California disregarded limited partnerships not subject to tax

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December 2019

Overview

The Franchise Tax Board (FTB) has reversed a long-standing position and ruled that limited partnerships disregarded for federal income tax purposes are not required to (1) pay the annual limited partnership tax under California Revenue and Taxation Code (CRTC) § 17935 or (2) file an income tax return under CRTC § 18633(a)(2). The FTB formally announced this reversal in its FTB Legal Ruling 2019-02 and accompanying FTB Notice 2019-06 published on November 20.

The takeaway

The FTB has reversed its long-standing position and ruled that federal DLPs are not required to pay the annual limited partnership tax and file a return. Taxpayers should review their current filing situation to determine if they should be filing claims for refund in accordance with FTB Notice 2019-06. 

However, taxpayers that are impacted by this Legal Ruling should also pay close attention to future legislative developments as this ruling is being threatened by proposed changes to legislation.

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Peter Michalowski

Peter Michalowski

State and Local Tax Leader, PwC US

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