Tax Solutions for Nonprofit Organizations

AB Tax Law provides legal and tax services to Nonprofit Organizations from formation to termination.

Compare Nonprofit with Tax-Exempt

A nonprofit is an organization that is incorporated with the California Secretary of State’s office.  The organization’s Articles of Incorporation are filed with the Secretary of State and reflect the organization’s nonprofit purpose.  As a nonprofit, the organization is not permitted to use the proceeds generated from the organization’s activities for personal use, but instead must use the proceeds for nonprofit purposes.  This is in contrast to a for-profit incorporated business that issues general stock and is permitted to use the business proceeds for the personal benefit of its stockholders.

A tax-exempt organization may be a corporation, unincorporated association, or a trust.  To be considered tax-exempt by the State of California the the organization must submit to the Franchise Tax Board Form 3500 or 3500A to request tax exempt status.  If tax-exempt status is granted, the organization is not required to pay taxes on the money the organization receives related to its exempt activities.

With few exceptions, a tax-exempt organization is a nonprofit organization.

Forming a Tax-Exempt Organization

The most common method of forming a tax-exempt organization is to first incorporate the organization with the California Secretary of State as either a Nonprofit Public Benefit Corporation, Nonprofit Mutual Benefit Corporation, or as a Nonprofit Religious Corporations.  The organization then submits an application to the Internal Revenue Service requesting exemption from Federal income tax.  The organization also must complete and submit to the Franchise Tax Board an Exemption Application or a Submission of Exemption Request.

Tax Issues After Formation of a Tax-Exempt Organization

Tax-exempt status does not excuse an organization from certain duties with regard to taxes.  Most tax-exempt organizations will have a duty to complete annual returns with the IRS and Franchise Tax Board.   Form 990 or 990-EZ is most offered prepared and filed with the IRS.  Most California tax-exempt organizations will be required to file an Annual Information Return and a Business Income Tax Return.  Failure to comply with these or other requirements could result in a revocation of an organization tax-exempt status.

Additionally, tax-exempt organizations are subject to audit.