Ca. Tax Lawyer 2016, VOLUME 25, NUMBER 3

Clean Break: Terminating Agency Relationship with Key Corporation1

By Mike Shaikh & Erin Mariano2


California combined group filing is quite simple: Each corporation filing in California must file a separate return. Corporations that are part of a combined unitary group may elect to file a combined report, with a "key corporation" filing on behalf of each member of the group and taking any future actions on behalf of all group members. This election is made for a particular tax year. By default, the election continues in perpetuity, permitting the key corporation to act on behalf of all other members, even after a member is no longer part of the unitary group. The election for any given tax year may be withdrawn by providing notice to the Franchise Tax Board ("FTB").

Though simple, lack of education and guidance to taxpayers has left some taxpayers in the dark regarding actions that other corporations may take on their behalf. Some taxpayers are unaware that the relationship may be severed. Others, relying on language in tax forms, believe that ending the relationship for future years does so for past years as well.

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