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. TheWhat Form 568 (2011) Is For
Form 568 (2011) is the Limited Liability Company Return of Income used by California LLCs classified as partnerships or multi-member pass-through entities. It reports the $800 annual franchise tax, calculates any additional income-based LLC fee, and allocates income, losses, and deductions to members. Under California law, this form is essential for documenting business activity, meeting filing requirements, and complying with regulations of the California Franchise Tax Board (FTB).
When You’d Use Form 568 (2011)
Form 568 (2011) applies when a California LLC is required to meet specific tax and filing obligations based on its business activity and classification status.
- Form 568 for California business activity: You must file Form 568 if your LLC is doing business in California, is registered with the Secretary of State, or receives income from California sources.
- Use of Form 568 after Entity Classification Election filings: If your LLC elected partnership status using Form 8832 (Entity Classification Election), you are required to report your partnership return using Form 568.
- Use of Form 568 by multi-member LLCs with California income: Any multi-member LLC with income attributable to California must file Form 568, even if formed out of state.
- Use of Form 568 for foreign entities doing business in California: Foreign entities, such as Nevada-registered LLCs, must file Form 568 if they conduct business or meet the threshold requirements for California property, sales, or compensation.
Key Rules or Details for 2011
Several critical rules applied to filing Form 568 (2011), especially for LLCs operating under California tax law.
- Annual California Franchise Tax obligation: Every LLC doing business or registered in California was required to pay the $800 annual franchise tax, regardless of income or profit, using Form 3522.
- 2011 First-Year Exemption Rules: For LLCs whose Articles of Organization were filed with the Secretary of State during their first taxable year in 2011, the $800 tax was waived for that initial year only.
- California income-based fee structure: If total California income exceeded $250,000, LLCs were required to pay a sliding-scale fee between $900 and $11,790 using Form 3536.
- Schedule K and California Schedule K-1 reporting rules: LLCs were required to report distributive share items using Schedule K and issue a California Schedule K-1 to each member, ensuring that the totals align with Form 568.
- Nonresident member consent requirements: All nonresident members had to sign Form FTB 3832, or the LLC was responsible for paying tax on that member’s share at the highest applicable rate.
Step-by-Step (High Level)
Filing Form 568 (2011) involves a structured process that ensures compliance with both federal and California tax reporting requirements.
- Gather financial and federal return records: Begin by collecting financial records for the tax year, including income, deductions, distributions, and member details, along with your federal partnership return (Form 1065).
- Complete federal partnership return before California forms: You must prepare your federal return first, since many calculations on Form 568 are based on federal figures, with adjustments made for California law.
- Calculate California income using Schedule IW: Use Schedule IW to compute total California income, including ordinary business income, rental income, and other sources that influence the LLC fee.
- Determine fee and tax payments using required FTB forms: Estimate and pay the LLC fee using Form FTB 3536 by the 15th day of the 6th month, and pay the $800 franchise tax using Form 3522. Use Form FTB 3537 for extension payments if needed.
- Prepare Schedule K, California Schedule K-1, and member records: Allocate the LLC’s income and deductions among members using Schedule K, then prepare California Schedule K-1 forms to report each member’s share.
- Finalize signature, forms, and mailing instructions: Ensure the return is signed by an authorized member or paid preparer, and mail Form 568 to the appropriate Franchise Tax Board address, depending on whether a payment is enclosed.
Common Mistakes and How to Avoid Them
Many LLCs that filed Form 568 (2011) faced penalties and delays due to common errors that could have been avoided with careful attention to detail.
- Confusing the annual tax and fee payments: LLCs must not combine the $800 franchise tax and the income-based fee; each has a separate due date and form (Form 3522 for tax, Form 3536 for fee).
- Missing the first-year exemption for 2011: Newly formed LLCs in 2011 were eligible for an exemption from the $800 tax if their formation occurred during their first taxable year; failing to claim this exemption resulted in unnecessary payments.
- Not preparing complete California Schedule K-1 forms: Each member must receive a Schedule K-1 (568) with full details; missing or incomplete forms result in penalties of $18 per member per month.
- Failing to apply California adjustments to federal items: Taxpayers must not transfer federal amounts directly to Form 568; California law requires adjustments for depreciation and other differences using Schedule IW and Schedule R.
- Missing nonresident member consent requirements: Every nonresident member must sign Form FTB 3832; otherwise, the LLC must pay tax on that member’s share at the highest rate, increasing liability.
- Incorrect entity classification due to missing Form 8832 or related filings: Some LLCs mistakenly filed Form 568 when they should have filed Form 100 or 100S due to corporate election via Form 8832.
What Happens After You File
Once Form 568 (2011) is submitted, the California Franchise Tax Board processes the return, applies any payments, and issues refunds or requests for additional information if needed. Each member uses their Schedule K-1 (568) to file individual tax returns, such as Form 540 or Form 540NR. The FTB may contact the LLC if discrepancies are found or if additional documentation is required.
LLCs should retain a copy of all submitted tax returns, member statements, and federal correspondence for at least four years, and remain alert to potential audits, especially following federal changes that require amended filings.
FAQs
Do disregarded entities need to file Form 568 (2011)?
Single-member LLCs, treated as disregarded entities for federal purposes, generally do not file a complete Form 568 but must still pay the $800 annual franchise tax. They may, however, file a simplified version for compliance purposes.
Can foreign entities with California income use Form 568 (2011)?
Yes, foreign entities, including out-of-state LLCs, must file Form 568 if they conduct business or generate income in California and meet the filing requirements set by the California Franchise Tax Board.
Is an EIN Number required when filing Form 568 (2011)?
Yes, your federal Employer Identification Number (EIN) must be included on Form 568 to correctly identify the LLC for both federal and state reporting purposes.
Does Form 568 (2011) replace a business license or registration certificate?
No, filing Form 568 does not substitute for obtaining a business license, completing California Business Search registration, or fulfilling business registration certificate requirements.
Is Schedule C used with Form 568 (2011)?
Schedule C is not used with Form 568; it applies to sole proprietors or single-member LLCs reporting on Form 1040, while Form 568 requires partnership-level reporting through Schedule K and Schedule K-1.
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.
