Your California LLC Stopped Operating Years Ago. The FTB Is Still Billing $800 a Year. Here Is When That Bill Can Be Erased.

Two co-founders formed a California LLC in 2019, ran a consulting business through it, and stopped taking work in mid-2021. They filed tax returns through 2020, never filed one for 2021, and never filed anything with the Secretary of State to close the LLC. By late 2026, the FTB has billed $800 for every year from 2022 through 2026, with penalties on each year. The LLC's status reads "FTB Suspended." The business checking account still holds $212.

California can erase most of that bill, but only for the years after the business stopped, and only if nothing is left inside the LLC.

An LLC that stopped operating in 2021 still owes $800 for every year since

California charges every LLC $800 a year whether or not it earns anything. The charge continues until the LLC files a certificate of cancellation with the Secretary of State (R&TC §17941). Marking a tax return "final" does not stop it.

For these founders, the $800 alone comes to $4,000 for 2022 through 2026, and 2021 is owed on top of that. Because the LLC has two owners, each year's missing return also carries a penalty of $18 per owner per month for up to 12 months, which is $432 a year (R&TC §19172). Separate penalties for filing late and paying late can reach 25% of the unpaid tax combined (R&TC §§19131 and 19132), and interest runs on the balance. The missing returns and unpaid tax are also why the FTB suspended the LLC.

Can the FTB erase the 2022 through 2026 balance?

Yes, if the LLC qualifies. Since 2019, the FTB has been able to cancel the unpaid $800 charges, along with the interest and penalties on them, for years when the business was no longer operating (R&TC §23310). The owner signs a request under penalty of perjury stating that the business has stopped and has no assets left. An LLC uses form FTB 3716 and a corporation uses FTB 3715. For a corporation, the charge being erased is the $800 minimum franchise tax (R&TC §23153), the same minimum that applies to a California S corporation. The relief also reaches the penalty for a missed Statement of Information (R&TC §19141).

One part of the bill may survive. The law does not clearly cover the $432-a-year penalty for the returns that were never filed after the business stopped, so the founders should not count on that amount disappearing with the $800.

A suspended LLC can still apply. The FTB takes requests from businesses that are active, suspended, dissolved, or already canceled. Applying does not close the LLC. The bill is erased only after the Secretary of State cancels the LLC (R&TC §23310(e)), and an LLC in active status still has to file its own cancellation there.

Two kinds of LLCs are outside this relief. An LLC registered within the last 12 months that never did business does not need it. Filing the short form cancellation (Form LLC-4/8) removes the first-year $800, although anything already paid is not refunded. An LLC formed in another state and registered in California is shut out, even though it owes the same $800 for every year it stays registered.

The relief applies only to amounts that are still unpaid. Some owners pay the whole balance to lift the suspension and ask about relief afterward. They have paid for years the FTB could have erased, and §23310 has no refund for that.

Relief starts on the date the business stopped, and every year before that date must be filed and paid

The request turns on one date: the day the business stopped. The FTB requires every return filed, and all tax, penalties, and interest paid, up to that day. Its guidance says the relief does not forgive what was owed from before the business stopped.

These founders were still consulting in early 2021, so 2021 falls on the wrong side of that line. They can send the request while 2021 is still open, but the FTB will not approve it until the 2021 return is filed and the 2021 tax, penalties, and interest are paid. Nothing from 2022 onward is erased before then.

The date also has to hold up. In December 2020, the FTB reported that it had approved about one-third of the voluntary requests received since January 2019. It did not say what happened to the rest, but the form shows where a request is exposed. It asks for the stop date, then asks about everything that could show the business kept going afterward. The owner swears to that date, and a wrong date undoes the relief, which is why it deserves to be worked through with a California tax advisor before anyone signs the form.

Does $212 left in the business account sink the request?

It can. An LLC with assets does not qualify (R&TC §23310), and form FTB 3716 says not to complete it if the LLC has any. The form asks about much more than equipment and vehicles. It asks about bank accounts, real estate, contracts, inventory, city business licenses, employees and contractors, money still being collected from customers, and loans involving the owners.

Those questions are also how the FTB tests the stop date. The $212 is an asset. A city business license that renewed automatically through 2023 does not prove the LLC kept operating, but the FTB can ask why a business that closed in 2021 was still licensed in 2023. Both need to be dealt with before the request goes in. The $212 goes first to anything the LLC still owes. Whatever is left is split between the founders under their operating agreement, and the account is closed. The license needs records that explain it, or the stop date has to move to match the facts. The form asks who received the LLC's assets and when, and those answers have to match the bank records.

Splitting the last $212 between the two founders is usually not taxable, but a corporation handing equipment to its owner is

An LLC with two owners is taxed as a partnership. An owner pays tax on a cash payout only when the cash is more than that owner's basis in the LLC (IRC §731(a)). Basis is roughly what the owner put in, plus profits already taxed to the owner, minus losses and earlier payouts. Unless a founder's basis has fallen below $106, that founder's half of the $212 is not taxed.

A corporation that closes is treated differently. When it hands a vehicle or equipment to its owner, it is taxed as if it had sold the property at market value (IRC §336(a)). If the corporation already deducted the full cost in earlier years, the gain equals what the property is now worth, and an S corporation passes that gain through to its owners. That tax is reported on the corporation's final returns, which are separate from the FTB request.

What happens if the FTB later finds the business never really stopped?

The erased amounts come back. If the business kept operating, or had assets the request did not disclose, everything the FTB erased becomes due again (R&TC §23311). The FTB can also add a penalty of 50% of the erased tax, plus interest. For these founders, that would be every amount erased for 2022 through 2026, with the penalty on top.

The FTB can also cancel an LLC on its own once the LLC has been suspended for 60 consecutive months. It mails a notice, the Secretary of State posts the LLC's name on a public list, and the LLC has 60 days to object. This LLC has not been suspended that long, and the FTB decides when to act. Waiting also leaves the 2021 return unfiled and the stop date undocumented, and a voluntary request makes the founders fix both now.

This article is general information, not advice for a specific entity. Whether relief applies depends on the entity's actual stop date, tax classification, assets, Secretary of State records, and FTB account history.

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