LLCs and FTB 3832
When a multiple member LLC has one or more members who are non-residents of California, taxpayers must use Form FTB 3832. The form lists the following information:
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The names and social security numbers or federal employer identification numbers (FEIN) of all such members; and
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The signatures of each non-resident member evidencing consent to the jurisdiction of the State of California to tax that member’s distributive share of income attributable to California sources.
If an LLC member fails to sign a Form FTB 3832, the LLC is required to pay tax on the member’s distributive share of income at the highest marginal rate (currently 12.3%). The tax paid by the LLC will be considered a payment made by the member (Revenue & Taxation Code Sec 18633.5). See FTB Form 568. If the non-resident member has a spouse, the spouse must also sign Form FTB 3832.
When to File FTB 3832
• Filed for the first taxable period for which the LLC became subject to tax with non-resident members; or • Filed for any taxable period during which the LLC had a non-resident member who has not signed FTB 3832.
Non-residents Who Must File a California Return
Non-resident members (individuals, estates, trusts, corporations, etc.) are required to file the appropriate California tax returns, in addition to the Form FTB 3832. An individual non-resident must file a California non-resident or part-year resident return if the individual had income from California sources and meets California gross income and adjusted gross income filing requirements. See FTB Form 540NR for additional information.
Group Non-resident Member Return
Certain non-resident members of entities doing business in California may elect to file a group non-resident return using Form 540NR. A group non-resident (composite) return may be filed by:
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A business entity, acting as the authorized agent for its electing non-resident individual shareholders/partners/members, to report the distributive shares of income from the business entity (LLC, S Corporation or Partnership) derived from California sources or from doing business in California. See Revenue and Taxation Code (R&TC) Section 18535.
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A corporation, acting as the authorized agent for its electing non-resident directors, to report the directors’ wages, salaries, fees, or other compensation from that corporation for director services performed in California, including attendance of board of directors’ meetings in California. See R&TC Section 18536.
The business entity/corporation files the return and pays the tax on behalf of the electing non-resident individuals. A group non-resident return is considered a group of individual returns that meets the California individual income tax return filing requirement. Thus, a qualified non-resident individual who elects to be included in the group non-resident return does not file a separate personal income tax return for the tax year. The election is made on a yearly basis and once made is irrevocable for that year.
A group non-resident return is available to one or more non-resident individuals, and the income will be taxed at the highest CA marginal rate.For more information, see FTB Pub. 1067.