The FTB has finally entered into a class action settlement agreement to refund the $800 minimum franchise tax, penalties, and interest paid by out-of-state passive investors in LLCs doing business in California. (Bahl Media LLC v. FTB, San Francisco Superior Court, Case No. CGC-16-554150) However, the FTB “denies any wrongdoing or liability in connection with any facts or claims” alleged in the case.
The settlement follows years of FTB resistance to refund claims stemming from Swart Enterprises, where the court held that a 0.2% passive interest in a manager-managed California LLC did not constitute “doing business” in California. (Swart Enterprises, Inc. v. FTB (2017) 7 Cal.App.5th 497)
This resulted in the Bahl class action suit. Members on the “class list” prepared during the litigation have previously been notified that they were on the class list, and will automatically receive refunds, unless they opt out.
Members of the class are taxpayers who:
- Paid the minimum tax and related interest and penalties, if any, to the FTB;
- Timely field a refund claim of the amounts paid;
- Either had their refund claimed denied after June 10, 2016, and before July 21, 2023 (the date of class certification), or did not have their claim approved or denied at least six months prior to July 21, 2023;
- Are not doing business in California because their only connection to California is holding a passive interest in an LLC doing business in California; and
- Only held a 50% or less interest in an LLC doing business in California.
If you have a client who was not notified, but meets the requirements listed above, see the terms of the settlement agreement for instructions on filing a claim:
www.ftb.ca.gov/tax-pros/law/Preliminarily-approved-bahl-settlement-agreement-w-addendum.pdf
Or see the FTB’s Notice of Proposed Settlement of Class Action:
www.ftb.ca.gov/tax-pros/law/Bahl-media-vs-FTB-notice-of-proposed-settlement.pdf
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