Here is how the conversation usually goes at Berdon:
Berdon Person Other Than Me (“BPOTM”): Wayne, I have a client whose only connection to California is a 0.001% non-managing membership interest in manager-managed LLC. The LLC is doing business in California. Do I have to pay the $800 minimum franchise tax?
Me: Well, there is a case with a limited partnership and similar facts that says you don’t have to. But the Franchise Tax Board (“FTB”) has been interpreting it very narrowly and only applies the case to LPs and not LLCs.
BPOTM: Wayne, that’s crazy. The facts and circumstances are exactly the same. Why should my client have to pay $800 and why should we go to the expense of filing the return?
Me: Well, I agree with you, but you should explain to your client that the FTB is likely to send a notice indicating that tax is due and ultimately issue an assessment. In order to clear this up, the cost is likely to exceed $800. I sympathize, and if it was my own return I would seriously consider not filing, but we need to make a practical business decision here.
BPOTM: I hear you. I’ll speak to my client and help them make a decision on how to deal with this nuisance.