DON’T GET SUSPENDED! (Part 2 of 2)
Corporations and LLCs in California can be suspended by the Secretary of State of the State of California (“SOS”) for a variety of reasons. The most common way is by failing to file a Statement of Information, a topic dealt with more thoroughly in a previous blog post, dated July 31, 2014. The second most common way for an entity to be suspended is to fail to pay its California taxes. Then, the California Franchise Tax Board (“FTB”) will notify the SOS to suspend the entity. Formerly, one had to call the SOS, wait in the telephone queue and talk with a representative to discover the reason for the suspension. Recently, the SOS website has begun listing “FTB Suspension” as the status of a suspended entity if such is the case.
Thus, timely payment of the franchise fee and filing of the income tax return, along with payment of all income taxes due will avoid an FTB Suspension. Regardless of whether your entity has conducted any business or earned any income, you must pay the franchise fee and file the tax return. As long as the entity is in existence, meaning it was formed and has not been dissolved, these items are due every year.
What to do to Revive:
In order to determine the exact amount owing to the FTB, you must contact the FTB directly. Usually, a new entity has failed to pay its annual franchise fee of $800.00 which is due on the entity’s anniversary date. Often, the entity has failed to file its income tax return with the FTB. The failure to file a tax return and/or the failure to pay taxes (either the $800.00 annual franchise fee, or income taxes owed or both) will result in an FTB suspension.
If your entity becomes suspended due to a failure to pay its franchise fee and/or its income taxes, payment of the overdue fee and/or taxes will be required before the entity can be “revived”. Also if the tax return was not filed, it must be filed and any income tax paid. There may also be a penalty for late payment or failure to file. You must obtain the amount of any such penalty from the FTB. The FTB is generally pretty helpful on the telephone as they want the taxes to be paid.
Concurrently with the payment(s) and tax return(s), you must send a completed Form 3557 Application for Certificate of Revivor to the FTB. There are different types of Form 3557 depending on the type of entity (e.g. Form 3557 C for a Corporation). Once the Revivor has been complete, FTB will notify SOS and your entity will be revived. The status notation on the SOS website will then change from “FTB Suspension” to “Active”.