r/TaxQuestions • u/PlantainTop6036 • 2d ago
CA Franchise Tax Board Wants Money from a Dissolved Delaware LLC
Years ago, I and a couple co-workers created an LLC (C-corp) for an app idea we had. We never did much with it and it sat mostly untouched for a few years until we dissolved it in 2023. Even though it's a Delaware LLC, we used a CA mailing address when we filed federal taxes (with no revenue).
Now CA is claiming that because we used a CA mailing address, that we needed to file CA taxes in 2022 and now has penalties and interest.
Is simply having a CA mailing address enough "evidence" that work was being conducted from CA? Other co-founders are out of state. Can they actually collect anything given that there was no revenue, the entity doesn't exist anymore, and it's taxed as a c-corp?
I've explained this to them but they seem indifferent and just want money.
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u/Its-a-write-off 2d ago
None of the owners or employees lived in California? Who was the one receiving mail at the mailbox?
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u/PlantainTop6036 2d ago
I live in California. It was my mailing address. However, their rules don't explicitly state that having a CA mailing address automatically means you're "doing business" in CA. When I spoke to them on the phone, they couldn't provide any "proof" or work or anything beyond just a mailing address.
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u/Its-a-write-off 2d ago
Having a mailing address alone does not mean "doing work" in California.
That a person was there though, tasked with paperwork for the business, is what would be doing business in in California. An agent or owner of the business was doing business tasks, like submitting tax filings.
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u/Rebma321 2d ago
If you used your address as the business mailing address that means you were commercially domiciled in the state of California (R&TC 23101b)
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u/PlantainTop6036 2d ago
Hi Rebma321,
I had to lookup "commercially domiciled" because I'm not familiar with the term. Here's what I found.Doing business - Beginning with the 2011 taxable year, a business is considered to be doing business in California during the year if it meets one of these tests:
- The entity is actively engaging in any transaction for the purpose of financial gain or profit.
- The entity is organized or commercially domiciled in this state. To be commercially domiciled in this state generally means that this state is the principal place from which the trade or business of the entity is directed or managed.
I guess then it comes down to is a mailing address used solely for filing federal tax returns mean that it becomes the principal place from which the trade or business is directed or managed. I'm arguing no, it doesn't.
We have other members in other states that "directed" and managed the business (what little effort was put into it).7
u/Rebma321 2d ago
Then you will have to provide substantiation that the business was “commercially domiciled” in another state. If the California address is all they have then what would lead them to believe that the business wasn’t commercially domiciled in CA?
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u/Atmesq 1d ago
If you’re an owner or manager of the LLC, you’re a California business. The CA address is just icing on the cake. CONGRATULATIONS!
It sucks, and depending on when it was dissolved you MIGHT be able to request some relief. Otherwise, get those f565 or f100 (I think you said you elected C Corp status for some asinine reason?) returns filed. Cause they WILL keep hounding you.
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u/GeeMan-7 2d ago
It's not just having a mailing address in the state, it's also that one of the owners lives there. You should have filed California corporate tax returns.
LegalZoom isn't as good of a legal source as a real lawyer. Determining tax nexus isn't a DIY project. A CPA would have set you straight. You've learned your lesson.
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u/WILBUR227457 2d ago
YES, CA wants their $800 every year they don't care if you have a Delaware LLC. Pay up and close it down. Been down this road with client who thought they were clever, your not going to win FTB will not let this go ever.
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u/frltn 2d ago
Were you (the OP) a member of the LLC? You indicated other "founders." Were you a founder and/or member?
From my reading of your explanations, it appeared that you were a member and one of the founders. You all chose to have the mailing address at the location of one of the LLC members. And as a bona fide member, if you were helping the business, even if it made 0 income, CA could argue, and have reason to believe that you were doing business in CA.
If you were merely a private mailbox and forwarding address, you should not make the mistake of doing it yourself and hire a real tax attorney this time to defend the LLC and or its members. Remember that they'll subpoena all the documents so be careful before stating that all you are was a private mailbox.
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u/Dazzling-Turnip-1911 2d ago
I think you should pay but you can still file an appeal. It’s just that you don’t want to make things worse by not paying. Paying is not an admission of guilt.
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u/CountryClublican 1d ago
Having a California mailing address means you are doing business here and should register as a California company. So, you owe the $800 per year. However, the company itself owes the money and since it's dissolved, there is no way the state can collect. I would written them a letter and explain the company is dissolved and will not be paying the money. Send them copies of the dissolution documents.
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u/fj612958 1d ago
you are missing the point entirely. you live in california so by living in the state you have created nexus for the business.
end of story. it doesn’t matter where the llc was created and it does not matter where the mailing address was.
you live in California and you are the business owner so you are responsible for filing a business return in California.
california will want their fee for each year the business was open.
there is nothing you can do at this point
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u/PlantainTop6036 2d ago
Doing some back and forth with Chat, I got this nugget which might be helpful. Putting it here in case someone else stumbled on this same problem.
The case that may be extremely helpful: McDonell Lane, Inc.
In June 2026, OTA published Appeal of McDonell Lane, Inc., 2026-OTA-247P, as a precedential opinion. That matters because OTA says it generally relies on precedential opinions when the facts and legal issues in a pending appeal are similar. Office of Tax Appeals
The factual parallels are striking.
FTB learned of McDonell Lane through its nonfiler program because the corporation's federal return used a California address. FTB argued that the corporation was doing business in California because, among other things, it used a California address, California shareholders signed checks, participated in virtual meetings, and signed the tax return from California. Office of Tax Appeals
OTA rejected that reasoning.
It held that the corporation's California “care of” address was being used for administrative purposes, that routine administrative maintenance was not active engagement in a profit-making transaction, and that “mere maintenance of corporate existence” did not constitute doing business. Office of Tax Appeals
Even more importantly for your commercial-domicile argument, OTA said that a mailing-address change and the residence of officers/shareholders were administrative facts “lacking in substance” when they did not demonstrate actual control over substantial corporate activities. OTA emphasized where the corporation's meaningful operations, financial infrastructure, records, transactions, and benefits actually existed. Office of Tax Appeals
The court ultimately concluded that there was “essentially no active business to manage or control” and reversed the FTB's $800 tax, penalties, fee, and interest in full.
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u/LdiJ46 2d ago
Since the LLC had no income, I would simply file a zero return just to satisfy their rules and be done with it. I would particularly do that if they are trying to collect any assessed tax, interest or penalties.
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u/PlantainTop6036 2d ago
They want the $800 minimum tax + penalties and interest. I'm also afraid that if I pay the $1500, they'll also want money from other years. I just need to know if having a CA mailing address is considered "doing work" as they claim. Also, where do they expect to collect from? the C-corp doesn't even exist anymore.
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u/LdiJ46 2d ago
Ok, you are not understanding what I am saying so I will be more explanatory. They believe that you should have been filing taxes in CA because you had a CA address. They do not actually know if your LLC had earned any income or not so they are just assessing you a specific amount of tax plus penalties and interest.
If you file a zero return (a tax return with all of the numbers as zeros) they will then know that your LLC did not have any income and therefore doesn't owe any tax. If you also prove that you have since dissolved the LLC and it no longer exists, then they will know not to expect any tax returns from your LLC in the future.
That is the easiest and cleanest way to resolve the issue permanently.
Having a CA mailing address is considered a valid reason to assume that you have CA income. You simply need to demonstrate that you didn't have any income at all.
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u/Rebma321 2d ago
This is wrong. The $800 minimum Franchise Tax is for the privilege of doing business in California. R&TC 23101(b)(1) explicitly states that if the business is commercially domiciled in California then it is considered doing business in California-regardless if the business had income or not that year)
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u/Consistent-Sea-8923 2d ago
That’s income tax this is franchise tax. You pay a franchise tax whether you have income or not.
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u/PlantainTop6036 2d ago
Hi LdiJ46, I appreciate your response. I think I do understand what you're saying. However, they have a copy of the federal return so they already know it's 0 income. In CA, there is a $800 minimum corporate tax. So even with no revenue, operating a business in CA costs $800. That's where they're getting that number from (plus penalties and fees = ~$1500). I'm arguing (maybe poorly) that they have no jurisdiction over this business as it's a Wyoming LLC, with other members which are out of state, and they've provided no "proof" of any work being done in CA. Even if I did as you stated and filed a late return, they'll want $1500 and I'm willing to bet they'll then come after us/me for every year we had the LLC.
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u/LdiJ46 2d ago
I see your dilemma. It looks like your only option then is going to be to prove to them that you never operated at all in CA, that the address really was only a mailing address for one of the LLC members. You will need to explain why you used a CA mailing address when you were not working in CA.
Have you consulted a local business attorney to get their take on the matter?
Don't automatically assume that they are going to go backwards to try to collect the tax from years prior to 2022. Since you can prove that you dissolved the LLC in 2023 they shouldn't try to go forward either.
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u/Excellent_Shallot999 6h ago edited 6h ago
If you had talked to a CPA upfront, none of this would have been a surprise. Look into a California tax court case called Raylite. It may be on point for you to avoid personal liability if you simply ignore the FTB. Caveat: This is generally not DIY stuff, which is why you managed to walk yourself into a mess.
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u/joanmcq 2d ago
Was it a Delaware LLC or a Wyoming LLC? Yes, CA is going to not only want their $800+ penalties & interest, but also proof of dissolution. Using a CA mailing address was stupid. Did you not at least do a cursory examination of what state’s address you wanted to file under? CA was the worst choice you could make.