Avoid costly mistakes when dissolving a corporation - FTB News - Brief Article

California CPA, May, 2003

While the decision to close a business can be challenging, the path toward dissolution can likewise be difficult. The FTB recently issued tips on the dissolution of a corporation, looking to correct some common errors and misconceptions.

The first tip? Make your client aware that simply checking the final return box on their next tax return does not officially dissolve anything.

A careful study of the Secretary of State's procedures for the dissolution of a corporation would follow. You can find these in the California Corporations Code, or by visiting the Secretary of States website at www.ss.ca.gov.

Next, the FTB stresses, pay attention to the timing of the filing, and complete each document as much as possible. Until the Secretary of State establishes the date of dissolution, a corporation still exists.

Next, any dissolving corporation must submit Form FTB 3555, Request for Tax Clearance Certificate--Corporations. Pending issuance of the certificate, the corporation's dissolution is considered conditional.

The FTB says it often receives tax returns containing incorrect information regarding the date the corporation ceased business, the end of its tax year or the date a merger was completed. With this in mind, be sure to fill the corporations final tax return correctly by filling in the status and applicable date.

If a corporation chooses to dissolve using taxes paid basis, it must pay all taxes and file all returns prior to receiving the certificate. If dissolving on an assumer basis, it must certify an individual, corporation or qualified entity will assume responsibility for any future taxes due.

You can download FTB 3555 from the FTB's Forms and Publications page.

To view the entire list of tips, visit www.ftb.ca.gov/education/taxnews/ tn_03/0304.html.