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<ns0:ActionText>INTRODUCED</ns0:ActionText>
<ns0:ActionDate>2026-02-18</ns0:ActionDate>
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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. </ns0:Title>
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<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, in the case of a revocation of an organization’s federal tax-exempt status, would instead
require the board to provide written notice of its intent to revoke upon notification that the organization’s federal exemption is revoked. The bill would provide an organization that has received this notice a 90-day period to cure by submitting either evidence that the federal revocation was in error or reinstated or by submitting an application for exemption independent of federal exemption. The bill would provide that an organization that makes a submission within the 90-day period to cure maintains their state exemption until a final determination by the board. If the organization does not make a submission or the board denies the submission, the bill would require the board to revoke the organization’s state exemption.</html:p>
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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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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.
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<html:p>
(A)
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Upon notification of suspension, the board shall suspend, for state income tax purposes, the organization’s exemption under paragraph (1).
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<html:p>
(B)
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(i)
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Upon notification of revocation, the board shall notify the organization, in writing, of its intent to revoke, for state income tax purposes, the organization’s exemption under paragraph (1). Upon receipt of the notice of intent to revoke, the organization shall have 90 days to cure by submitting to the board either of the following:
</html:p>
<html:p>
(I)
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Evidence that the federal revocation was in error or has been retroactively reinstated.
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<html:p>
(II)
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An application for exemption, as described in subdivision (a), to demonstrate eligibility for state exemption status independent of federal exemption status.
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<html:p>
(ii)
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If the organization takes action under clause (i), the organization’s exemption for state income tax purposes shall remain active and in good standing throughout the duration of the board’s review process until a final determination by the board on the material submitted pursuant to clause (i).
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<html:p>
(iii)
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If the organization fails to take action under clause (i) within the 90-day period to cure, or if the board issues a final denial of the material submitted pursuant to clause (i), the board shall revoke the organization’s exemption. The revocation shall be effective as of the date of the federal revocation except to the extent that the board determines the organization met state requirements for a portion of that period.
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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.
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<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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<html:p>
(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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