Assume there’s a California LLC filing its final tax return, and it is owed a refund of (say) $900. You timely file the return and are surprised when you receive a check for $100 rather than $900. What happened?
Years ago this occurred with one of my clients, and I discovered that the Franchise Tax Board (California’s income tax agency) will automatically deduct $800 from a business refund and apply it to the following year’s mandatory $800 tax (if that has not been paid). But that was a final return, so that shouldn’t happen, right?
Checking the box “Final Return” is just one of the steps a California entity must do when filing a return; it must also close the business with the California Secretary of State. When this happened to my client, the Secretary of State’s office hadn’t processed the LLC withdrawal paperwork (they were running about 90 days behind then). About 30 days later the FTB sent a second check for $800 (once they were notified by the Secretary of State’s office that the entity had closed).
Spidell Publishing highlighted this issue in its weekly podcast on California taxation. I do recommend this podcast for any tax professional dealing with California taxation.