California ~ Corporate Income Tax: Exempt Organization Processing, Billing, Suspension, and Revivor Addressed

The processing of an organization’s application for tax-exempt status for California franchise and income tax purposes, as well as billing, suspension, and revivor for exempt organizations, is addressed in a Franchise Tax Board (FTB) technical advisory memorandum.

The FTB may grant a tax exemption retroactively into years in which an organization has no financial records available and may also accept a signed statement of a duly elected officer or board member attesting to the fact that the entity did not have gross receipts normally exceeding $25,000 for certain years. The FTB has the authority to exercise judgment to determine what supporting documentation is sufficient. However the FTB may not revive a corporation from suspension before the organization’s required tax returns or exempt organization returns are filed for all years the corporation was in existence or qualified in California. If the organization does not have financial records available it should estimate the return figures from whatever information is available.

The FTB may consider a request for exemption and a revivor application simultaneously to determine the correct amount of tax, penalty, interest, and fees due for the suspension period that must be paid to revive the corporation. In addition, the FTB may revive the corporation without receiving full payment of the amount due, if the FTB determines that revivor will improve the prospects for collection of the full amount due.

An organization that has filed corporation franchise and income tax returns for prior tax years and subsequently is granted exemption status retroactively to cover those tax years is not required to file Form 199s for those prior tax years as the information reported on the Form 100s should provide sufficient information. However, the FTB may request that a Form 199 be filed if there is a business need. Any taxes paid with the Form 100s would be credited against the taxpayer’s account, so unless the Form 199 fee is more than the amount previously paid each year, there would be no remaining amount due.

When a corporation has not established that it qualifies for exemption and owes only the minimum franchise tax (MFT) for the prior tax years, the FTB may issue either a return information notice (RIN) or a notice of tax due (NTD), as the MFT is due and payable by operation of law. However, if there is tax due in excess of the MFT, the amount would have to be estimated as a deficiency and the FTB must issue a notice of proposed assessment (NPA) in order to collect the amount due. This position is different than that stated in Technical Advice Memorandum 2004-53, and thus TAM 2004-53 is withdrawn and superseded.

Technical Advice Memorandum 2011-4, California Franchise Tax Board, May 31, 2011


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