Louis E. Michelson, A Professional Corporation

Providing Legal and Tax Advisory Services to Nonprofit Organizations

Relief for California Charities: A Carrot and Stick Approach of SB 1341

October 2nd, 2012 · No Comments · California Exempt Status, Loss of Tax-Exempt Staus

California has given charities a new carrot and a stick to encourage compliance with filing requirements with the California Attorney General.  SB 1341 is effective January 1, 2013.

Existing Law.  If a charity failed to file the registration statement or the periodic report, under existing law what used to happen would be the Attorney General would notify the Franchise Tax Board of the delinquency.  The charity would have its tax exempt status “suspended” and would owe the minimum franchise tax when this suspension was effective.  Even after fixing the noncompliance, there was no statutory requirement to get the AG to inform the FTB of the new compliant status and to re-instate the tax-exempt status and therefore to be required to pay the minimum tax.

New Law.  Under the new law, the FTB will now use a new carrot and stick.  The stick is that the FTB will send a notice to the charity indicating that FTB will revoke the exemption unless the delinquent filings are made within 120 days of the notice.  If the charity acts promptly and rectifies the delinquent filings, the AG is then required to provide “prompt notification” that the charity has filed the required documents.  If the FTB does not receive the notice from the AG, the stick is revocation of exemption.   This is a heavy stick for delinquent filings with the AG.  It is not nice to fool with Mother Nature (in this case the Attorney General).

Under the new law, the carrot is that the charity will not be required to pay the minimum franchise tax for the year or years when its exemption was disallowed.  The California Legislature declared that the abatement of the minimum franchise tax serves a public purpose of encouraging charities to come into compliance with their filing requirements so that Californians can continue to support and donate to much needed nonprofit organizations.

For a copy of the bill see the following link.


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