California Businesses That Stopped Operating but Never Closed: How to Eliminate the $800 Franchise Tax and Get Back Into Compliance
Many California business owners believe that once a company stops operating, the tax obligations stop as well. Unfortunately, that is not how California law works.
At Velin & Associates, Inc., we regularly see business owners who closed a venture years ago—only to be shocked by Franchise Tax Board (FTB) bills for thousands of dollars in unpaid $800 minimum franchise taxes, penalties, and interest.
This happens because the business was never formally dissolved with the California Secretary of State.
This issue affects:
- Shopify store owners
- Amazon sellers
- YouTubers and TikTok creators
- Filmmakers
- Doctors and dental practices
- High-net-worth individuals who invest in businesses
Whether you are a CPA for YouTubers, a CPA for Shopify Store, or an Accounting Firm serving medical practices, this is one of the most common and costly mistakes California business owners make.
Why the $800 Tax Keeps Coming Even When the Business Is Dead
In California, corporations and LLCs owe the $800 minimum franchise tax every year simply for existing—even if they have:
- No sales
- No bank account
- No employees
- No activity
If you never formally dissolved the entity, the FTB assumes it is still operating and keeps billing.
Over time, the FTB adds:
- Late filing penalties
- Late payment penalties
- Demand penalties
- Filing enforcement fees
- Interest
A business that stopped operating five years ago can easily receive a bill for $6,000 to $10,000 or more.
The Good News: California Offers a Way Out
California now allows qualifying businesses to request Voluntary Administrative Dissolution through the Franchise Tax Board.
This process can:
- Stop the $800 tax from continuing
- Remove unpaid franchise taxes for inactive years
- Eliminate penalties and interest
- Allow the company to finally be closed properly
At Velin & Associates, Inc., we help business owners determine whether they qualify and handle the entire compliance process.
Who Qualifies for Administrative Dissolution?
Your California corporation or LLC may qualify if:
- The business never started
OR
The business stopped operating and never restarted - All tax returns were filed for the years the business was active
- All taxes owed during operating years were paid
- The business has no assets
- The entity has been registered for at least 12 months
If those conditions are met, we can submit:
- Form 3715-PC (Corporations)
- Form 3716-PC (LLCs)
What Happens If the Request Is Approved
If approved, the FTB will:
- Cancel all $800 franchise taxes for the years the business was inactive
- Remove late filing and late payment penalties
- Remove demand penalties
- Remove filing enforcement fees
- Stop interest from continuing to grow
After approval, the business must be formally dissolved with the California Secretary of State within 12 months or the entire problem starts again.
This is where a professional Accounting Firm matters.
Important Warning: Dissolution Does NOT Eliminate Other Debts
Administrative dissolution only removes California franchise tax obligations.
It does NOT:
- Eliminate debts to banks
- Cancel vendor bills
- Protect from lawsuits
- Remove personal guarantees
That’s why professional Tax preparation and Bookkeeping and tax services matter.
Why You Should Not Ignore FTB Notices
The FTB can:
- Levy bank accounts
- Garnish wages
- Suspend other businesses you own
- Block future licenses
For creators, doctors, filmmakers, and online businesses, this can be financially devastating.
Take Action Before the Debt Grows
If you ever owned a California corporation or LLC—even one that never made a dollar—you may still be accruing $800 per year.
The sooner it’s fixed, the less it costs.
How Velin & Associates, Inc. Helps
Whether you are running an online brand, a medical practice, or multiple entities, we ensure your businesses are clean, compliant, and not leaking money to California unnecessarily. For more information about our tax planning services, contact us today: visit our website.
Velin & Associates, Inc
8159 Santa Monica Blvd STE 198/200 West Hollywood, CA 90046
323-902-1000
dmitriy@losangelescpa.org
Our firm provides the information in this e-newsletter for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. Tax articles in this e-newsletter are not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided "as is," with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.