Evans & Rosen LLP, Nonprofit Law, Tax Exempt Organizations Law

These materials have been prepared by Evans & Rosen LLP for informational purposes only and do not constitute legal advice, nor are any of these materials intended to be a substitute for obtaining legal advice. You should not rely or act upon any information provided on this website without seeking the advice of an attorney regarding the facts of your specific situation. These materials are general in nature and are intended, but not guaranteed, to be up-to-date. Please click on the Disclaimer below for more information.

Government Regulation of California Nonprofit Organizations

Nonprofits in California must comply with the applicable filing and other requirements of four government agencies: the California Secretary of State, California Attorney General, Internal Revenue Service, and California Franchise Tax Board (the California equivalent of the IRS). The oversight functions of these agencies are described below and the relevant link provided.

• California Secretary of State. The Secretary of State oversees incorporation, mergers, dissolution, and other corporate filings. California nonprofit corporations are required to file Form SI-100 biennially. The Secretary of State’s website provides both forms and basic information: http://www.ss.ca.gov/business/bpd_form.htm#be.

• California Attorney General. The Attorney General requires most charities to register and oversees funds held in charitable trust. All charities registered with the Attorney General’s Office must renew their registration annually. The Attorney General publishes a helpful guide for charities: http://ag.ca.gov/charities/publications/guide_for_charities.pdf.

•Internal Revenue Service. An organization seeking Internal Revenue Code Section 501(c)(3) status must file an application for recognition of tax exemption with the IRS. There are some limited exceptions to the filing requirement including an exception for churches (which include mosques, synagogues, zendos, and similar houses of worship) and for organizations, other than private foundations, with gross receipts of normally not more than $5,000. There are also annual filing requirements for most tax-exempt organizations. The IRS provides helpful information for various types of tax-exempt organizations on its website, including the Life Cycle of a Public Charity/Private Foundation: http://www.irs.gov/charities/charitable/article/0,,id=136459,00.html.

• California Franchise Tax Board. To qualify as tax exempt under California law, nonprofit organizations must apply for tax exemption with the California Franchise Tax Board. Unlike federal law, California law requires churches and small charities to apply for tax-exempt status. There are also annual filing requirements for most tax-exempt organizations. To learn more visit: http://www.ftb.ca.gov/forms/misc/927.pdf.

There may also be city and county filing requirements as well as additional legal requirements depending on the activities of the nonprofit organization.

Glossary of Terms

Below are definitions of some of the terms of art used in this website to delineate different types of nonprofits. The broader, all-inclusive terms are listed first and the more specific terms listed last.

Nonprofit organization: In general, a nonprofit organization is one that does not distribute profits to individuals with control over it, such as directors, officers, trustees, or members. This term includes not only nonprofit corporations but also nonprofit associations and trusts. The organization may or may not be exempt from taxation depending on whether it has met the requirements of the taxing authority.

Non-governmental organization: Any nonprofit organization that is independent from the government.

Nonprofit corporation: In California, a nonprofit corporation is an organization that has filed articles of incorporation with the Secretary of State as a public benefit corporation, a religious corporation, or a mutual benefit corporation. Filing the appropriate articles of incorporation does not confer or guarantee tax exemption. The corporation must review the requirements of the state and federal taxing authorities, and in most cases, apply for recognition of tax exemption.

Tax-exempt organization: This is an organization that is recognized by the Internal Revenue Service as exempt from taxation. It may also refer to an organization that has received tax exemption from the analogous state authority, the Franchise Tax Board in California. It may be organized as a corporation, trust, or association. There are many different types of tax-exempt organizations. They are often named after the Internal Revenue Code Section under which they were granted exemption, such as Section 501(c)(3), 501(c)(4), etc.

Section 501(c)(3) organization: An organization that has been granted tax-exempt status by the IRS because it is organized and operated for the purposes described in Internal Revenue Code Section 501(c)(3). These are commonly referred to as charitable organizations.

Public charity: An organization that has received tax-exempt status from the IRS under Section 501(c)(3) and is either a statutory public charity, such as a church, school, or hospital, or has satisfied a public support test, or qualifies as a supporting organization. Donors who make contributions to public charities receive the most favorable charitable contribution income tax deduction.

Private foundation: An organization that has received tax-exempt status from the IRS under Section 501(c)(3) but does not qualify as a public charity, usually because it is funded by a small number of large donors.

Charitable Vehicles

This chart provides a brief overview of some of the ways individuals or entities can fulfill their charitable goals, either by giving to an existing organization or starting a new one. This chart does not address the simplest methods of giving, such as outright gifts to charities and bequests. It also does not address all the different types of planned giving vehicles, such as charitable gift annuities, pooled income funds, and charitable lead trusts. It merely provides an introduction to several common options available to individuals or entities contemplating funding or starting a charitable organization. Click here to download the pdf of chart.