For any business owner with tax problems, one of the most devastating things the government can do is to suspend the business entity's privileges. Essentially, the government considers the use of a corporation, LLC or limited partnership to be a privilege--one which can be taken away if the business owner gets behind on taxes. Thus, when California entity has not filed tax returns for several years or does not pay, the Franchise Tax Board will suspend that entity.
The implications of a business's suspension can be devastating. Suspension means that the entity is no longer granted the rights, powers and privileges of other business entities. In short, your entity has become a sitting duck. You can't defend any lawsuits while suspended, no matter how frivolous. Even the contracts you sign while suspended can be ignored by the other contracting party. The only way to remedy this is to lift the suspension. Chances are, you or your tax advisor will go to the FTB website for more information. Per their website the "only" thing you can do to revive your entity is to file all past due returns and pay ALL past due taxes, including penalties and interest. In short, you are held hostage until you can come up with adequate funds to pay all amounts owed.
Fortunately, there are two other ways that you can lift your company's suspension that don't require you to make an immediate full payment of your past due tax debt. While these techniques are not mentioned on the FTB's website they are clearly set forth in the Revenue & Taxation Code.
Under Section 23305b, the taxpayer can apply in writing for a determination that a certificate of revivor will "improve prospects for collection" of the full amount due. In other words, the only way the taxpayer will be able to pay the FTB back is if the business is allowed to continue operating. Note that a revivor, if granted under this theory, may be limited as to time and even its functionality. In fact, the suspension may be reinstated if the FTB determines that the prospects for full payment have not improved. This procedure, however, will not allow you to get relief from contract voidability until full payment has eventually been made.
In addition, Section 23305.2 provides that the entity can be revived if the taxpayer provides the FTB with an assumption of liability, bond, deposit or other form of security that is acceptable to the FTB.
It is important to note, that the above to procedures will only lift the suspension. A separate application is required if one wants to ensure that they will be able to have the contracts they signed during the suspension be retroactively considered unavoidable. In addition, this procedure can be used to request that the contracts executed during suspension be retroactively considered unavoidable.
In short, if your company has been suspended, there are other ways to revive your entity without having to full pay all amounts owed.