2022-20: FTB settles some LLC fee protective refund claims - Spidell

2022-20: FTB settles some LLC fee protective refund claims


The FTB has reached a partial settlement with attorneys representing a class of taxpayers who paid LLC gross receipts fees based on the LLC’s worldwide income, rather than income attributable to California, as was required under California law for pre-2007 tax years. (FTB Notice 2022-02)

In previous litigation, taxpayers successfully challenged the pre-2007 LLC fee calculation on behalf of:

  • LLCs located outside California with no income attributable to California, requiring a full refund of all LLC fees paid (Northwest Energetic Services, LLC v. FTB (2008) 159 Cal.App.4th 841); and
  • LLCs with income attributable to activities both within and without California, requiring a partial refund based on the portion of the fees paid attributable to activities outside California (Ventas Finance, I, LLC v. FTB (2008) 165 Cal.App.4th 1207)

After these cases were decided, the FTB solicited potentially impacted taxpayers to file protective refund claims and processed thousands of claims they determined were eligible for refunds under the Northwest and Ventas decisions. However, the FTB did not process claims for those LLCs it determined had income only from sources attributable to California. (Note: The issue of whether the entire pre-2007 law was invalid is still being litigated.)

In discovery conducted in the ongoing LLC fee class action case (FTB Limited Liability Corporation Tax Refund Cases, Cal. Ct. of App., 1st App. Dist., Case No. A140518), it was revealed that many of the taxpayers with unprocessed refund claims were entitled to refunds under the Northwest and Ventas decisions. The FTB has agreed to settle such claims.

The Settlement Administrator is mailing notices of the settlement and claim forms to all class members. Taxpayers who believe they are in the impacted class but do not receive a notice of settlement may contact the Settlement Administrator:

Phone: (888) 874-48874
Website: www.ftbllctaxsettlement.com

Do not contact the FTB directly, as they have no role in processing of refund claims approved by the Settlement Administrator.

FTB Notice 2022-02 is available at:

www.ftb.ca.gov/tax-pros/law/ftb-notices/2022-02.pdf

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