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Class action allowed for LLC fee refund case


A California court of appeal has ruled that an action brought against the FTB on behalf of taxpayers that filed LLC fee protective refund claims for pre-2007 tax years can be certified as a class action.1

Remember the Bakersfield Mall and Centerside II LLC fee cases? These were the LLC fee refund cases that were filed back in 2007 and 2010 after two California appellate courts ruled that California’s LLC fee, which was previously computed on an LLC’s worldwide income, was unconstitutional.

While the FTB had previously fully or partially refunded fees from LLCs who only had income from outside California, and those taxpayers who had income from both inside and outside California, no fees have been refunded to those LLCs whose income was solely from California sources. With the class certified, the taxpayers can now argue their case that because the LLC fee law was unconstitutional as written, all LLC fee refund claims should be granted.

Any potential refunds are limited to those taxpayers who filed timely refund claims for pre-2007 tax years. This means you can’t file refund claims now based on this case. Only taxpayers who filed refund claims before the statute of limitations for the pre-2007 years would qualify for refunds. However, the court’s decision is a major victory for taxpayers because this is the first tax refund case that has been certified for a class action in decades.

We anticipate that the FTB will appeal this decision, so things are far from settled. If and when the class action proceeds, notices will likely be sent to taxpayers who had filed refund claims giving them an opportunity to “opt-in” to the class action. We will keep you posted as the case develops.

For more information on these pre-2007 refund claims, see “LLC fee refunds coming: Notify FTB by August 20” in the June 2009 issue of Spidell’s California Taxletter®.

Franchise Tax Board Limited Liability Corporation Tax Refund Cases (July 18, 2018) Cal. Ct. App., 1st App. Dist., Case No A140518