What's the Franchise Tax Board?

The Franchise Tax Board is California's taxing authority.

 

But if we're tax exempt, why do we have to deal with them?

California is unique among all states, in that it:

  1. Considers ALL corporations taxable by default and
  2. Charges ALL corporations an $800 minimum annual corporate tax (even if inactive).

The way around this is to receive tax-exempt status from the Franchise Tax Board. (IRS tax exemption does NOT count here.)

How do I become tax-exempt?
A few years ago the F.T.B. simplified the process of becoming tax-exempt if you're already exempt under IRS Section 501(c)(3) [and (c)(4), (c)(5), etc.].

 

Click here for excellent information from the F.T.B. site.

Once you have IRS exemption, you need to file a simple, two-page form with the F.T.B. --
Form 3500a -- and you'll be automatically recognized as state-tax exempt. (Be sure to include your IRS letter with this form.)

Checking your status: Entity Status Letter

By going to this portion of the F.T.B. site, if you're in good standing with the F.T.B., you'll be able to immediately generate an Entity Status Letter, which looks cool and official, besides being written proof that you're in good standing with that agency.
                                                            
Filing requirements
Don't forget to file your annual
Form 199 if your gross receipts average more than $50K. Click here to find the averaging formula.

Filing rules for small organizations

Click here to file Form 199-N (e-Postcard), which must be filed every year by most small organizations.

To resolve delinquency
In my experience, the F.T.B. is the most "phone-reachable" state agency to help resolve your non-compliant status. Here's how to reach them:

* call the Exempt Unit: 916-845-4171.

Money-saving hint
If your delinquency goes back several years, the F.T.B. may tell you that you owe thousands of dollars in taxes, penalties and interest, but I don't recommend that you automatically pay them.

Why? Because as an exempt entity you're not required to pay corporate taxes. I've found that retroactive restoration of status takes place quickly as long as you file all the required forms.

Exception to the above: there's a late-filing penalty for Form 199 of up to $40 per year. I always pay that and other smaller fees.

 

WARNING: The F.T.B. is now retroactively REVOKING exemption if an organization reports zero income for several years on its Form 199-N or indicates to the F.T.B., in response to an inquiry, that it has been inactive. HINT: If you've spent your own funds for your NPO, you can count that as both income and expense. So, for example, if you spent $50 on supplies for your NPO, you can legitimately count that as $50 of income even though it didn't go through your NPO's account.

 

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