Governor Signs Irwin Bill to Streamline Tax Code Compliance

Tuesday, October 2, 2018

SACRAMENTO – Governor Brown has signed AB 2503, legislation by Assemblymember Jacqui Irwin (D- Thousand Oaks) that creates an efficient process to dissolve businesses and comply with the tax code.

“AB 2503 is the right thing to do for California businesses and the right thing to do for our state government to operate more efficiently,” said Assemblymember Irwin.  “If a business has ceased operating and has paid all their taxes, they shouldn’t be penalized for forgetting to check a box on a form.  Without this legislation the Franchise Tax Board has to waste enforcement time on businesses that no longer exist, chasing revenue that will never materialize.  This bill will allow the Board to finally close the books on over 180,000 accounts that remain on the state’s ledger.” 

AB 2503 would allow the Franchise Tax Board (FTB) to administratively dissolve domestic corporations and LLCs that have ceased doing business for at least 5 years and have paid all taxes and filed all returns due up to the date that they stopped doing business.

When a business closes down, and that business fails to dissolve the legal entity, state law continues to impose the minimum franchise or annual tax for each tax year until the entity completes the dissolution process.  It can be several years before a former director of the entity becomes aware that tax, interest, and penalties are accruing. 

“This is the sort of good government bill that improves the business climate in California,” said Gary Cushing, Vice Chair of the Chamber of Commerce Alliance of Ventura and Santa Barbara Counties and CEO of the Camarillo Chamber of Commerce.  “I commend Assemblywoman Irwin for taking on such a tough and complicated issue and thank Governor Brown for signing the bill into law.”

When a business ceases operations, and there are no remaining assets, taxpayers may simply “walk away” from the accruing tax, interest, and penalties due to the FTB.  Because the FTB lacks authority to dissolve an entity to stop the accrual of the minimum or annual tax, these tax debts of the entities that have ceased business operations continue to be on the department’s accounting system for up to 20 years.  Taxpayers may be unable to dissolve the corporation or LLC because of the existing tax liability and the lack of assets to pay the liability.

“This new law will provide relief to small-business owners who formed LLCs but unknowingly did not complete the dissolution process after the business closed,” CalTax President Teresa Casazza said. “Up until now, taxpayers faced years of accrued taxes, penalties and interest if they made a mistake with the paperwork that has to be filed with two state agencies after a business no longer exists. The new law fixes this problem.”

This bill would allow the FTB to administratively dissolve those domestic corporations and LLCs that are suspended by the FTB, have ceased doing business, have been suspended for 60 or more consecutive months, and have paid all taxes and filed all returns due as of the date the entity ceased doing business.