TAX NEWS - JUNE 2010

California Tax: Changes in Pass-through Entity Return Penalties

Recently signed legislation, SB 401, changed the partnership late filing penalty and added a new late filing penalty for S corporation returns.

We assess the late filing penalty if a partnership or LLC, treated as a partnership, files a late or incomplete return. The late filing penalty is currently $10 per partner, for each month or fraction of the month the return is late or incomplete, to a maximum of five months. Beginning with returns required to be filed after January 1, 2011, the penalty will increase to $18 per shareholder for a maximum of 12 months.

Currently S corporations are subject to the delinquent penalty. Beginning with tax returns required to be filed after January 1, 2011, we will assess the new late tax filing penalty in addition to the delinquent penalty. The new late filing penalty is $18 per partner, for each month or fraction of the month the return is late or incomplete, for a maximum of 12 months.

We can waive both late filing penalties for reasonable cause.