Corporation Tax Law: tax-exempt organizations: revocation of tax-exempt status

A federal loss of 501(c)(3) status will no longer automatically end California income-tax exemption when the reason does not involve fraud, financial misuse, missed filings, or governance/reporting breaches.

What the law does ​

• Allows the Franchise Tax Board to keep a 501(c)(3) organization’s California income-tax exemption after its federal exemption is suspended or revoked for qualifying reasons.
• Requires the Franchise Tax Board to suspend or revoke the state exemption when the federal action involves fraud, intentional misrepresentation, misuse or diversion of funds, required filing failures, or other reporting or governance breaches.
• Authorizes the Franchise Tax Board to establish regulations and procedures for evaluating and administering these cases.

Who it affects ​

• California nonprofits recognized federally as 501(c)(3) organizations that receive state exemption through their federal determination.
• The Franchise Tax Board.

Context ​

The law took effect immediately as a tax levy.