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Trust Foundation Group to Help You Start Your California Nonprofit

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Starting and Maintaining a Nonprofit in California

A Step-by-Step Guide
Nonprofit Formation

A.  Formation Meeting

The initial corporate meeting is the essential first step in forming a nonprofit organization.  It is at this meeting that the initial board of directors is installed and officer titles determined.  The minutes (notes) of this meeting should include a resolution that shows unanimous affirmation by the initial board to establish the organization and pursue both incorporation and federal tax exemption.  The purpose of the organization should be articulated in writing, as well.

B.  Federal Employer Identification Number (FEIN)

Obtaining an FEIN is an important early step.  An FEIN, or Federal Employer Identification Number, is a numeric identifier for businesses.  Much like a Social Security Number, it is a 9-digit number assigned by the Internal Revenue Service that becomes permanently associated with your organization.  It is required of all organizations, both for-profit and nonprofit, and its acquisition should be among the first things accomplished by new startups.

FORM NAME:  Application for Employer Identification Number
FORM NUMBER:  SS-4
FILING FEE:  $0
FOUNDATION GROUP SERVICE:  Yes (a component of SureStart™)

C.  Incorporation in California

Incorporating a nonprofit involves the filing of a formation document, usually referred to as Articles of Incorporation, unless otherwise indicated below.  In California, this document is filed with the Secretary of State’s Office.

FORM NAME:  Articles of Incorporation (most common are Nonprofit Public Benefit and Nonprofit Religious)
FILING FEE:  $30
FOR ADDITIONAL INFORMATION: 
https://www.sos.ca.gov/business
Please note:  CA requires a Statement of Information (SI-100) within 90 days of initial filing of Articles of Incorporation. This report is due biennially (see Corporate Report in Ongoing Compliance section below). Initial filing fee is $20.
FOUNDATION GROUP SERVICE:  Yes (a component of SureStart™)

NOTE:  While the state of California provides a template (boilerplate) document for incorporation, be aware that the California template does meet Internal Revenue Service requirements for obtaining 501(c)(3) status.  As part of our SureStart nonprofit formation service, all Articles of Incorporation prepared by Foundation Group are drafted to meet strict IRS requirements.

D.  Bylaws

Bylaws are the rules used by the officers and directors to govern the organization.  California does not require a copy of the bylaws to be filed with the state.  Regardless of filing requirement, their creation is a part of the formation process and is required by state law.  It is critical that the bylaws be drafted by someone with knowledge of both state and federal law governing the operation of a tax-exempt organization.

NOTE:  A copy of the bylaws is required by the IRS when seeking tax-exemption as a 501(c)(3) organization, unless applicant is using Form 1023-EZ.

FOUNDATION GROUP SERVICE:  Yes (a component of SureStart™)

E.  FEDERAL TAX EXEMPTION (501(c)(3) Status)

Once a nonprofit corporation has been formed, the next step is to seek tax-exemption from the Internal Revenue Service, more commonly referred to as getting 501(c) status. The IRS recognizes statuses from 501(c)(2) through 501(c)(27). The  overwhelming majority of tax-exempt organizations are recognized as 501(c)(3) organizations for their charitable purposes.

To obtain recognition as a 501(c)(3), tax-exempt entity, Form 1023 must be filed with the Internal Revenue Service.  Form 1023 is a comprehensive look at an organization’s structure and programs.  Given the number of additional schedules, attachments, and exhibits that may be required in addition to the application itself, most Form 1023 filings range between 50-100 pages of information.

In July of 2014, the IRS introduced Form 1023-EZ.  This abbreviated version of the application for exemption is an online-only form, available only to qualified, small organizations.  Form 1023-EZ is controversial in that most states oppose its use and the foremost nonprofit industry and advocacy groups fear it will negatively impact grant funding opportunities for small charities that use it.

FORM NAME:  Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code
FORM NUMBER:  1023 (or 1023-EZ)
FILING FEE:  $600 ($275 for Form 1023-EZ)
FOR ADDITIONAL INFORMATION:  https://www.irs.gov
FOUNDATION GROUP SERVICE:  Yes (a component of SureStart™)

NOTE:  For organizations seeking federal tax-exemption under another 501(c) section, Form 1024, Application for Recognition of Exemption Under Section 501(a), must be filed.

Should the IRS grant tax-exempt status, the applicant will be issued a Letter of Determination to that effect.

F.  State Income Tax-Exemption (Corporate Income Tax)

Most states recognize the federal Letter of Determination and do not require any additional state filings in order to be income tax exempt for state purposes.  A handful of states, however, have their own recognition requirements.

CALIFORNIA REQUIRES FILING:  Yes
FORM NAME: :  Submission of Exemption Request: Exemption Based on Internal Revenue Code (IRC) Section 501(c)(3) Federal Determination Letter
FORM NUMBER:  3500 or 3500A (requires preexisting IRS 501(c) letter of determination)
FILING FEE:  $25
FOR ADDITIONAL INFORMATION:  https://www.ftb.ca.gov/file/business/types/
Please note:  Churches must apply for and receive an exempt determination or acknowledgement letter from CA to be California tax-exempt – https://www.ftb.ca.gov/forms/misc/.
FOUNDATION GROUP SERVICE:  Yes, in specific service packages

NOTE:  Corporate tax-exemption does NOT exempt you from Unrelated Business Income tax (UBIT).  For additional information, see https://www.501c3.org/tag/unrelated-business-income.

G.  Charitable Solicitations (Fundraising) Registration

Most states require a nonprofit organization to register with its department of charitable solicitations, typically administered by the attorney general’s office. Some states administer the effort through the secretary of state, and others are a combination (bifurcated). A key point is that nonprofits may have a registration requirement beyond their state of incorporation if the organization solicits donations in those other states.

In addition to initial registration, most states require charities to renew their registration on an annual basis.  Failure to maintain compliance with fundraising registration may result in punitive fines and loss of ability to operate in that state.

FORM NAME:  Initial Registration Form
FORM NUMBER:  CT-1 (Registration Form)
FILING FEE:  $25.00; must register within 30 days of initially receiving assets (funds, property, etc.)
AUDIT REQUIREMENTS:  Gross Revenue greater than or equal to $2 million
FOR ADDITIONAL INFORMATION:  https://oag.ca.gov/charities/forms
FOUNDATION GROUP SERVICE:  Yes, both as a component of SureStart™ and a-la-carte

H.  Sales Tax Exemption

Many nonprofits can benefit from being exempt from sales tax on purchases of services, goods, and materials.  Some of the states that allow for sales tax exemption require that you have already received your 501(c)(3) status from the IRS.  Others do not.

CALIFORNIA ALLOWS:  In some cases CA nonprofits and religious organizations are exempt from certain sales, but there is no broad CA sales tax exemption.
FOR ADDITIONAL INFORMATION:  https://www.cdtfa.ca.gov/, https://www.cdtfa.ca.gov
FOUNDATION GROUP SERVICE:  No

I.  County of Other Local Registrations

There are 3,140 counties in the US.  While many do not require business licenses or other filings by nonprofits, some do.  We highly recommend that all organizations contact their county clerk’s office to inquire as to any necessary filings.  Many local, city, and county agencies also require a business license registration.  Please check with your local agencies to ensure you have met all requirements to operate.

       FOUNDATION GROUP SERVICE:  No

Ongoing Nonprofit Compliance

Once a nonprofit organization has been created and has obtained tax-exemption and other necessary qualifications, these statuses must be maintained.  Below is a list of the ongoing compliance filing requirements for a nonprofit, tax-exempt organization in California.

A.  Corporate Report

Your nonprofit corporation must file a corporate report annually with the state in order to remain in good standing.  This report keeps the state updated concerning the organization’s current officers, directors, and other relevant information.

FORM NAME:  Statement of Information
FORM NUMBER:  Form SI-100
FILING FEE:  $20.00
DUE DATE:  First filing must be within 90 days of its initial filing of the original Articles of Incorporation and biennially thereafter.
LATE FILING PENALTIES:  $50.00
FOR ADDITIONAL INFORMATIONhttps://www.sos.ca.gov
FOUNDATION GROUP SERVICE:  No

B.  Federal IRS Form 990

IRS Form 990 is an annual information return that must be filed by all 501(c) organizations.  Form 990 is similar to a corporate tax return, but with several key distinctions. It is an annual report of income and expense activity, along with information specific to nonprofits: the prior year’s activities and accomplishments, significant detail about structure and operations and information about larger donors. No taxes are due on net income from tax-exempt activities.

There are 5 different versions of Form 990: Form 990, Form 990EZ, Form 990-N, Form 990PF, and Form 990-T. Which one is required of any particular organization depends upon a number of factors, the most significant of which is the amount of annual, gross revenue received by the organization. In tax year 2008, the IRS significantly increased the amount of information that is required to be reported by organizations. 2009 added even more to those changes. It is highly advisable that nonprofit organizations seek the assistance of a qualified professional to assist with the preparation of Form 990.

NOTE:  Some version of Form 990 is required of all 501(c) organizations (except churches), regardless of gross revenue or past filing requirements . . . even if an organization has not yet received official 501(c) determination.  Significant penalties, and even revocation of tax-exempt status, can result from failure to file a timely and accurate return.

FORM NAME:  Return of Organization Exempt from Income Tax
FORM NUMBER:  Form 990, 990EZ, 990-N, 990PF, 990-T
FILING FEE:  $0
DUE DATE:  15th day of the 5th month following the end of the fiscal year (extendable for 6 add’l months)
LATE FILING PENALTIES:  $20 per day, up to the lesser of $10,000, or 5% of the organization’s gross revenue.  If gross revenue exceeds $1,046,500, the penalty increases to $100 per day, up to $52,000.
FOR ADDITIONAL INFORMATION:  https://www.irs.gov/forms
FOUNDATION GROUP SERVICE:  Yes, both as a component of Assurance™, and a-la-carte

NOTE:  There are no financial penalties associated with the late filing of Form 990-N.  The IRS will, however, revoke the tax-exempt status for organizations that fail to file any version of the Form 990 for 3 consecutive years.  Other than one official notice, the IRS will NOT send annual reminders that your Form 990 is due.

C.  State Exempt Organization Information Reporting

Most states recognize the IRS Form 990 as acceptable for state tax exemption reporting.  Many states require no reporting at all, depending upon the type of organization.

CALIFORNIA REQUIRES FILING:  Yes
COPY OF IRS FORM 990 ACCEPTABLE:  No
FORM NAME:  Varies depending on revenue
FORM NUMBER:  FTB 199 or FTB 199N
DUE DATE:  On or before the 15th day of the fifth month after the close of your organization’s taxable year
FILING FEE:  Fee varies depending on gross revenue and the type of organization
FOR ADDITIONAL INFORMATION:  https://www.ftb.ca.gov/
FOUNDATION GROUP SERVICE:  No

NOTE
:
churches (and some other organizations) are not required to file

D.  Charitable Solicitations Renewal

Once an organization has registered with the state division of charities, it may have to renew that registration annually.  If required, the threshold to report usually depends upon the type of organization and the amount of gross revenue.

CALIFORNIA REQUIRES RENEWAL:  The California Attorney General’s Registry of Charitable Trusts
FORM NAME:  Annual Registration Renewal Fee Report to Attorney General of California
FORM NUMBER:  RRF-1 (if gross revenue or assets>$25,000, also IRS Form 990, 990-EZ, or 990-PF and attachments), see also CT-694
DUE DATE:  no later than four months and fifteen days after the end of the organization’s accounting period (e.g., May 15 for calendar year filers)
FILING FEE:  Dependent upon gross annual revenue
LATE FILING PENALTIES: Failure to submit the report by the due date may result in the loss of tax exempt status and the assessment of a minimum tax of $800.00, plus interest, and/or fines or filing penalties as defined in Government Code section 12586.1.
FOR ADDITIONAL INFORMATION:  https://oag.ca.gov/charities/forms,
FOUNDATION GROUP SERVICE:  Yes, as a component of Assurance™, and a-la-carte

E.  Other Reporting Requirements

The regulatory world we inhabit is in a constant state of change. It is imperative that all businesses stay aware and informed, including (and especially) nonprofit, tax-exempt organizations. Know what your state and the federal government require and stay current. It is a lot easier, and much less expensive, to do things correctly the first time.

Important Notice: Form changes occur periodically to implement new requirements. Forms may be eliminated or revised, or new forms may be created. Before submitting forms for filing, please be sure that you have the most recent version of forms.

Links can change frequently. If you have a problem with a link, copy and paste the link in your navigation bar.

Employers – if the nonprofit organization has or may have employees and/or speakers/guests/independent contractors, there could be additional registration and reporting requirements at the federal and state level.  A common mistake for organizations is compensating people as independent contractors when the relationship requires paying them as employees. You can find information at both the federal and state level to clarify such relationships. Below you will find helpful IRS links.  For state requirements, check with the department of revenue. This is the most commonly used name for that department; your state may identify it by a different name. At this department, you will find topical information about:  state unemployment insurance (SUTA), state income tax (SIT), new hire reporting requirements, and workers compensation.

Resources:
https://www.irs.gov – Independent Contractor (Self-Employed) or Employee
https://www.irs.gov – Form SS-8
https://www.irs.gov – Publication 1779

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