California nonprofit organizations — including 501(c)(3) charities, 501(c)(6) trade associations, and other exempt entities — have tax filing obligations that differ significantly from those of for-profit businesses. Finding a tax professional who understands both federal and California nonprofit tax law is important for maintaining your organization’s exempt status.
Federal and California Exempt Status Are Separate
A common misconception is that receiving federal 501(c) recognition automatically exempts an organization from California taxes. It does not. California has its own exemption process administered by the California Franchise Tax Board. Organizations must apply separately for California exempt status and may be required to file California Form 199 (Exempt Organization Annual Information Return) or Form 199N (e-Postcard) each year.
What Nonprofits Must File
- IRS Form 990, 990-EZ, or 990-N — Annual informational return required by the IRS; the form used depends on the organization’s gross receipts and total assets
- California Form 199 or 199N — Required by the FTB; filing thresholds differ from the federal forms
- California Form RRF-1 — Required by the California Attorney General’s Registry of Charitable Trusts for most charities that solicit contributions in California
Unrelated Business Income
If your nonprofit earns income from activities unrelated to its exempt purpose, that income may be subject to Unrelated Business Income Tax (UBIT) at both the federal and state level. A professional with nonprofit experience can help determine whether specific revenue streams trigger UBIT and how to document and report them correctly.
What to Look for in a Nonprofit Tax Professional
- Experience preparing Form 990 — not all CPAs are familiar with its requirements
- Knowledge of California’s separate exemption rules and FTB filing requirements
- Familiarity with the Attorney General’s charitable registration requirements
- No conflicts of interest with your board or major donors
Where to Find Help
The California Society of CPAs (calcpa.org) has a referral service that can help you identify CPAs with nonprofit experience. You can verify any CPA’s California license status at dca.ca.gov/cba. Some Enrolled Agents also specialize in nonprofit and exempt organization matters.
Official sources referenced: IRS.gov, California Board of Accountancy (dca.ca.gov/cba), California Franchise Tax Board (ftb.ca.gov). Not reviewed by a credentialed tax professional.