Back in March of 2007, I advised you on how your limited liability company (LLC) should file a Protective Refund Claim for the years 2003 to 2007. I advised all California LLCs who engaged in interstate sales to send a letter signed by a managing member to the Franchise Tax Board (FTB) via confirmed fax to 916-845-9796, or registered mail (FTB, P.O. Box 942867, Sacramento, CA 94267-8888), with the following information:

1. The LLC's name,
2. The LLC’s company identification number,
3. The name, telephone number and fax number of a contact person; and
4. A statement that the LLC is filing a protective claim for the tax years involved (specifically state which years), the amount of the claim (specifically state the amount of the annual fee on Total Gross Income paid by the LLC for each tax year involved), and the reason for the claim (because the LLC fee on Total Gross Income is unconstitutional).

In May of 2009 the California Franchise Tax Board (FTB) announced that it will begin issuing partial refunds to Limited Liability Companies (LLCs) that had generated revenue from both within and outside the State of California pursuant to the California Court’s decision in Ventas Finance I, LLC v. Franchise Tax Board. In Ventas, the court held that California's "annual gross receipts" tax on California LLCs embodied in Revenue and Taxation Code § 17942 is unconstitutional since it collects the fee on the LLC’s in-state and out-of-state income.

For Refund Claims Previously Filed.

If an LLC paid the annual gross receipts tax on income earned both within the state of California and outside the state, the FTB will compute the refund amount based on the "Default Method." California LLCs, however, can still choose to elect the "Alternative Method" by submitting a completed LLC Income Worksheet from the 2008 Form 568 Tax Booklet for each year the LLC is eligible for a partial refund. The election must be made and submitted by August 20, 2009.

Under the "Default Method" the LLC refund amount will be calculated based on the numbers inputted in the Sales Section of Schedule R (Apportionment and Allocation of Income) filed with the original LLC return. If Schedule R was filed with the original return, no additional information is necessary. If Schedule R was not filed with the original return, the LLC may submit a completed Schedule R for each year a refund is sought to the FTB. Agaom the completed Schedule R must be submitted on or before August 20, 2009.

To elect the "Alternative Method," or to provide a completed Schedule R for the "Default Method," the LLC must provide the following information to the FTB with the abovementioned forms:

1. The LLC's name and address, together with the name and phone number of the managing member, or designated contact person.
2. The LLC's Secretary of State file number, or FTB temporary LLC number (for unregistered entities), and the LLC’s Federal Employer Identification Number.
3. The tax year(s) involved.
4. Statement that the LLC is submitting a completed Schedule R for the "Default Method" or a completed 2008 LLC Income Worksheet for the "Alternative Method."

Didn’t File a Claim back in 2006 or 2007? You Can Still File a New Claim for the Past 4 Years.

If a California LLC wants to file a NEW claim for a partial tax refund, the LLC or its representative must fax a letter to the FTB at 916.845.9796 stating, "This letter is a claim for refund for [LLC's name] - Income Earned Within and Outside of California." The letter must include the information listed in items 1 through 4 above for Previously Submitted Claims. Again, please contact your CPA immediately! You only have until August 20, 2009.

Please note, claims may only be filed for those tax years for which the statute of limitations remains open (the previous 4 years).

IRS CIRCULAR 230 DISCLOSURE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that, to the extent this communication (or any attachment) concerns any tax matter, it was not written to be (and may not be) used or relied upon to (1) avoid tax-related penalties under the Internal Revenue Code, or to (2) promote, market or recommend to another party any transaction or matter addressed herein.