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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-18</ns0:ActionDate>
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<ns0:ActionText>AMENDED_ASSEMBLY</ns0:ActionText>
<ns0:ActionDate>2026-03-27</ns0:ActionDate>
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<ns0:SessionYear>2025</ns0:SessionYear>
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<ns0:AuthorText authorType="LEAD_AUTHOR">Introduced by Assembly Member Bauer-Kahan</ns0:AuthorText>
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<ns0:Name>Bauer-Kahan</ns0:Name>
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<ns0:Title> An act to amend Section 23701 of the Revenue and Taxation Code, relating to taxation, to take effect immediately, tax levy.</ns0:Title>
<ns0:RelatingClause>taxation, to take effect immediately, tax levy</ns0:RelatingClause>
<ns0:GeneralSubject>
<ns0:Subject>Corporation Tax Law: tax-exempt organizations: revocation of tax-exempt status.</ns0:Subject>
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<html:p>Existing law, the Corporation Tax Law, exempts organizations that are organized and operated for nonprofit purposes, as specified, from taxes imposed by that law if the Franchise Tax Board issues a determination exempting the organization from tax, except as provided. To receive a determination of exemption from the board, existing law requires the organization to either submit an application for exemption or to submit documentation of exemption from federal income tax law, as provided. For organizations that submit documentation of their federal exemption, existing law requires the board to suspend or revoke, as applicable, an organization’s state exemption upon notification that the organization’s federal exemption is suspended or revoked.</html:p>
<html:p>This bill would instead authorize the board, in its discretion, to retain the organization’s tax-exempt status for state income tax purposes if it determines this suspension or revocation occurred for
reasons other than fraud, intentional misrepresentation, misuse or diversion of organizational funds, failure to file necessary returns or reports, or other significant breaches of organizational reporting or governance requirements.</html:p>
<html:p>This bill would take effect immediately as a tax levy.</html:p>
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<ns0:VoteRequired>MAJORITY</ns0:VoteRequired>
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<ns0:Preamble>The people of the State of California do enact as follows:</ns0:Preamble>
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<ns0:Num>SECTION 1.</ns0:Num>
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Section 23701 of the
<ns0:DocName>Revenue and Taxation Code</ns0:DocName>
is amended to read:
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<ns0:Num>23701.</ns0:Num>
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(a)
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Organizations which are organized and operated for nonprofit purposes within the provisions of a specific section of this article, or are defined in Section 23701h (relating to certain title-holding companies) or Section 23701x (relating to certain title-holding companies), are exempt from taxes imposed under this part, except as provided in this article or in Article 2 (commencing with Section 23731) of this chapter if both of the following occur:
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(1)
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An application for exemption is submitted in the form prescribed by the Franchise Tax Board.
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(2)
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The Franchise Tax Board issues a determination exempting the organization
from tax.
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(b)
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(1)
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Notwithstanding subdivision (a), an organization organized and operated for nonprofit purposes in accordance with Section 23701a, 23701d, 23701e, 23701f, 23701g, or 23701w shall be exempt from taxes imposed by this part, except as provided in this article or in Article 2 (commencing with Section 23731), upon its submission to the Franchise Tax Board of one of the following:
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<html:p>
(A)
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A copy of the determination letter or ruling issued by the Internal Revenue Service recognizing the organization’s exemption from federal income tax under Section 501(a) of the Internal Revenue Code, as an organization described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code.
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(B)
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A copy of the group exemption letter issued by the Internal Revenue Service that states that both the central organization and all of its subordinates are tax-exempt under Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code and substantiation that the organization is included in the federal group exemption letter as a subordinate organization.
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(2)
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(A)
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Upon receipt of the documents required in subparagraph (A) or (B) of paragraph (1), the Franchise Tax Board shall issue an acknowledgment that the organization is exempt from taxes imposed by this part, except as provided in this article or in Article 2 (commencing with Section 23731). The acknowledgment may refer to the organization’s recognition by the Internal Revenue Service of exemption from federal income tax as an
organization described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code and, if applicable, the organization’s subordinate organization status under a federal group exemption letter. The effective date of an organization’s exemption from state income tax pursuant to this subdivision shall be no later than the effective date of the organization’s recognition of exemption from federal income tax as an organization described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code, or its status as a subordinate organization under a federal group exemption letter, as applicable.
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(B)
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Notwithstanding any other provision of this subdivision, an organization formed as a California corporation or qualified to do business in California that, as of the date of receipt by
the Franchise Tax Board of the documents required under paragraph (1), is listed by the Secretary of State or Franchise Tax Board as “suspended” or “forfeited” may not establish its exemption under paragraph (1) and shall not receive an acknowledgment referred to under subparagraph (A) from the Franchise Tax Board until that corporation is listed by the Secretary of State and the Franchise Tax Board as an “active” corporation.
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(3)
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(A)
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If, for federal income tax purposes, an organization’s exemption from tax as an organization described in Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code is suspended or revoked, the organization shall notify the Franchise Tax Board of the suspension
or revocation, in the form and manner prescribed by the Franchise Tax Board. Except as provided in subparagraph (B), upon notification the board shall suspend or revoke, whichever is applicable, for state income tax purposes, the organization’s exemption under paragraph (1).
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<html:p>
(B)
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Upon notification of suspension or revocation, the board may, in its discretion, maintain the exemption provided under paragraph (1) for state income tax purposes, provided that the suspension or revocation is not related to any of the following:
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<html:p>
(i)
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Fraud or intentional misrepresentation.
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<html:p>
(ii)
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Misuse or diversion of organizational funds.
</html:p>
<html:p>
(iii)
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Failure to file required returns or reports.
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<html:p>
(iv)
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Other significant breaches of organizational reporting or governance requirements.
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<html:p>
(C)
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The Franchise Tax Board may prescribe any regulations or procedures necessary to
implement the evaluation process described in subparagraph (B), including, but not limited to, the timeline for the 501(c)(3) organization to comply.
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<html:p>
(4)
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This subdivision shall not be construed to prevent the Franchise Tax Board from revoking the exemption of an organization that is not organized or operated in accordance with California law, this chapter, or Section 501(c)(3), (c)(4), (c)(5), (c)(6), (c)(7), or (c)(19) of the Internal Revenue Code.
</html:p>
<html:p>
(5)
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If the Franchise Tax Board suspends or revokes the exemption of an organization pursuant to paragraph (3) or (4), the exemption shall be reinstated only upon compliance with this section, regardless of whether the organization can establish exemption under paragraph (1).
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(c)
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This section shall not prevent a determination from having retroactive effect and does not prevent the issuance of a determination with respect
to a domestic organization which was in existence prior to January 1, 1970, and exempt under prior law without the submission of a formal application or payment of a filing fee. For the purpose of this section, the term “domestic” means created or organized under the laws of this state.
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(d)
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The Franchise Tax Board may prescribe rules and regulations to implement the provisions of this article.
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(e)
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The amendments made to this section by
Section 2 of Chapter 59 of the Statutes of 2020 shall become operative on January 1, 2021.
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<ns0:Num>SEC. 2.</ns0:Num>
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<html:p>This act provides for a tax levy within the meaning of Article IV of the California Constitution and shall go into immediate effect.</html:p>
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