ANNUAL FILING REQUIREMENTS FOR CALIFORNIA’S SMALL TAX EXEMPT ORGANIZATIONS
If you are a tax exempt organization, you are well aware that you are exempted from paying any income tax. But this leniency is not applicable for filing returns. It is mandatory for all small tax exempt organizations to file their annual returns related to their income and expenses with the IRS.
Generally, there are two types of returns a small tax exempt organization may be required to file:
A) informational returns; and
B) unrelated business taxable income returns.
Small tax exempt organizations having gross receipts under a particular threshold will need to file an annual electronic notice. However, certain exempt organizations like church-affiliated organizations and churches aren’t required to file annual returns.
Definition Of Tax Exempt Status
Tax exempt status is the federal income tax exemption as per the IRC (Internal Revenue Code) and even exemption from certain taxes of states. If a nonprofit firm becomes tax exempt, it won’t need to pay corporate income tax on various incomes which are generated from activities related to the purpose for which the group was created as well as organized.
Applying For Tax Exempt Status
If an organization is applying for the tax exempt status, it need to submit the below two applications -
► If the organization doesn’t have an EIN (Employer Identification Number), they need to apply for one.
► For getting recognized as tax exempt as per Section 501(a), various organizations need to file the recognition of exemption application with the IRS. It is common for most organizations to apply for an exemption under the Section 501(a) (besides section 501(c)(4) or 501(c)(3)) using Form 1023 or 1024.
There are checklist and instructions in Form 1023/1024 to assist you in providing the required information for processing the application.
A) Information Return Filing Requirements For California Small Tax Exempt Organizations
There are two factors you need to keep in mind -
Requirement With Federal
There are certain criteria IRS emphasis with regard to filing tax returns and these are based on the size of the receipts or income of a tax exempt organization.
■ A tax exempt organization whose gross receipts is less than or equal to $50,000 per year have to file 990-N. The 990-N form is filed electronically (there is no paper filing) and you can use the services of experienced tax experts like TaxBandits.
Requirement For California State
Here the kind of form that needs to be filed with the Franchise Tax Board is based on the receipts or income of the tax exempt organization. But there are only two kinds of forms that need to be filed with the FTB which are stated below-
■ FTB Form 199N which is filed by a tax exempt organization whose gross receipts is less than $50,000. These small tax exempt organizations must file the Form 199N returns from the website - www.ftb.ca.gov.
Due Date to file Information Returns For Small Tax Exempt Organizations
Small Tax Exempt organizations are generally to be filed their 990-N information returns by the 15th day of the fifth month after the close of the tax year for FTB and the IRS.
B) Unrelated Business Taxable Income Tax Returns For Small Tax Exempt Organizations
If you are a small tax exempt organization, you only need to File Form 990-N with the IRS or you must file Form 199N with the FTB. However, it doesn’t mean that you can avoid filing your income tax return. You still need to file the income tax return if your unrelated business and taxable income are more or equal to $1,000.
Now unrelated business income is the taxable income which isn’t related to the tax exempt purpose of the organization or the performance of the exempt activities. For example, back store revenues, revenues from the sales of non-assets, revenue from summer camps or garage sales, etc are some of the examples of unrelated business incomes.
If an organization earns an unrelated taxable business income of equal to or more than $1,000, then it needs to file the following returns by the 15th day of the fifth month after the end of the tax year
■ FTB 109 for California State
■ IRS Form 990T for Federal (IRS)
Penalties For Not Filing Tax Return For Small Tax Exempt Organizations
There is no penalty for not filing form 990-N. If an organization fails or doesn’t file its Form 990-N for three consecutive years, then IRS will automatically revoke the tax exempt status of the organization. Without the tax exempt status, the organization will have to pay income tax.
