EDD talks LLCs: plus: rewrites, FTB news and property taxes.

• Author: Williams, Leonard W.
• Position: CATax

The California Employment

Development Dept. has released an LLC information sheet that states its purpose is to explain California's payroll tax treatment of the following:

[ILLUSTRATION OMITTED]

* Limited Liability Company

* Limited Partnership

* Limited Liability Partnership

* Limited Liability Limited Partnership. The section titled "California Payroll

Taxes for Members" states that if the LLC member is a manager under the articles of incorporation, that member would be considered self-employed, and compensation paid for services would not be considered wages subject to California payroll taxes.

But if the LLC member is not a manager under the articles of incorporation, then the EDD normally considers that member to be a common law employee. EDD auditors have been proceeding along that line, to the consternation of LLCs, their members and their CPAs. For the latter, there is the all-too-often conflict between the California approach and that of the IRS: A member's income is reported as W-2 wages for California, but K-l income for IRS purposes.

The report is available at www.edd.ca.gov/pdf_pub_ctr/de231llc.pdf

Unemployment Insurance Fund Forecast

This report shows a deficit of S7.4 billion as of the fourth quarter of 2009, and projected deficits of S18.4 billion and $27.3 billion at the end of 2010 and 2011, respectively It is unclear what the Legislature will do, but an increase in unemployment taxes is possible.

The report is available at www.edd.ca.gov/About_EDD/pdf-uiforecast09.pdf.

Tax Program Rewrites

The EDD is in the process of rewriting its tax programs, and the FTB is seeking a vendor to do the same. The California Board of Equalization probably will need to rewrite its program, but no one is sure when.

FTB's Tax News Highlights

* AB 129 (Ma): Provides taxpayers with the same protections of confidentiality with respect to the tax advice given by "any federally authorized tax practitioner" as they would have if the advising individual were an attorney for any noncriminal matter before the BOE or the FTB.

* AB 404: Eliminates requirements for certain tax-exempt entities that are granted a group exemption to apply separately for state exemption,

* California conforms to federal backup withholding as of Jan. 1, 2010.

* Page 17 answered an LLC gross receipts question asked by the CalGPA Committee on Taxation at its Oct. 28 liaison meeting with FTB. The list of questions and the FTB's answers is available at www.calcpa.org/FTBQ&A.

...