Nonresident Investors in Entities Doing Business in California

The California Franchise Tax Board (“FTB”) tracks and taxes to nonresident individual owners of certain “flow-thru” entities (defined below) the business profits of those entities that are allocated, apportioned or otherwise sourced to California under California tax law. (For this purpose, a “flow-thru” entity includes a general or limited partnership, an S corporation, certain limited liability companies electing partnership tax treatment and trusts, whether such entities or trusts are organized in California or another state or country.) In general, a “flow-thru” entity that conducts any portion of its business in California or with California customers may be considered to have some California source business profits, if the entity as a whole is profitable (whether the California portion of the business is considered to be profitable from an internal accounting point of view).

Being a nonresident investor in such an entity or a grantor to, or a beneficiary of, such a trust, no matter how small your percentage ownership interest, can cause you to have to file a nonresident California income tax return each year, attaching your federal income tax return (if you file one), as well as the return you file with any other state in which you claim to be resident). Filing those returns result in significant disclosure of sensitive personal financial information to the FTB (see our webpage entitled “Nonresident Investors in California Rental Property” for a more complete discussion of the disclosures of sensitive financial information that accompany the filing of a California individual nonresident income tax return). Indeed, any amount of California source business profits flowing-thru to the individual owners of the business for tax purposes, no matter how small their individual interests in the entity or trust may be, will be sufficient to trigger a requirement to file a California nonresident individual income tax return.

We routinely assist nonresident investors and flow-thru entities doing business in California or with California customers concerning restructuring and nonresident tax return filing options for avoiding annual California individual nonresident tax return filings (and their attendant disclosures of sensitive personal financial information and Federal income tax returns) for their California nonresident owners.

At Lance Cross-Border Law and Tax, we have more than 40 years of experience assisting clients with California nonresident tax planning, including 28 years serving nonresident clients in Palm Springs, Palm Desert, Cathedral City, Rancho Mirage, Indian Wells and La Quinta, among other desert communities. We invite you to browse through the information on our website and our blog about California nonresident tax planning. In them, you will find answers to some of the questions that you may have concerning nonresident tax problems or issues. We welcome inquiries concerning your specific tax situation. Feel free to call us at (760) 578-5093, or contact us via email at Brent@LanceCrossborder.com or by using our online contact form. We will respond to all relevant inquiries without any obligation. Why not put us to work preventing or solving California nonresident tax issues or problems for you today?