United States

California: SMLLC Owned By Pension Trust Required to File and Pay LLC Fee and Tax

Mar 14, 2016
From KPMG TaxWatch

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Recently, the California Franchise Tax Board or FTB issued a Chief Counsel ruling addressing the filing requirements for a SMLCC wholly-owned by an exempt pension trust. The SMLCC owned land and vineyards in California and was, by its own admission, doing business in the state. The taxpayer requested guidance on whether the SMLCC and/or the pension trust owner was required to file a return.

Although a SMLCC that is disregarded for federal income tax purposes will generally be disregarded for California tax purposes, this general rule does not apply for purposes of the $800 minimum LLC franchise tax and the LLC franchise fee based on income. As such, the SMLCC would be required to file a return and pay the $800 tax and applicable LLC fee. 

In general, the activities of a disregarded SMLLC will be attributed to its owner. As such, if a SMLCC is doing business in California, its owner will be deemed to be doing business in California. However, because the owner of the SMLCC at issue was a qualified IRC § 401(a) pension trust exempt from federal income tax under IRC § 501(a), it was therefore exempt from California tax, except to the extent it had unrelated business taxable income or UBTI. Thus,the pension trust, although it was doing business in California, would not be required to file a return unless it had UBTI to report. Please contact Scot Grierson at 949-885-5643 with questions on Chief Counsel Ruling 2015-02. 

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The following information is not intended to be "written advice concerning one or more federal tax matters" subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230.

The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.