not a tax but a fee. The fee is owed by the LLC from the time of registration until it is cancelled.

Ah...ok...I get it. The fee is due whether they operated or not. In my state the LLC would be administratively closed the first time the fee wasn't paid...and the fees are very small.

 

[Louise95]

So, Tranquility. How long before the tax bills -- er, rather, the bills for unpaid fees (plus penalties & interest) -- stop coming? Before the LLC "automatically" becomes "inactive"? If the state won't "go after" the Members for the unpaid fees, then why not just close the LLC down by filing a couple of forms? The LLC never had a penny of anything...

 

[davew128]

One could reasonably apply the Ralite case to the inactive LLC as long as no member ever got anything from the entity.

 

[Louise95]

I found the following on another internet forum, using Ralite Case as keywords:

The State of California would like you to believe that you must
file each back year and pay the annual $800 fee AND all the
penalties and interest related to that fee. They also will want
all the fees and penalties for not keeping up with the annual
report of officers that the Secretary of State requires.
(That's a $20 fee if you file it on time; $250 penalty if you don't.)

However, under the Ralite case, where the owner of the
corporation was permitted to walk away from all these liabilities,
by simply doing nothing. Do NOT file the closure paperwork with
the State Franchise Tax Board or Secretary of State. Do nothing.

You can read the particulars here.
http://www.boe.ca.gov/legal/pdf/90_sbe_004.pdf

The author of the above agrees with the accountant. The question still remains: how long do we have to wait before the State of California just leaves us alone and considers the LLC officially inactive. Furthermore, if the State cannot "go after" the Members, what is the harm in closing it down quickly by filing the forms?

 

[davew128]

The author of the above agrees with the accountant. The question still remains: how long do we have to wait before the State of California just leaves us alone and considers the LLC officially inactive. Furthermore, if the State cannot "go after" the Members, what is the harm in closing it down quickly by filing the forms?

You are not the LLC. You are not liable. You also CANNOT close down the LLC without paying all the delinquent fees and filing the delinquent forms. That is a matter of law.

Walk away. If you get correspondence in the name of the LLC, ignore it. It really is that simple.

 

[Louise95]

Any idea how long it will take before we stop getting tax bills (or fee + penalty bills, if you prefer)? Before the LLC is officially considered "inactive"?

 

[tranquility]

Any idea how long it will take before we stop getting tax bills (or fee + penalty bills, if you prefer)? Before the LLC is officially considered "inactive"?

Your LLC is already "inactive". The bills may come for a very long time. We have a client who got one on a decade dead corp.

The reason one cannot answer with authority is Ralite had to do with a corporation. Everyone assumes it applies to an LLC too. Assumes.