Personal Liability for Franchise Tax

Stuart A. Bronstein · 2012-12-07T00:51:40+00:00

This concerns liability for California Franchise tax -People set up a California LLC, try to set up a business but it's a flop - no income at all. So before the end of the first tax year they decide to go out of business.Technically they are required to pay the minimum franchise tax and dissolve the LLC. But as far as I can tell there is no personal liability for that tax (there would be for sales tax, though), so I suggested just doing nothing and let the LLC be suspended.The question, though, is about filing the final (or only ever) income tax return. There is a thought that there might be some personal liability (possibly even criminal) for failure to file the return.What's the story? What am I missing.Thanks.___Stu

Dec 07, 2012 21 Replies

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Pico Rico 13 years ago

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>> (Shareholder Liability for Minimum Corporate Corporate Franchise Tax in>>> California).

I hope you are merely being sloppy with your words here. In California, a single member LLC is NOT disregarded - it is a valid LLC and affords limited liability protection to its single member. It is disregarded for tax purposes only. Likewise, an LLC with multiple members does not "operate as a partnership", it operates as a multi member LLC. It may be TAXED as either a partnership or a corporation. This sort of confusion may have been what led to some comment up thread that an LLC taxed as a partnership resulted in its members being personally liable for LLC taxes.

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Alan 13 years ago

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>>> (Shareholder Liability for Minimum Corporate Corporate Franchise Tax in>>>> California).

The subject of the thread is tax liability. The replies relate to tax liability. My post used the term "for tax purposes" three times. We are discussing how member(s) of an LLC are treated for tax purposes. Each state can set its own rules for members of LLCs. This discussion involved tax liability in the state of CA. That required researching CA law on alter ego liability as it related to members of an LLC. The research revealed that the liability for the specific tax identified in the OP does not pass through to the members of an LLC treated as a partnership or a corporation except under certain circumstances that were not present in the set of facts in the OP.

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