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In 2010 we correctly filed form 565, because we were general partnership. However, in 2011 we filed by mistake form 568 (the LLC form). Starting from 2012 we have correctly filed as sole proprietorship because the other partner had left and business structure changed.

Then in April 2015 the Franchise Tax Board (California's "IRS") sent us a notice of missing tax forms for tax year 2012.

It seems that they have not realized that the root cause of the problem is not 2012, but actually 2011.

Here are my questions:

  1. Should I proactively fix this tax mess for tax year 2011 or should I wait for FTB to open a new case for 2011? The thing is that for 2012 we sent them a letter of explanation and supporting evidence that business was Sole Proprietorship in 2012, but they claim to not have received and/or scanned the letter into their system.
  2. I believe that 5(?) year statute of limitation kicks in when FTB will leave you alone, if you have filed a tax return (not quite our case, because we filed wrong form). Is there a reason to hope that they might not want to open a case for 2011? I guess statute of limitation timer can get reset if I proactively send new forms.
  3. If I decide to proactively fix 2011 tax return should I check "Amend return" box on 2011's 565? Technically I don't have anything to amend because I filed the wrong form.

P.S.

Since form 568 and 565 results into same tax amount, then this means we have honestly paid all the taxes. However, the only mistake we have made is we used the wrong form and this has gathered FTB attention.

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