Discussion:Exempt Organization Being Taxed
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| 13 May 2008 | |
| I have a church as a new client. They incorporated back in 2004, but did not file for their exempt status with the State of CA at that time. They now receive letters from the State of California asking them to file form 100 just like any other non-exempt organizations for all the past years (2005-2007) and pay back taxes. It sounds like a nightmare to me. Anybody out there who had had clients in similar situations before? | |
| May 14, 2008 | |
| First of all, churches are automatically considered exempt. As far as California goes, however, I do not know. | |
| 14 May 2008 | |
| In California, an entity granted exemption by the IRS still has to file for and be approved for an exempt status by California before it will be considered exempt -- until then it remains a taxable entity.
After a lengthy phone conversation with the FTB (California). They told us to go ahead and file form 100 like all other taxable corporations for 2005-2007, and submit an application for exempt status together with those back returns. They will apply the exempt status to those years, but the church will still be liable for the minimum tax of $800 per year + penalites + interest (this is what I don't understand -- the minimum fee of $800 normally does not apply to exempt organizations). The issue here is that the church had sold some real estate in 2006, so their tax would have been a lot higher than the minimum of $800 for 2006 if the non-exempt status does not apply. But then if exempt status does apply, they are not supposed to be subject to the $800 minimum tax. What the FTB agent is suggesting is not making sense to me...I am no expert in non-profits, but I think I know enough to know that this is not making sense. | |
TheTinCook (talk|edits) said: | 14 May 2008 |
| I'm not 100% sure, but I think this guy is yanking your chain. One thing I do know is that CA law changed in Sep 07, effective 1 Jan 08 for 501(c)(3)'s. They no longer have to apply for a seperate state exemption. You only have to notify the FTB of the IRS determination.
You'd file FTB Form 3500A with a copy of the IRS determination letter, and the exemption would automatically be retroactive to the date in the determination letter. | |
| May 14, 2008 | |
| I don't think churches receive a determination letter since they are automatically considered exempt. | |
| 14 May 2008 | |
| Churches do not have to apply for recognition of their exempt status, but many do anyway. They would receive a determination letter. There are many small churches that adhere to religious beliefs that are not considered mainstream, and they want to apply to the IRS and receive a determination letter to be sure they are considered a church and therefore exempt in the eyes of the IRS. I'm not sure what the state sales tax exemption rules require or for that matter the postal bulk mail rates available to nonprofits, and property tax exemptions, but to be eligible for those may require a determination letter. | |
