What California Form 568 (2011) Is For
California Form 568 is the annual return used by limited liability companies (LLCs) taxed as partnerships or multi-member entities for the 2011 tax year. The form reports the LLC’s California income, deductions, gains, and losses, calculates the $800 annual tax, determines any required LLC fee, and computes tax owed for nonconsenting nonresident members. It also identifies each member responsible for reporting income on an individual income tax return or business return.
Because LLCs taxed as partnerships are pass-through entities, the LLC usually does not pay income tax on business profits. Instead, each member reports their share on their own federal and California returns. Even when the LLC has little or no income, it still owes the annual tax and may owe the LLC fee, making Form 568 necessary each year until the LLC formally cancels.
When You’d Use California Form 568 (2011)
You must file California Form 568 (2011) if your LLC is not taxed as a corporation and meets any of these conditions:
- Doing business in California
- Organized in California
- Organized elsewhere but registered with the California Secretary of State
- Earning income from California sources
For 2011, “doing business” included actively engaging in transactions for financial gain or meeting thresholds based on California sales, property, or payroll. Calendar-year returns were due April 15, 2012. California provides a six-month automatic extension to file, but payments—such as the annual tax, LLC fee, and nonconsenting nonresident tax—are still due by their regular deadlines. You also use Form 568 if filing a late return or amending a previously filed return due to errors or federal audit changes.
Key Rules or Details for 2011
$800 Annual Tax
Every LLC doing business in, organized in, or registered with California owes the $800 annual tax each year until it formally cancels. The tax is due by the fifteenth day of the fourth month of the taxable year, paid using Form FTB 3522. For 2011 only, newly formed LLCs whose Articles of Organization were filed during their first taxable year could claim a first-year exemption from the annual tax.
LLC Fee Based on Total California Income
In addition to the annual tax, an LLC must pay an income-based fee if total California income for 2011 was at least $250,000. The fee schedule was:
- $250,000–$499,999 → $900
- $500,000–$999,999 → $2,500
- $1,000,000–$4,999,999 → $6,000
- $5,000,000 or more → $11,790
Total California income includes gross receipts from California sources, not net profit. LLCs pay an estimated fee by the fifteenth day of the sixth month using Form FTB 3536, with any remaining amount due when filing Form 568.
Nonresident Member Rules
Nonresident members must sign Form FTB 3832, agreeing to file a California tax return and pay tax on their share of LLC income. If a nonresident does not sign, the LLC must pay tax on that member’s share at the highest California rate. This “nonconsenting nonresident” tax is added to the LLC’s total tax and reported on Form 568.
Federal and California Differences
California Form 568 begins with figures from the federal partnership return but requires adjustments for state-specific rules. For 2011, California did not conform to several federal provisions, including bonus depreciation and certain business deductions. You must adjust federal amounts before calculating the LLC’s final California tax liability.
Step-by-Step (High Level)
Step 1: Gather Records and Prepare Federal Form 1065
Collect all income, expense, asset, and member information. Complete federal Form 1065 first, as California uses federal totals as a starting point before applying state adjustments.
Step 2: Compute Total California Income and LLC Fee
Use Schedule IW (LLC Income Worksheet) to calculate total California income. Apply the LLC fee schedule to determine whether a fee is required and compare it to any estimated payments made using Form FTB 3536.
Step 3: Enter Entity Information and Taxes on Form 568
Provide the LLC’s legal name, California SOS file number, FEIN, address, business activity, and accounting method. Report total California income, compute the LLC fee, include the $800 annual tax if applicable, and calculate any tax for nonconsenting nonresident members. Then subtract payments and credits to determine the amount due or refundable.
Step 4: Complete Schedule K and Schedule K-1 (568)
Schedule K reports the LLC’s total pass-through items, including ordinary income, rental income, credits, and other items. Prepare a Schedule K-1 (568) for each member and ensure all K-1s reconcile exactly to the totals shown on Schedule K.
Step 5: Obtain Nonresident Consents and File the Return
Collect signed Forms FTB 3832 from all nonresident members and attach them to Form 568. After an authorized person signs the return, file it by the due date and pay any remaining tax, fees, or penalties.
Common Mistakes and How to Avoid Them
- Mixing up the annual tax and LLC fee
These are separate liabilities with different due dates and payment forms. - Missing the 2011 first-year exemption
Newly formed LLCs may have been exempt from the $800 annual tax for their first taxable year. - Failing to prepare Schedule K-1 (568) for every member
Missing K-1s trigger penalties of $18 per member per month. - Not reconciling Schedule K with all K-1 totals
Mismatched numbers cause delays and possible notices. - Skipping California adjustments
Federal figures often need modification to match California law. - Ignoring Form FTB 3832 requirements
Missing consents can result in significant nonresident tax owed. - Underpaying the LLC fee estimate
Underpayment can lead to penalties unless a safe harbor applies.
What Happens After You File
After filing, the Franchise Tax Board processes payments, verifies withholding, and may issue refunds after reviewing the return. Each member uses their K-1 (568) to complete an individual income tax return or business return and must report their share of income, even if the LLC had losses.
California generally has four years from the later of the due date or filing date to assess additional tax, though the period remains open longer during an IRS audit. If the FTB finds discrepancies—such as missing K-1s, unpaid fees, or inconsistent amounts—they may send a notice requesting clarification or additional tax. Late or incomplete filings can result in per-member penalties and interest, and continued noncompliance may lead to suspension or forfeiture of the LLC’s rights in California.
FAQs
Does a new LLC in 2011 owe the $800 annual tax in its first year?
Many newly formed 2011 LLCs did not owe the $800 annual tax for their first taxable year if their Articles of Organization were filed during that year. They still had to file Form 568 and pay any applicable LLC fee.
What is the difference between the annual tax and the LLC fee?
The annual tax is a flat $800 charge owed each year for doing business in California, while the LLC fee is an additional charge based on total California income starting at $250,000. An LLC with low or no income still owes the annual tax but may owe no fee.
Does a single-member LLC file California Form 568 (2011)?
A disregarded single-member LLC typically reports its income on the owner’s return, not on a separate partnership return. However, California may still require Form 568 to pay the annual tax or LLC fee, so owners should review the filing requirements carefully.
Do we file Form 568 if the LLC had no income?
Yes. LLCs doing business in, organized in, or registered with California must file Form 568 even with zero income or losses. The $800 annual tax generally still applies unless the LLC qualified for the first-year exemption.
What if a nonresident member refuses to sign Form FTB 3832?
The LLC must pay tax on that member’s share at the highest California rate. This amount is reported on Form 568 and increases the LLC’s total tax due.
How do IRS audit changes affect California Form 568 (2011)?
If the IRS changes your federal partnership return, you generally must file an amended Form 568 within six months and issue amended K-1s to affected members. Those members may also need to amend their own California returns.
