text:
(a) For purposes of this section, “charitable corporation” means a corporation defined in Section 12582.1 of the Government Code that is required to comply with the filing requirements set forth in Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code.

(b) (1) The exemption granted to a charitable corporation under the provisions of Article 1 (commencing with Section 23701) shall be revoked by the Franchise Tax Board in accordance with this section if the charitable corporation fails to file with the Attorney General any registration or periodic report required by Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code.

(2) A revocation shall occur under this section only after the Attorney General has first notified the Franchise Tax Board in writing that a charitable corporation has failed to file any registration or periodic report on or before the due date thereof, and the Franchise Tax Board has mailed a notice to the charitable corporation stating that the Franchise Tax Board intends to revoke the exemption if the charitable corporation does not file with the Attorney General all past due and currently due documents required by Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code.

(3) After receipt of all required documents from a charitable corporation, the Attorney General shall provide prompt notification to the Franchise Tax Board and the charitable corporation that the charitable corporation has filed all past due and currently due documents required by Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code.

(c) (1) If the Franchise Tax Board does not obtain notification from the Attorney General pursuant to paragraph (3) of subdivision (b) that the charitable corporation has complied with the filing requirements described in subdivision (b) by the last day of the applicable period, the Franchise Tax Board shall revoke the exemption granted to the charitable corporation pursuant to Section 23777 on the first day after the applicable period.

(2) For purposes of this subdivision, the applicable period means:

(A) For notifications of noncompliance from the Attorney General that are received by the Franchise Tax Board before the effective date of the act adding this section, the applicable period shall be 120 days after the effective date of the act adding this section.

(B) For notifications of noncompliance from the Attorney General that are received by the Franchise Tax Board on or after the effective date of the act adding this section, the applicable period shall be 120 days after the Franchise Tax Board mails notification of the intent to revoke the exemption granted to the charitable corporation.

(d) For a charitable corporation whose exemption has been disallowed pursuant to Section 23703, as amended by Section 94 of Chapter 862 of the Statutes of 2000, prior to the effective date of the act adding this section, the Franchise Tax Board may reestablish that charitable corporation’s exempt status under Section 23778, after receipt of notification from the Attorney General pursuant to paragraph (3) of subdivision (b) that the filing requirements set forth in Article 7 (commencing with Section 12580) of Chapter 6 of Part 2 of Division 3 of Title 2 of the Government Code have been fulfilled. For purposes of reestablishing the charitable corporation’s exempt status under Section 23778, disallowance under Section 23703, as amended by Section 94 of Chapter 862 of the Statutes of 2000, shall be considered a revocation of exemption.

(e) This section shall apply with respect to notifications of noncompliance received from the Attorney General before, on, or after the effective date of the act adding this section.

history: (History: Repealed and added by Stats. 2012, Ch. 710, Sec. 2. (SB 1341) Effective January 1, 2013.)

article: 1. Exemptions From This Part


kind: section

code: RTC

text:
Section 501(p) of the Internal Revenue Code, relating to suspension of tax-exempt status of terrorist organizations, shall apply, except as otherwise provided:

(a) References to Section 501(a) of the Internal Revenue Code shall be modified to refer to Section 23701.

(b) Section 501(p)(4) of the Internal Revenue Code is modified by substituting the phrase “under Part 10 (commencing with Section 17001) and this part” for the phrase “under any provision of this title, including Sections 170, 545(b)(2), 556(b)(2), 642(c), 2055, 2106(a)(2), and 2522” contained therein.

(c) This section shall apply only during the period described in Section 501(p)(3) of the Internal Revenue Code that the federal tax exemption of the organization described in Section 501(p)(2) of the Internal Revenue Code is suspended for federal income tax purposes under Section 501(p)(1) of the Internal Revenue Code.

(d) Section 501(p)(5) of the Internal Revenue Code shall not apply and in lieu thereof, notwithstanding any other provision of law, no organization or other person may challenge a suspension under this section, a designation or identification described in Section 501(p)(2) of the Internal Revenue Code, the period of suspension described in Section 501(p)(3) of the Internal Revenue Code, or a denial of a deduction under Section 501(p)(4) of the Internal Revenue Code as modified in subdivision (b) in any administrative or judicial proceeding relating to the California tax liability of the organization or other person.

(e) (1) Credit or refund (with interest) with respect to an overpayment shall be made if all of the following apply with respect to that overpayment:

(A) The tax exemption of any organization described in Section 501(p)(2) of the Internal Revenue Code is suspended under this section.

(B) Each designation and identification described in Section 501(p)(2) of the Internal Revenue Code which has been made with respect to that organization is determined to be erroneous under Section 501(p)(6) of the Internal Revenue Code for federal income tax purposes.

(C) The erroneous designations and identifications result in an overpayment of income tax for any taxable year by that organization.

(2) If the credit or refund of any overpayment of tax described in subparagraph (C) of paragraph (1) is prevented at any time by the operation of any law or rule of law (including res judicata), the credit or refund may nevertheless be allowed or made if the claim therefor is filed before the close of the one-year period beginning on the date of the last determination described in subparagraph (B) of paragraph (1).

(f) This section shall apply to designations made before, on, or after November 11, 2003.

history: (History: Amended by Stats. 2005, Ch. 691, Sec. 55. Effective October 7, 2005.)

division: 2. OTHER TAXES

part: 11. CORPORATION TAX LAW

chapter: 4. Exempt Corporations

article: 1. Exemptions From This Part

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 4. Exempt Corporations > 1. Exemptions From This Part


text:
Section 501(q) of the Internal Revenue Code, relating to special rules for credit counseling organizations, shall apply, except as otherwise provided.

(a) The phrase “Section 23701” shall be substituted for “subsection (a)” in Section 501(q)(1) of the Internal Revenue Code.

(b) The phrase “described in Section 23701d or Section 23701f” shall be substituted for “described in paragraph (3) or (4) of subsection (c)” in Section 501(q)(1) of the Internal Revenue Code.

(c) The phrase “described in Section 23701d and exempt from tax under Section 23701” shall be substituted for “described in subsection (c)(3) and exempt from tax under subsection (a)” in each place that it appears in Section 501(q)(1)(E) of the Internal Revenue Code.

(d) The phrase “described in Section 23701d shall not be exempt from tax under Section 23701” shall be substituted for “described in paragraph (3) of subsection (c) shall not be exempt from tax under subsection (a)” in Section 501(q)(2)(A) of the Internal Revenue Code.

(e) The phrase “described in Section 23701d and exempt from tax under Section 23701 on January 1, 2009,” shall be substituted for “described in paragraph (3) of subsection (c) and exempt from tax under subsection (a) on the date of the enactment of this subsection” in Section 501(q)(2)(B)(ii) of the Internal Revenue Code.

(f) The phrase “January 1, 2010,” shall be substituted for “the date of the enactment of this subsection” in Section 501(q)(2)(B)(ii)(I) of the Internal Revenue Code.

(g) The phrase “described in Section 23701f shall not be exempt from tax under Section 23701” shall be substituted for “described in paragraph (4) of subsection (c) shall not be exempt from tax under subsection (a)” in Section 501(q)(3) of the Internal Revenue Code.

history: (History: Added by Stats. 2010, Ch. 14, Sec. 60. (SB 401) Effective January 1, 2011.)

article: 1. Exemptions From This Part


text:
Section 501(e) of the Internal Revenue Code, relating to cooperative hospital service organizations, shall apply, except as otherwise provided.

(a) References to Section 501(c)(3) of the Internal Revenue Code, relating to charitable organizations, shall be modified to refer to Section 23701d.

(b) References to Section 501(a) of the Internal Revenue Code, relating to exemptions, shall be modified to refer to Section 23701.

(c) The services which may be provided under Section 501(e)(1) of the Internal Revenue Code shall include laundry services.

(d) Section 501(e)(1)(B)(iii) of the Internal Revenue Code is modified by substituting the phrase “owned and operated by the United States, the State, or a county or political subdivision thereof, or an agency or instrumentality of any of the foregoing” for the phrase “owned and operated by the United States, a State, the District of Columbia, or a possession of the United States, or a political subdivision or an agency or instrumentality of any of the foregoing.”

(e) References to Section 170(b)(1)(A)(iii) of the Internal Revenue Code, relating to the deductibility of contributions to hospitals, shall be modified to refer to subdivision (e) of Section 23736.

history: (History: Repealed and added by Stats. 2000, Ch. 252, Sec. 24. Effective January 1, 2001.)

article: 1. Exemptions From This Part


text: Section 501(o) of the Internal Revenue Code, relating to treatment of hospitals participating in provider-sponsored organizations, shall apply, except that the reference to Section 501(c)(3) of the Internal Revenue Code, relating to charitable organizations, shall be modified to refer to Section 23701d.

history: (History: Repealed and added by Stats. 2000, Ch. 252, Sec. 26. Effective January 1, 2001.)

article: 1. Exemptions From This Part


text:
Section 501(k) of the Internal Revenue Code, relating to the treatment of certain organizations providing care of children, shall apply, except as otherwise provided.

(a) The reference to Section 501(c)(3) of the Internal Revenue Code, relating to charitable organizations, shall be modified to refer to Section 23701d.

(b) The reference to Section 2522(a)(2) of the Internal Revenue Code, relating to the computation of taxable gifts or Internal Revenue Code Section 2055, relating to transfers for public, charitable, and religious uses, shall not apply.

history: (History: Amended by Stats. 2007, Ch. 130, Sec. 227. Effective January 1, 2008.)

article: 1. Exemptions From This Part


text:
Section 501(h) of the Internal Revenue Code, relating to expenditures by public charities engaged in activities to influence legislation, shall apply, except as otherwise provided.

(a) The reference to Section 501(a) of the Internal Revenue Code, relating to exemption from taxation, shall be modified to refer to Section 23701.

(b) The reference to Section 501(c)(3) of the Internal Revenue Code, relating to charitable organizations, shall be modified to refer to Section 23701d.

history: (History: Repealed and added by Stats. 2000, Ch. 252, Sec. 30. Effective January 1, 2001.)

article: 1. Exemptions From This Part


text:
Section 504 of the Internal Revenue Code, relating to status after organization ceases to qualify for exemption under Section 501(c)(3) because of substantial lobbying or because of political activities, shall apply, except as otherwise provided.

(a) The reference to Section 501(a) of the Internal Revenue Code, relating to exemption from taxation, shall be modified to refer to Section 23701.

(b) The reference to Section 501a(c)(3) of the Internal Revenue Code, relating to charitable organizations, shall be modified to refer to Section 23701d.

(c) The reference to Section 501(c)(4) of the Internal Revenue Code, relating to civic leagues, social welfare organizations, and local associations of employees, shall be modified to refer to Section 23701f.

history: (History: Repealed and added by Stats. 2000, Ch. 252, Sec. 32. Effective January 1, 2001.)

article: 1. Exemptions From This Part


text:
(a) (1) An organization described in Section 23701i (voluntary employee’s beneficiary associations) or 23701q (qualified group legal service plans) which is part of a plan of an employer shall not be exempt from tax under Section 23701, unless that plan meets the requirements of Section 505(b) of the Internal Revenue Code.

(2) Paragraph (1) shall not apply to any organization described in Section 505(a)(2) of the Internal Revenue Code.

(b) A copy of any notice filed with the Secretary of the Treasury, pursuant to Section 505(c) of the Internal Revenue Code, relating to application for tax-exempt status, shall be filed at the same time and in the same manner with the Franchise Tax Board.

history: (History: Amended by Stats. 2005, Ch. 691, Sec. 56. Effective October 7, 2005.)

article: 1. Exemptions From This Part


text: Any exemption from the bank and corporation franchise tax under Chapter 2 (commencing with Section 23101) or the corporation income tax under Chapter 3 (commencing with Section 23501), granted by any California statute on or after January 1, 1985, for an organization which is an instrumentality of this state, shall be provided for in this part of the code.

history: (History: Added by Stats. 1985, Ch. 1461, Sec. 87. Effective October 1, 1985.)

article: 1. Exemptions From This Part


text:
(a) Except as provided in subdivision (b), the status of any organization as a private foundation shall be terminated only if—

(1) Such organization notifies the Franchise Tax Board (at such time and in such manner as the Franchise Tax Board may by regulations prescribe) of its intent to accomplish such termination, or

(2) Such organization has been terminated by the Attorney General of this state or by action taken pursuant to Section 507 of the Internal Revenue Code.

(b) (1) The status as a private foundation of any organization shall be terminated if—

(A) Such organization distributes all of its net assets to one or more organizations described below (other than clauses (vii), (viii), (ix) or (x)) each of which has been in existence and so described for a continuous period of at least 60 calendar months immediately preceding such distribution and exempt from tax under Section 23701d of the Revenue and Taxation Code or Section 501(c)(3) of the Internal Revenue Code during the last 60 months, or—

(i) A church or a convention or association of churches,

(ii) An educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on,

(iii) An organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or medical research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital, and during the calendar year in which the contribution is made such organization is committed to spend such contributions for such research before January 1 of the fifth calendar year which begins after the date such contribution is made.

(iv) An organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under Section 23701d) from the United States or any state or political subdivision thereof or from direct or indirect contributions from the general public, and which is organized and operated exclusively to receive, hold, invest, and administer property and to make expenditures to or for the benefit of a college or university which is an organization referred to in clause (ii) of this subparagraph and which is an agency or instrumentality of a state or political subdivision thereof, or which is owned or operated by a state or political subdivision thereof or by an agency or instrumentality of one or more states or political subdivisions,

(v) A governmental unit referred to in Section 170(c)(1) of the Internal Revenue Code,

(vi) An organization referred to in Section 170(c)(2) of the Internal Revenue Code which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under Section 23701d) from a governmental unit referred to in Section 170(c)(1) of the Internal Revenue Code or from direct or indirect contributions from the general public,

(vii) A private operating foundation (as defined in Section 4942(j) (3) of the Internal Revenue Code),

(viii) Any other private foundation (as defined in Section 509(a) of the Internal Revenue Code) which, not later than the 15th day of the third month after the close of the foundation’s taxable year in which contributions are received, makes qualifying distributions (as defined in Section 4942(g) of the Internal Revenue Code, as amended by P.L. 94-455, without regard to paragraph (3) thereof), which are treated, after the application of Section 4942(g)(3) of the Internal Revenue Code as distributions out of corpus (in accordance with Section 4942(h) of the Internal Revenue Code) in an amount equal to 100 percent of such contributions, and with respect to which the taxpayer maintains adequate records or other sufficient evidence from the foundation showing that the foundation made such qualifying distributions,

(ix) A private foundation all of the contributions to which are pooled in a common fund and which would be described in paragraph (3) of Section 509(a) of the Internal Revenue Code but for the right of any substantial contributor (hereafter in this clause called “donor”) or his spouse to designate annually the recipients, from among organizations described in paragraph (1) of Section 509(a) of the Internal Revenue Code, of the income attributable to the donor’s contribution to the fund and to direct (by deed or by will) the payment, to an organization described in such paragraph (1), of the corpus in the common fund shall apply only if all the income of the common fund is required to be (and is) distributed to one or more organizations described in such paragraph (1) not later than the 15th day of the third month after the close of the taxable year in which the income is realized by the fund and only if all of the corpus attributable to any donor’s contribution to the fund is required to be (and is) distributed to one or more of such organizations not later than one year after his death or after the death of his surviving spouse if she has the right to designate the recipients of such corpus, and

(x) An organization described in paragraph (2) or (3) of Section 509(a) of the Internal Revenue Code.

(B) Such organization meets the requirements of Section 507(b)(1)(B) or paragraph (1), (2), or (3) of Section 509(a) of the Internal Revenue Code, whichever applies, and furnishes copies of its federal notice of termination of its private foundation status to the Franchise Tax Board.

(2) For purposes of this part, in the case of a transfer of assets of any private foundation to another private foundation pursuant to any liquidation, merger, redemption, recapitalization, or other adjustment, organization, or reorganization, the transferee foundation shall not be treated as a newly created organization.

history: (History: Amended by Stats. 1983, Ch. 488, Sec. 94. Effective July 28, 1983.)

article: 1. Exemptions From This Part


text:
(a) For the purposes of this part, unless otherwise indicated in context, the term “an organization exempt from tax” shall mean an organization which has satisfied the provisions of Section 23701.

(b) Except as provided in subdivision (c), any organization (including an organization in existence on December 31, 1970) which is described in Section 23701d and which does not notify the Franchise Tax Board at such time and such manner as the Franchise Tax Board may prescribe, that it is not a private foundation shall be presumed to be a private foundation. The time prescribed for giving notice under this subdivision shall not expire before the 90th day after the day on which the regulations first prescribed under this subdivision become final.

(c) Subdivision (b) shall not apply to—

(1) Churches, their integrated auxiliaries, and conventions or associations of churches, or

(2) Any organization which is not a private foundation (as defined in Section 23709).

(3) The Franchise Tax Board may by regulations exempt (to the extent and subject to such conditions as may be prescribed in such regulations) from the provisions of subdivision (b)—

(A) Educational organizations which normally maintain a regular faculty and curriculum and normally have a regularly enrolled body of pupils or students in attendance at the place where their educational activities are regularly carried on; and

(B) Any other class of organizations with respect to which the Franchise Tax Board determines that full compliance with the provisions of subdivision (b) is not necessary to the efficient administration of the provisions of this title relating to private foundations.

(d) (1) No gift or bequest made to an organization upon which the tax provided by Section 507(c) of the Internal Revenue Code has been imposed shall be allowed as a deduction under Section 24357, if such gift or bequest is made—

(A) By any person after notification of termination is made under Section 507(a) of the Internal Revenue Code, or

(B) By a substantial contributor (as defined in Section 507(d)(2) of the Internal Revenue Code) in his taxable year which includes the first day on which action is taken by such organization which culminates in the imposition of tax under Section 507(c) of the Internal Revenue Code and any subsequent taxable year.

(2) No gift or bequest made to an organization shall be allowed as a deduction under Section 24357, if such gift or bequest is made—

(A) To a private foundation or trust described in Section 4947 of the Internal Revenue Code in a taxable year for which it fails to meet the requirements of subdivision (e) of this section (determined without regard to subparagraphs (B) and (C) of paragraph (2) of subdivision (e) of this section), or

(B) To any organization that has not established its exemption under Section 23701d or Section 501(c)(3) of the Internal Revenue Code for the period concerned.

(3) Paragraph (1) shall not apply if the entire amount of the unpaid portion of the tax imposed under Section 507(c) of the Internal Revenue Code is abated.

(e) (1) A private foundation shall not be exempt from taxation under Section 23701d unless its governing instrument includes provisions the effects of which are—

(A) To require its income for each taxable year to be distributed at such time and in such manner as not to subject the foundation to tax under Section 4942 of the Internal Revenue Code, as amended by P.L. 94-455, and

(B) To prohibit the foundation from engaging in any act of self-dealing (as defined in Section 4941 of the Internal Revenue Code) from retaining any excess business holdings (as defined in Section 4943 of the Internal Revenue Code), from making any investments in such manner as to subject the foundation to tax under Section 4944 of the Internal Revenue Code.

(2) In the case of any organization organized before January 1, 1970, paragraph (1) shall not apply—

(A) To any taxable year beginning before January 1, 1972,

(B) To any period after December 31, 1971, during the pendency of any judicial proceeding begun before January 1, 1972, by the private foundation which is necessary to reform, or to excuse such foundation from compliance with, its governing instrument or any other instrument in order to meet the requirements of paragraph (1), and

(C) To any period after the termination of any judicial proceeding described in subparagraph (B) during which its governing instrument or any other instrument does not permit it to meet the requirements of paragraph (1).

(3) This subdivision shall not apply to require the inclusion in governing instruments of any provisions inconsistent with this subdivision.

(f) Notwithstanding any of the requirements of this section, if they are determined to be met under federal law they are also met for state purposes.

history: (History: Amended by Stats. 1983, Ch. 488, Sec. 95. Effective July 28, 1983.)

article: 1. Exemptions From This Part


text:
(a) For the purposes of this part the term “private foundation” means a domestic or foreign organization defined in the Internal Revenue Code as a private foundation.

(b) For the purposes of this part, if an organization is a private foundation (within the meaning of subdivision (a)) on December 31, 1970, or becomes a private foundation on any subsequent date, such organization shall be treated as a private foundation for all periods after December 31, 1970, or after such subsequent date, unless its status as such is terminated.

(c) For purposes of this part, an organization the status of which as a private foundation is terminated shall be treated as an organization created on the day after the date of such termination, except in the case of a transfer of assets of any private foundation to another private foundation pursuant to any liquidation, merger, redemption, recapitalization, or other adjustment, organization, or reorganization, the transferee shall not be treated as a newly created organization.

(d) For purposes of this part, the term “support” includes (but is not limited to)—(1) Gifts, grants, contributions, or membership fees,(2) Gross receipts from admissions, sales of merchandise, performance of services, or furnishing of facilities in any activity which is not an unrelated trade or business (within the meaning of Section 23734),(3) Net income from unrelated business activities, whether or not such activities are carried on regularly as a trade or business,(4) Gross investment income (as defined in subdivision (e)),(5) Tax revenues levied for the benefit of an organization and either paid to or expended on behalf of such organization, and(6) The value of services or facilities (exclusive of services or facilities generally furnished to the public without charge) furnished by a governmental unit referred to in Section 170(c)(1) of the Internal Revenue Code to an organization without charge.Such term does not include any gain from the sale or other disposition of property which would be considered as gain from the sale or exchange of a capital asset, or the value of exemption from any federal, state, or local tax or any similar benefit.

(e) For purposes of this section, the term “gross investment income” means the gross amount of income from interest, dividends, rents, and royalties, but not including any such income to the extent included in computing the tax imposed by Section 23731.

history: (History: Amended by Stats. 1983, Ch. 488, Sec. 96. Effective July 28, 1983.)

article: 1. Exemptions From This Part


text: Any organization exempted from taxes imposed under this part pursuant to the provisions of this article shall not be disqualified for such exemption on the basis that it conducts bingo games pursuant to Section 326.5 of the Penal Code, provided that the proceeds from those games are used exclusively for charitable purposes.

history: (History: Added by Stats. 1988, Ch. 11, Sec. 58. Effective February 19, 1988. Applicable to income years beginning on or after January 1, 1987, by Sec. 95 of Ch. 11.)

article: 1. Exemptions From This Part


text:
Section 529 of the Internal Revenue Code, relating to qualified state tuition programs, shall apply, except as otherwise provided.

(a) Section 529(a) of the Internal Revenue Code is modified as follows:

(1) By substituting the phrase “under Part 10 (commencing with Section 17001) and this part” in lieu of the phrase “under this subtitle.”

(2) By substituting “Article 2 (commencing with Section 23731)” in lieu of “section 511.”

(b) A copy of the report required to be filed with the Secretary of the Treasury under Section 529(d) of the Internal Revenue Code shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.

(c) (1) The amendments made by Section 302(a)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(e) of the Internal Revenue Code, relating to other definitions and special rules, shall apply except as otherwise provided.

(2) The amendments made by Section 302(b)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3) of the Internal Revenue Code, relating to distributions, shall apply, except as otherwise provided.

(3) The amendments made by Section 302(c)(1) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529(c)(3)(D) of the Internal Revenue Code, relating to special rule for contributions of refunded amounts, shall apply, except as otherwise provided.

(d) (1) The amendments made by Section 11025(a) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Section 529(c)(3)(C) of the Internal Revenue Code, relating to change in beneficiaries or programs, shall apply, except as otherwise provided.

(2) (A) The amendments made by Section 11032(a)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Section 529(c) of the Internal Revenue Code, relating to tax treatment of designated beneficiaries and contributors, shall not apply, except as otherwise provided.

(B) The amendments made by Section 11032(a)(2) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97) to Section 529(e)(3)(A) of the Internal Revenue Code, relating to qualified higher education expenses, shall not apply, except as otherwise provided.

(C) In the case of any distribution made under Section 529(e)(3)(A) of the Internal Revenue Code, as amended by Section 11032(a)(2) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), that would be treated for federal income tax purposes as a “qualified higher education expense” under Section 529(c)(7) of the Internal Revenue Code, as added by Section 11032(a)(1) of the Tax Cuts and Jobs Act, 2017 (Public Law 115-97), the amount of that distribution shall, notwithstanding anything in Section 529 of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.

(D) Any distribution includable in the gross income of a distributee under subparagraph (C) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.

(e) (1) Section 529(c)(3)(E) of the Internal Revenue Code, relating to special rollovers to Roth IRAs from long-term qualified tuition programs, shall not apply.

(2) In the case of any distribution made under Section 529(c)(3)(E) of the Internal Revenue Code, relating to the special rollover to Roth IRAs from long-term qualified tuition programs, treated for federal income tax purposes as a “qualified rollover contribution” under Section 408A(e)(1)(C) of the Internal Revenue Code, the amount of that distribution shall, notwithstanding Section 529 or Section 408A of the Internal Revenue Code to the contrary, be includable in the gross income of the distributee in the manner as provided under Section 72 of the Internal Revenue Code.

(3) Any distribution includable in the gross income of a distributee under paragraph (2) shall not affect the exempt status of the qualified tuition program under Section 529 of the Internal Revenue Code for purposes of this part.

history: (History: Amended by Stats. 2025, Ch. 231, Sec. 85. (SB 711) Effective October 1, 2025.)

article: 1. Exemptions From This Part


text:
For taxable years beginning on or after January 1, 2016, Section 529A of the Internal Revenue Code, relating to qualified ABLE programs, added by Section 102 of Division B of Public Law 113-295, shall apply, except as otherwise provided.

(a) Section 529A(a) of the Internal Revenue Code is modified as follows:

(1) By substituting the phrase “under Part 10 (commencing with Section 17001) and this part” in lieu of the phrase “under this subtitle.”

(2) By substituting “Article 2 (commencing with Section 23731)” in lieu of “Section 511.”

(b) Section 529A(c)(3)(A) of the Internal Revenue Code is modified by substituting “2.5 percent” in lieu of “10 percent.”

(c) A copy of the report required to be filed with the Secretary of the Treasury under Section 529A(d) of the Internal Revenue Code, relating to reports shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.

(d) (1) The amendments made by Section 303(a) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Section 529A(b)(1) of the Internal Revenue Code, relating to qualified ABLE programs, shall apply, except as otherwise provided.

(2) The amendments made by Section 303(b) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Sections 529A(d)(3) and 529A(e) of the Internal Revenue Code, relating to qualified ABLE programs, shall apply, except as otherwise provided.

(3) The amendments made by Section 303(c) of Division Q of the Consolidated Appropriations Act, 2016 (Public Law 114-113) to Sections 529A(d)(4) and 529A(c)(1)(C)(i) of the Internal Revenue Code, relating to qualified ABLE programs, shall apply, except as otherwise provided.

(e) The amendments made by Section 11024(a) of the Tax Cuts and Jobs Act (Public Law 115-97) to Section 529A(b)(2)(B) of the Internal Revenue Code, relating to qualified ABLE programs, shall apply, except as otherwise provided.

(f) (1) For taxable years beginning on or after January 1, 2026, the amendments made by Section 124 of the Consolidated Appropriations Act, 2023 (Public Law 117-328) to Section 529A(e) of the Internal Revenue Code, relating to qualified ABLE programs, shall apply, except as otherwise provided.

(2) For purposes of complying with Section 41, the goal, purpose, objective, performance indicators, and data collection requirements for the tax expenditure allowed by this subdivision shall be as specified in subdivision (f) of Section 17140.4.

(g) For taxable years beginning on or after January 1, 2026, the amendments made by Section 70204(a)(2) of Public Law 119-21 to Sections 529A(b)(2)(B), relating to cash contributions, and 529A(b)(6), relating to prohibition on excess contributions, of the Internal Revenue Code shall apply.

history: (History: Amended by Stats. 2026, Ch. 85, Sec. 9. (SB 180) Effective July 13, 2026.)

article: 1. Exemptions From This Part


text: The Golden State Scholarshare Trust, established pursuant to Article 19 (commencing with Section 69980) of Chapter 2 of Part 42 of the Education Code, is an instrumentality of this state and the income of the Scholarshare trust shall be exempt from taxes imposed under this part. The Scholarshare trust is established and shall be maintained as a qualified state tuition program as defined in Section 529 of the Internal Revenue Code.

history: (History: Added by renumbering Section 24328 by Stats. 2003, Ch. 455, Sec. 8. Effective January 1, 2004.)

article: 1. Exemptions From This Part


text:
Section 530 of the Internal Revenue Code, relating to Coverdell education savings accounts, shall apply, except as otherwise provided.

(a) Section 530(a) of the Internal Revenue Code is modified as follows:

(1) By substituting the phrase “under Part 10 (commencing with Section 17001) and this part” for the phrase “under this subtitle.”

(2) By substituting “Article 2 (commencing with Section 23731)” for “section 511.”

(b) For taxable years beginning before January 1, 2002, Section 530(b)(1) of the Internal Revenue Code, relating to Coverdell education savings account, is modified to additionally require that upon the date that the designated beneficiary becomes 30 years of age, any balance to the credit of the beneficiary shall be distributed within 30 days after the date the beneficiary becomes 30 years of age to that beneficiary.

(c) Section 530(d) of the Internal Revenue Code is modified as follows:

(1) By substituting the phrase “under Part 10 (commencing with Section 17001) in the manner as provided in Section 72(b) of the Internal Revenue Code, as modified by Part 10” for the phrase “in the manner as provided in Section 72(b)” in Section 530(d)(1) of the Internal Revenue Code.

(2) (A) By substituting the phrase “tax imposed by Part 10 (commencing with Section 17001)” for the phrase “tax imposed by this chapter” in Section 530(d)(4)(A) of the Internal Revenue Code.

(B) By substituting the phrase “increased by 212 percent” for the phrase “increased by 10 percent” in Section 530(d)(4)(A) of the Internal Revenue Code.

(C) By substituting the phrase “shall be included in the contributor’s gross income under Part 10 (commencing with Section 17001) or this part” for the phrase “shall be included in gross income” in Section 530(d)(4)(C) of the Internal Revenue Code.

(D) For taxable years beginning before January 1, 2005:

(i) By additionally providing that Section 530(d)(4)(A) of the Internal Revenue Code shall not apply if the payment or distribution is made on account of the attendance of the designated beneficiary at the United States Military Academy, the United States Naval Academy, the United States Air Force Academy, the United States Coast Guard Academy, or the United States Merchant Marine Academy, to the extent that the amount of the payment or distribution does not exceed the costs of advanced education (as defined by Section 2005(e)(3) of Title 10 of the United States Code, as in effect on November 11, 2003) attributable to that attendance.

(ii) The amendments made to this section by Section 12 of Chapter 552 of the Statutes of 2004 shall apply to taxable years beginning after December 31, 2002.

(d) For purposes of Part 10 (commencing with Section 17001) and this part, in the case of a custodial account treated as a trust by reason of Section 530(g) of the Internal Revenue Code, the custodian of that account shall be treated as the trustee thereof.

(e) A copy of the report, which is required to be filed with the Secretary of the Treasury under Section 530(h) of the Internal Revenue Code, shall be filed with the Franchise Tax Board at the same time and in the same manner as specified in that section.

(f) Section 109(d)(2) of Public Law 110-245, relating to application of amendments to deaths from injuries occurring on or after October 7, 2001, and before enactment, shall apply, except as otherwise provided.

history: (History: Amended by Stats. 2010, Ch. 14, Sec. 61. (SB 401) Effective January 1, 2011.)

article: 1. Exemptions From This Part


text:
Every organization or trust exempt under this chapter, except as provided in this article, is subject to the tax imposed upon its unrelated business taxable income, as defined in Section 23732, as follows:

(a) Corporations (other than banks and financial corporations), associations, and business trusts are subject to the tax imposed under Section 23501.

(b) Trusts are subject to the tax imposed by subdivision (e) of Section 17041.

This section applies to taxable years beginning after December 31, 1970.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 96. Effective January 1, 2001.)

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 4. Exempt Corporations > 2. Taxation of Business Income of Certain Article 1 Organizations


text:
Section 512 of the Internal Revenue Code, relating to unrelated business taxable income, applies, except as otherwise provided.

(a) Section 512(a)(2) of the Internal Revenue Code, relating to special rule for foreign organizations, does not apply.

(b) Section 512(a)(3) of the Internal Revenue Code, relating to special rules applicable to organizations described in paragraph (7), (9), (17), or (20) of Section 501(c), shall be modified as follows:

(1) The reference to Section 501(c)(7) of the Internal Revenue Code shall be modified to refer to Section 23701g.

(2) The reference to Section 501(c)(9) of the Internal Revenue Code shall be modified to refer to Section 23701i.

(3) The reference to Section 501(c)(17) of the Internal Revenue Code shall be modified to refer to Section 23701n.

(4) The reference to Section 501(c)(20) of the Internal Revenue Code shall be modified to refer to Section 23701q.

(c) Section 512(d) of the Internal Revenue Code, relating to treatment of dues of agricultural or horticultural organizations, shall be modified by substituting “Section 23701a” for “Section 501(c)(5)” of the Internal Revenue Code.

history: (History: Amended by Stats. 2015, Ch. 303, Sec. 490. (AB 731) Effective January 1, 2016.)

article: 2. Taxation of Business Income of Certain Article 1 Organizations


text:
(a) Section 513 of the Internal Revenue Code, relating to unrelated trade or business, shall apply, except as otherwise provided.

(b) Section 513(g) of the Internal Revenue Code, relating to certain pole rentals, shall not apply.

history: (History: Amended by Stats. 1993, Ch. 877, Sec. 39. Effective October 6, 1993.)


text:
(a) Section 514 of the Internal Revenue Code, relating to unrelated debt-financed income, shall apply, except as otherwise provided.

(b) Section 10214 of Public Law 100-203, relating to the treatment of certain partnership allocations, shall apply to taxable years beginning on or after January 1, 1990, for property acquired by the partnership after October 13, 1987, and partnership interests acquired after October 13, 1987.

(c) An interest in a participation agreement, as defined in subdivision (i) of Section 69980 of the Education Code, shall not be treated as debt.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 97. Effective January 1, 2001.)


text:
Sections 23736.1 to 23736.4, inclusive, shall apply to any organization described in Section 23701d or Section 23701n except—

(a) A religious organization (other than a trust);

(b) An educational organization which normally maintains a regular faculty and curriculum and normally has a regularly enrolled body of pupils or students in attendance at the place where its educational activities are regularly carried on;

(c) An organization which normally receives a substantial part of its support (exclusive of income received in the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption under Section 23701d) from the United States or any state or political subdivision thereof or from direct or indirect contributions from the general public;

(d) An organization which is operated, supervised, controlled, or principally supported by a religious organization (other than a trust) which is itself not subject to the provisions of this article; and

(e) An organization the principal purposes or functions of which are the providing of medical or hospital care or medical education or medical research.

history: (History: Amended by Stats. 1961, Ch. 857.)


text:
(a) For the purposes of this article, the term “prohibited transaction” means any transaction in which an organization subject to this article—

(1) Lends any part of its income or corpus, without the receipt of adequate security and a reasonable rate of interest, to;

(2) Pays any compensation, in excess of a reasonable allowance for salaries or other compensation for personal services actually rendered, to;

(3) Makes any part of its services available on a preferential basis to;

(4) Makes any substantial purchase of securities or any other property, for more than adequate consideration in money or money’s worth, from;

(5) Sells any substantial part of its securities or other property, for less than an adequate consideration in money or money’s worth, to; or

(6) Engages in any other transaction that results in a substantial diversion of its income or corpus to; the creator of the organization (if a trust); a person who has made a substantial contribution to the organization; a member of the family (as defined in Section 267(c)(4) of the Internal Revenue Code) of an individual who is the creator of that trust or who has made a substantial contribution to that organization; or a corporation controlled by that creator or person through the ownership, directly or indirectly, of 50 percent or more of the total combined voting power of all classes of stock entitled to vote or 50 percent or more of the total value of shares of all classes of stock of the corporation.

(b) For purposes of subdivision (a), a bond, debenture, note, or certificate or other evidence of indebtedness (hereinafter in this section referred to as “obligation”) acquired by a trust described in Section 23701n shall not be treated as a loan made without the receipt of adequate security if—

(1) The obligation is acquired—

(A) On the market, either (i) at the price of the obligation prevailing on a national securities exchange that is registered with the Securities and Exchange Commission, or (ii) if the obligation is not traded on a national securities exchange, at a price not less favorable to the trust than the offering price for the obligation as established by current bid and asked prices quoted by persons independent of the issuer;

(B) From an underwriter, at a price (i) not in excess of the public offering price for the obligation as set forth in a prospectus or offering circular filed with the Securities and Exchange Commission, and (ii) at which a substantial portion of the same issue is acquired by persons independent of the issuer; or

(C) Directly from the issuer, at a price not less favorable to the trust than the price paid currently for a substantial portion of the same issue by persons independent of the issuer;

(2) Immediately following acquisition of that obligation—

(A) Not more than 25 percent of the aggregate amount of obligations issued in that issue and outstanding at the time of acquisition is held by the trust, and

(B) At least 50 percent of the aggregate amount referred to in subparagraph (A) is held by persons independent of the issuer; and

(3) Immediately following acquisition of the obligation, not more than 25 percent of the assets of the trust is invested in obligations of persons described in subdivision (a).

(4) (A) In the case of a trust described in Section 23701n, or in the case of a corporation described in Section 23701h, all of the stock of which was acquired before January 1, 1961, by a trust described in Section 23701n, any indebtedness incurred by that trust or that corporation before January 1, 1961, in connection with real property that is leased before January 1, 1961, and any indebtedness incurred by that trust or that corporation on or after that date necessary to carry out the terms of that lease, shall not be considered as an indebtedness with respect to that trust or that corporation for purposes of this section.

(B) In the application of paragraph (1) of subdivision (a), if a trust described in Section 23701n forming part of a supplemental unemployment compensation benefit plan lends any money to another trust described in Section 23701n forming part of the same plan, that loan shall not be treated as an indebtedness of the borrowing trust, except to the extent that the loaning trust—

(i) Incurs any indebtedness in order to make that loan,

(ii) Incurred indebtedness before the making of that loan which would not have been incurred but for the making of that loan, or

(iii) Incurred indebtedness after the making of that loan which would not have been incurred but for the making of that loan and that was reasonably foreseeable at the time of making that loan.

(c) Subdivision (a) shall not apply to a loan made by a trust described in Section 23701n to the employer (or to a renewal of that loan or, if the loan is repayable upon demand, to a continuation of that loan) if the loan bears a reasonable rate of interest, and if (in the case of a making or renewal)—

(1) The employer is prohibited (at the time of that making or renewal) by any law of the United States or regulation thereunder from directly or indirectly pledging, as security for the loan, a particular class or classes of his or her assets the value of which (at that time) represents more than one-half of the value of all his or her assets;

(2) The making or renewal, as the case may be, is approved in writing as an investment that is consistent with the exempt purposes of the trust by a trustee who is independent of the employer, and no other independent trustee had previously refused to give that written approval; and

(3) Immediately following the making or renewal, as the case may be, the aggregate amount loaned by the trust to the employer, without the receipt of adequate security, does not exceed 25 percent of the value of all the assets of the trust.

(4) For purposes of paragraph (2) the term “trustee” means, with respect to any trust for which there is more than one trustee who is independent of the employer, a majority of those independent trustees. For purposes of paragraph (3), the determination as to whether any amount loaned by the trust to the employer is loaned without the receipt of adequate security shall be made without regard to subdivision (b).

history: (History: Amended by Stats. 2004, Ch. 183, Sec. 333. Effective January 1, 2005.)


text: An organization described in Section 23701d which is subject to the provisions of this article, except those specified in Sections 23736, shall not be exempt from taxation under Article 1 of this chapter if it has engaged in a prohibited transaction after January 1, 1951; and an organization described in Section 23701n which is subject to the provisions of this article shall not be exempt from taxation under Article 1 of this chapter if it has engaged in a prohibited transaction after December 31, 1960.


text: An organization described in Section 23701n or Section 23701d, except as specified in Section 23736, shall be denied exemption under Section 23736.2 only for taxable years subsequent to the taxable years during which it is notified by the Franchise Tax Board that it has engaged in a prohibited transaction, unless such organization entered into such prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purposes, and such transaction involved a substantial part of the corpus or income of such organization.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 98. Effective January 1, 2001.)


text: Any organization denied exemption under Section 23701d or Section 23701n by reason of the provisions of Section 23736.2 with respect to any taxable year following the taxable year in which notice of denial of exemption was received, may, under regulations prescribed by the Franchise Tax Board, file claim for exemption, and if the Franchise Tax Board pursuant to such regulations, is satisfied that such organizations will not knowingly again engage in a prohibited transaction, such organization shall be exempt with respect to taxable years subsequent to the year in which such claim is filed.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 99. Effective January 1, 2001.)


text:
In the case of any organization described in Section 23701d to which this article is applicable, exemption under Article 1 (commencing with Section 23701) shall be denied for the taxable year if the amounts accumulated out of income during the taxable year or any prior taxable year and not actually paid out by the end of the taxable year—

(a) Are unreasonable in amount or duration in order to carry out the charitable, educational, or other purpose or function constituting the basis for such organization’s exemption under Section 23701d; or

(b) Are used to a substantial degree for purposes or functions other than those constituting the basis for such organization’s exemption under Section 23701d, or

(c) Are invested in such a manner as to jeopardize the carrying out of the charitable, educational, or other purpose or function constituting the basis for such organization’s exemption under Section 23701d.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 100. Effective January 1, 2001.)


text:
Section 4911 of the Internal Revenue Code, relating to tax on excess expenditures to influence legislation, shall apply, except as otherwise provided.

(a) Section 4911(a)(1) of the Internal Revenue Code shall not apply.

(b) Section 4911(f)(4)(A) of the Internal Revenue Code shall include efforts to influence legislation with respect to acts, bills, resolutions, or similar items by the State Legislature.

history: (History: Repealed and added by Stats. 2000, Ch. 252, Sec. 34. Effective January 1, 2001.)


text: Notwithstanding any other provision in this part, in the case of a church exempt from taxes imposed under this part pursuant to Article 1 (commencing with Section 23701) of Chapter 4, any rental income received, directly or indirectly, from another church exempt from taxes imposed under this part pursuant to Article 1 (commencing with Section 23701) of Chapter 4 for rental of exempt function church property is exempt from any tax imposed by this part.

history: (History: Added by Stats. 1981, Ch. 341, Sec. 1. Effective September 9, 1981. Applicable to income years beginning on or after January 1, 1981, by Sec. 2 of Ch. 341.)


text:
(a) Except as provided in subdivision (b), every organization, otherwise exempt under Article 1 (commencing with Section 23701), but having income of the character described in Article 2 (commencing with Section 23731), shall file a return, verified by an executive officer under penalty of perjury in the form prescribed by the Franchise Tax Board, on or before the 15th day of the fifth month following the close of the taxable year, reporting its income from those activities and shall pay a tax as required by Section 23731 on its unrelated business taxable income as defined in Section 23732.

(b) An education IRA described in Section 23712 shall file a return described in subdivision (a) on or before the 15th day of the fourth month following the close of the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 101. Effective January 1, 2001.)

article: 3. Returns of Exempt Organizations

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 4. Exempt Corporations > 3. Returns of Exempt Organizations


text:
(a) For the purposes of this part—

(1) Except as provided in paragraph (2), every organization exempt from taxation under Section 23701 and every trust treated as a private foundation because of Section 4947(a)(1) of the Internal Revenue Code shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and any other information for the purpose of carrying out the laws under this part as the Franchise Tax Board may by rules or regulations prescribe, and shall keep any records, render under oath any statements, make any other returns, and comply with any rules and regulations as the Franchise Tax Board may from time to time prescribe. The return shall be filed on or before the 15th day of the fifth full calendar month following the close of the taxable year.

(2) Exceptions from filing—

(A) Mandatory exceptions—Paragraph (1) shall not apply to—

(i) Churches, their integrated auxiliaries, and conventions or association of churches,

(ii) An organization (other than a private foundation as defined in Section 23709), the gross receipts of which in each taxable year are normally not more than fifty thousand dollars ($50,000), or

(iii) The exclusively religious activities of any religious order.

(B) Discretionary exceptions—The Franchise Tax Board may permit the filing of a simplified return for organizations based on either gross receipts or total assets or both gross receipts and total assets, or may permit the filing of an information statement (without fee), or may permit the filing of a group return for incorporated or unincorporated branches of a state or national organization where it determines that an information return is not necessary to the efficient administration of this part.

(b) Every organization described in Section 23701d that is subject to the requirements of subdivision (a) is required to furnish annually information, at the time and in the manner as the Franchise Tax Board may by rules or regulations prescribe, setting forth all of the following:

(1) Its gross income for the year.

(2) Its expenses attributable to gross income and incurred within the year.

(3) Its disbursements within the year for the purposes for which it is exempt.

(4) A balance sheet showing its assets, liabilities, and net worth as of the beginning of that year.

(5) The total of the contributions and gifts received by it during the year, and the names and addresses of all substantial contributors.

(6) The names and addresses of its foundation manager (within the meaning of Section 4946 of the Internal Revenue Code) and highly compensated employees.

(7) The compensation and other payments made during the year to each individual described in paragraph (6).

(8) In the case of an organization with respect to which an election under Section 23704.5 is effective for the taxable year, the following amounts for that organization for that taxable year:

(A) The lobbying expenditures (as defined in Section 4911(c)(1) of the Internal Revenue Code).

(B) The lobbying nontaxable amount (as defined in Section 4911(c)(2) of the Internal Revenue Code).

(C) The grassroots expenditures (as defined in Section 4911(c)(3) of the Internal Revenue Code).

(D) The grassroots nontaxable amount (as defined in Section 4911(c)(4) of the Internal Revenue Code). For purposes of this paragraph, if Section 23740 applies to the organization for the taxable year, the organization shall furnish the amounts with respect to the affiliated group as well as with respect to the organization.

(9) Other information with respect to direct or indirect transfers to, and other direct or indirect transactions and relationships with, other organizations described in Sections 23701a to 23701w, inclusive (other than Sections 23701d, 23701k, and 23701t), as the Franchise Tax Board may require to prevent either of the following:

(A) Diversion of funds from the organization’s exempt purpose.

(B) Misallocation of revenue or expense.

(10) Information with respect to qualified disaster relief activities.

(11) Any other relevant information as the Franchise Tax Board may prescribe.

(12) Each controlling organization, within the meaning of Section 512(b)(13) of the Internal Revenue Code, which is subject to the requirements of subdivision (a), shall include on the return required under subdivision (a) all of the following information:

(A) Any interest, royalties, annuities, or rents received from each controlled entity, within the meaning of Section 512(b)(13) of the Internal Revenue Code.

(B) Any loans made to each controlled entity.

(C) Any transfers of funds between such controlling organization and each such controlled entity.

(13) (A) Any organization, the gross receipts of which in any taxable year result in the organization being referred to in clause (ii) of subparagraph (A) of paragraph (2) of subdivision (a), or subparagraph (B) of paragraph (2) of subdivision (a), shall do both of the following:

(i) Furnish annually, in electronic form, and at the time and in the manner as may be prescribed by the Franchise Tax Board, the legal name of the organization, any name under which the organization operates or does business, the organization’s mailing address and the internet website address, if any, the organization’s taxpayer identification number, the name and address of a principal officer, and evidence of the continuing basis for the organization’s exemption from the filing requirements under paragraph (1) of subdivision (a).

(ii) Upon termination of the existence of the organization, shall furnish notice of the termination.

(B) This paragraph shall apply to notices and returns with respect to annual periods beginning on or after January 1, 2010.

(14) (A) If an organization described in paragraph (1) of subdivision (a) or paragraph (13) of this subdivision fails to file an annual return or notice required under either paragraph (1) of subdivision (a) or paragraph (13) of this subdivision for three consecutive years, that organization’s status as an organization exempt from tax under Section 23701 shall be considered revoked on and after the date set by the Franchise Tax Board for the filing of the third annual return or notice. The Franchise Tax Board shall publish and maintain a list of any organization for which the tax-exempt status is revoked.

(B) Any organization for which the tax-exempt status is revoked under subparagraph (A) must apply for reinstatement of that status regardless of whether that organization was originally required to make an application for tax-exempt status.

(C) If, upon application for reinstatement of status as an organization exempt from tax under Section 23701, an organization described in subparagraph (A) can show to the satisfaction of the Franchise Tax Board evidence of reasonable cause for the failure described in that subparagraph, the organization’s exempt status may, in the discretion of the Franchise Tax Board, be reinstated effective from the date of the revocation under that subparagraph.

(D) This paragraph shall apply to notices and returns with respect to annual periods beginning on or after January 1, 2010.

(c) For the purposes of this part—

(1) In the case of a failure to file a return required under this section on the date and in the manner prescribed therefor (determined with regard to any extension of time for filing), unless it is shown that the failure is due to reasonable cause, there shall be paid (on notice and demand by the Franchise Tax Board and in the same manner as tax) by the exempt organization or trust failing so to file, five dollars ($5) for each month or part thereof during which the failure continues, but the total amount imposed hereunder on any organization for failure to file any return may not exceed forty dollars ($40).

(2) The Franchise Tax Board may make written demand upon a private foundation failing to file under paragraph (1) of this subdivision specifying therein a reasonable future date by which the filing shall be made, and if the filing is not made on or before that date, and unless it is shown that failure so to file is due to reasonable cause, there shall be paid (on notice and demand by the Franchise Tax Board and in the same manner as tax) by the person failing so to file, in addition to the penalty prescribed in paragraph (1), a penalty of five dollars ($5) each month or part thereof after the expiration of the time specified in the written demand during which the failure continues, but the total amount imposed hereunder on all persons for the failure to file shall not exceed twenty-five dollars ($25). If more than one person is liable under this paragraph for a failure to file, all of those persons shall be jointly and severally liable with respect to the failure. The term “person” as used herein means any officer, director, trustee, employee, member, or other individual who is under a duty to perform the act in respect of which the violation occurs.

(3) This subdivision shall not apply with respect to any notice required under paragraph (13) of subdivision (b).

(d) The amendments made to this section by Chapter 858 of the Statutes of 2012 shall apply to taxable years beginning on or after January 1, 2012.

(e) The amendments made to this section by the act adding this subdivision shall become operative on January 1, 2021.

history: (History: Amended by Stats. 2020, Ch. 59, Sec. 4. (SB 934) Effective January 1, 2021.)

article: 3. Returns of Exempt Organizations


text:
(a) Except as provided in subdivision (b), every organization exempt from filing an annual information return by reason of subdivision (a) of Section 23772, may be required to file an annual statement on or before the 15th day of the fifth calendar month following the close of the taxable year setting forth in the manner as may be required by the Franchise Tax Board the following information: the name and address of the organization, its major activities, its sources of income, and the section of the Internal Revenue Code under which it is exempt. Organizations other than those described in clause (i) and (iii) of subparagraph (A) of paragraph (2) of subdivision (a) of Section 23772 may also be required by the Franchise Tax Board to furnish information with respect to their gross receipts and their assets.

(b) Every religious organization exempt from filing an annual information return by reason of subdivision (a) of Section 23772, which because of sincerely held religious convictions refuses to file an annual statement as prescribed in subdivision (a), may submit in lieu thereof a notarized statement on its organizational letterhead containing the following information: the name and address of the organization, its major activities, its sources of income, and the section of the Internal Revenue Code under which it is exempt. That information shall be for the sole purpose of verifying the absence of unrelated business income of the organization. The statement shall be submitted on or before the 15th day of the fifth calendar month following the close of the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 103. Effective January 1, 2001.)

article: 3. Returns of Exempt Organizations


text: Except for purposes of amending the articles of incorporation to set forth a new name, under regulations prescribed by the Franchise Tax Board, the corporate powers, rights and privileges of an exempt domestic corporation may be suspended and the exercise of the corporate powers, rights and privileges of a foreign exempt corporation in this state may be forfeited if the organization fails to file the annual return or statement required under Section 23772 or 23774, or pay any amount due under Section 23703 or 23772 on or before the last day of the 12th month following the close of the taxable year.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 104. Effective January 1, 2001.)

article: 3. Returns of Exempt Organizations


text:
(a) Any organization which has suffered the suspension or forfeiture provided for in Section 23775 may, in accordance with Section 23305a, be relieved therefrom upon the filing of all of the following:

(1) An application for revivor.

(2) When required by the Franchise Tax Board, a new application for exemption under Section 23701.

(3) Any returns, statements, notifications, or amounts due under Sections 23772, 23774, or 23775 which were not previously submitted or paid and which resulted in the suspension or forfeiture.

(4) An information return or statement and the amounts specified under Section 23772 for each year, or part thereof, during the period of suspension or forfeiture in which the organization conducted any activities or received income, grants, gifts or any other asset.

(b) Any organization exempt from tax under Section 23701 which has suffered the suspension or forfeiture provided for in Section 23301 or 23301.5 may be required by the Franchise Tax Board to file a new application for exemption in connection with an application for revivor under Section 23305.

history: (History: Amended by Stats. 1999, Ch. 987, Sec. 92. Effective October 10, 1999.)

article: 3. Returns of Exempt Organizations


text:
The exemption granted to any organization under the provisions of Article 1 (commencing with Section 23701) of this chapter may be revoked by the Franchise Tax Board if the organization fails to—

(a) File any return required under this chapter or pay any amount due under this part or Part 10.2 (commencing with Section 18401) on or before the last day of the 12th month following the close of the taxable year;

(b) Comply with Section 19504 (relating to powers of the Franchise Tax Board to examine records and subpoena witnesses); or

(c) Confine its activities to those permitted by the section under which the exemption was granted.

history: (History: Amended by Stats. 2000, Ch. 862, Sec. 105. Effective January 1, 2001.)

article: 3. Returns of Exempt Organizations


text:
An organization whose exemption was revoked under Section 23703 or 23777 may be reestablished as an exempt organization upon:

(a) The filing or payment of both of the following:

(1) A new application for exemption.

(2) Any returns, statements, or payment of any amounts due under this part or Part 10.2 (commencing with Section 18401) that were not previously submitted or paid and that resulted in the revocation.

(b) When revocation occurred under subdivision (c) of Section 23777, satisfactory proof that all of the following have occurred:

(1) The organization has corrected its nonexempt activities.

(2) That it will operate in an exempt manner in the future.

(3) The payment of any tax for periods the organization was not qualified for exemption.

history: (History: Repealed and added by Stats. 2020, Ch. 59, Sec. 6. (SB 934) Effective January 1, 2021.)

article: 3. Returns of Exempt Organizations


text: Subchapter S of Chapter 1 of Subtitle A of the Internal Revenue Code, relating to the tax treatment of “S corporations” and their shareholders, shall apply, except as otherwise provided.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 4. Effective January 1, 2004.)

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 4.5. Tax Treatment of S Corporations and Their Shareholders


text:
(a) Section 1361(b)(3) of the Internal Revenue Code, relating to treatment of certain wholly owned subsidiaries, is modified as follows:

(1) For purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part:

(A) Section 1361(b)(3)(A)(i) of the Internal Revenue Code shall apply, except as provided in subparagraph (B).

(B) There is hereby imposed a tax annually in an amount equal to the applicable amount specified in paragraph (1) of subdivision (d) of Section 23153 on a qualified Subchapter S subsidiary that is incorporated under the laws of this state, qualified to transact intrastate business in this state pursuant to Chapter 21 (commencing with Section 2100) of Division 1 of Title 1 of the Corporations Code, or doing business in this state.

(C) Every qualified Subchapter S subsidiary described in subparagraph (B) shall be subject to the tax imposed under subparagraph (B) from the earlier of the date of incorporation, qualification, or commencement of business in this state, until the effective date of dissolution or withdrawal as provided in Section 23331, or, if later, the date the corporation ceases to do business in this state.

(2) For purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part:

(A) Section 1361(b)(3)(A)(ii) of the Internal Revenue Code does not apply and, in lieu thereof, subparagraph (B) shall apply and all references to Section 1361(b)(3)(A)(ii) of the Internal Revenue Code shall be treated as a reference to subparagraph (B).

(B) All activities, assets, liabilities, including liability for the tax imposed under this subdivision, and items of income, deduction, and credit of a qualified Subchapter S subsidiary shall be treated as activities (including activities for purposes of Section 23101), assets, liabilities, and those items, as the case may be, of the “S corporation.”

(3) Section 1361(b)(3)(B) of the Internal Revenue Code is modified to include the following requirements in addition to the requirements contained therein:

(A) The “S corporation” has in effect a valid election to treat the corporation as a qualified Subchapter S subsidiary for federal income tax purposes.

(B) An election made by the “S corporation” under Section 1361(b)(3)(B)(ii) of the Internal Revenue Code to treat the corporation as a qualified Subchapter S subsidiary for federal income tax purposes shall be treated for purposes of this part as an election made by the “S corporation” under this subdivision and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 may not be allowed.

(C) No election under this subdivision shall be allowed unless the “S corporation” has made the election under Section 1361(b)(3)(B)(ii) of the Internal Revenue Code to treat the corporation as a qualified Subchapter S subsidiary for federal income tax purposes.

(b) Section 1361(c)(6) of the Internal Revenue Code, relating to certain exempt organizations permitted as shareholders, is modified by substituting a reference to Section 17631 or Section 23701d in lieu of the reference to Section 501(c)(3) of the Internal Revenue Code and by substituting a reference to Section 17631 or Section 23701 in lieu of the reference to Section 501(a) of the Internal Revenue Code.

(c) Section 1361(e)(1)(B)(ii) of the Internal Revenue Code, relating to certain trusts not eligible, is modified by substituting “under Part 10 (commencing with Section 17001) or this part” in lieu of “under this subtitle.”

(d) Section 1361(e)(3) of the Internal Revenue Code, relating to election, is modified to include the following provisions:

(1) An election made by the trustee under Section 1361(e) of the Internal Revenue Code to be an electing small business trust for federal income tax purposes shall be treated for purposes of this part as an election made by the trustee under this subdivision and a separate election under paragraph (3) of subdivision (e) of Section 23051.5 may not be allowed. Any election made shall apply to the taxable year of the trust for which that election is made and to all subsequent taxable years of that trust, unless revoked with the consent of the Franchise Tax Board.

(2) No election under this subdivision shall be allowed unless the trustee has made the election under Section 1361(e) of the Internal Revenue Code to be an electing small business trust for federal income tax purposes.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 5. Effective January 1, 2004.)

chapter: 4.5. Tax Treatment of S Corporations and Their Shareholders


text:
(a) A corporation that has in effect for federal income tax purposes a valid election under Section 1362(a) of the Internal Revenue Code shall be an “S” corporation for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part.

(b) A corporation that is an “S corporation” for federal income tax purposes, shall be an “S corporation” for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part, and its shareholders shall be shareholders of an “S corporation” without regard to whether the corporation is qualified to do business or is incorporated in this state.

(c) Except as provided in subdivision (d), a corporation that is an “S corporation” for purposes of this part may not be included in a combined report pursuant to Chapter 17 (commencing with Section 25101).

(d) (1) In cases where the Franchise Tax Board determines that the reported income or loss of a group of commonly owned or controlled corporations (within the meaning of Section 25105), that includes one or more corporations treated as an “S corporation” under Chapter 4.5 (commencing with Section 23800), does not clearly reflect income (or loss) of a member of that group or represents an evasion of tax by one or more members of that group, and the Franchise Tax Board determines that the comparable uncontrolled price method prescribed by regulations pursuant to Section 482 of the Internal Revenue Code cannot practically be applied, the Franchise Tax Board may, in lieu of other methods prescribed by regulations pursuant to Section 482 of the Internal Revenue Code, apply methods of unitary combination, pursuant to Article 1 (commencing with Section 25101) of Chapter 17, to properly reflect the income or loss of the members of the group.

(2) The application of the provisions of this subdivision shall not affect the treatment of any corporation as an “S corporation.”

(e) (1) A termination of a federal election pursuant to Section 1362(d) of the Internal Revenue Code, that is not an inadvertent termination pursuant to Section 1362(f) of the Internal Revenue Code, shall simultaneously terminate the “S corporation” election for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part.

(2) A federal termination by revocation shall be effective for purposes of this part and shall be reported to the Franchise Tax Board in the form and manner prescribed by the Franchise Tax Board no later than the last date allowed for filing federal termination for that year under Section 1362(d) of the Internal Revenue Code.

(f) The tax for a “C corporation” for a short year shall be determined in accordance with Chapter 13 (commencing with Section 24631), in lieu of Section 1362(e)(5) of the Internal Revenue Code.

(g) Section 1362(d)(3) of the Internal Revenue Code, relating to circumstances where passive investment income exceeds 25 percent of gross receipts for three consecutive taxable years and the corporation has accumulated earnings and profits, does not apply unless the “S” election is terminated for federal income tax purposes.

(h) (1) The provisions of Section 1362(b)(5) of the Internal Revenue Code, relating to authority to treat late elections, etc., as timely, shall apply only for taxable years beginning on or after January 1, 1997, with respect to elections under Section 1362(a) of the Internal Revenue Code for taxable years beginning on or after January 1, 1997.

(2) Notwithstanding the provisions of paragraph (1), if for any taxable year beginning on or after January 1, 2003, a corporation fails to qualify as an “S corporation” for federal income tax purposes solely because the federal Form 2553 (Election by a Small Business Corporation) was not filed timely, the corporation shall be treated for purposes of this part as an “S corporation” for the taxable year the “S corporation” election should have been made, and for each subsequent year until terminated, if the corporation and its shareholders have filed with the Internal Revenue Service a federal Form 2553 requesting automatic relief with respect to the late “S corporation” election, in full compliance with the federal Revenue Procedure 1997-48, I.R.B. 1997-43, and have received notification of the acceptance of the untimely filed “S corporation” election from the Internal Revenue Service. A copy of the notification shall be provided to the Franchise Tax Board upon request.

(i) The provisions of Section 1362(f) of the Internal Revenue Code, relating to inadvertent invalid elections or terminations, shall apply only for taxable years beginning on or after January 1, 1997, with respect to elections under Section 1362(a) of the Internal Revenue Code for taxable years beginning on or after January 1, 1997.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 6. Effective January 1, 2004.)


text:
(a) Section 1363(a) of the Internal Revenue Code, relating to the taxability of an “S” corporation does not apply.

(b) Corporations that are “S” corporations under this chapter shall continue to be subject to the taxes imposed under Chapter 2 (commencing with Section 23101) and Chapter 3 (commencing with Section 23501), except as follows:

(1) The tax imposed under Section 23151 or 23501 shall be imposed at a rate of 112 percent rather than the rate specified in those sections.

(2) In the case of an “S” corporation that is also a financial corporation, the rate of tax specified in paragraph (1) shall be increased by the excess of the rate imposed under Section 23183 over the rate imposed under Section 23151.

(c) An “S” corporation is subject to the minimum franchise tax imposed under Section 23153.

(d) (1) For purposes of subdivision (b), an “S” corporation shall be allowed a deduction under Section 24416 or 24416.1 (relating to net operating loss deductions), but only with respect to losses incurred during periods in which the corporation is an “S” corporation for purposes of this part.

(2) Section 1371(b) of the Internal Revenue Code, relating to denial of carryovers between “C” years and “S” years, applies for purposes of the tax imposed under subdivision (b), except as provided in paragraph (1).

(3) The provisions of this subdivision do not affect the amount of any item of income or loss computed in accordance with the provisions of Section 1366 of the Internal Revenue Code, relating to pass-thru of items to shareholders.

(4) For purposes of subdivision (b) of Section 17276, relating to limitations on loss carryovers, losses passed through to shareholders of an “S” corporation, to the extent otherwise allowable without application of that subdivision, shall be fully included in the net operating loss of that shareholder and then that subdivision shall be applied to the entire net operating loss.

(e) For purposes of computing the taxes specified in subdivision (b), an “S” corporation shall be allowed a deduction from income for built-in gains and passive investment income for which a tax has been imposed under this part in accordance with the provisions of Section 1374 of the Internal Revenue Code, relating to tax imposed on certain built-in gains, or Section 1375 of the Internal Revenue Code, relating to tax imposed on passive investment income.

(f) For purposes of computing taxes imposed under this part, as provided in subdivision (b):

(1) An “S” corporation shall compute its deductions for amortization and depreciation in accordance with the provisions of Part 10 (commencing with Section 17001) of Division 2.

(2) Section 465 of the Internal Revenue Code, relating to limitation of deductions to the amount at risk, shall be applied in the same manner as in the case of an individual.

(3) (A) Section 469 of the Internal Revenue Code, relating to limitations on passive activity losses and credits, shall be applied in the same manner as in the case of an individual. For purposes of the tax imposed under Section 23151 or 23501, as modified by this section, material participation shall be determined in accordance with Section 469(h) of the Internal Revenue Code, relating to certain closely held “C” corporations and personal service corporations.

(B) For purposes of this paragraph, the “adjusted gross income” of the “S” corporation shall be equal to its “net income,” as determined under Section 24341 with the modifications required by this subdivision, except that a deduction shall not be allowed for contributions allowed by Section 24357.

(4) The deduction for bad debts under paragraph (2) of subdivision (a) of Section 24348 shall not be allowed to an “S” corporation.

(g) (1) The provisions of Section 1363(d) of the Internal Revenue Code, relating to recapture of LIFO benefits, shall be modified for purposes of this part to refer to Section 19101 in lieu of Section 6601 of the Internal Revenue Code.

(2) For purposes of Section 19023, relating to the definition of “estimated tax,” and Section 19142, relating to an addition to tax for underpayment of estimated tax, the tax imposed pursuant to this subdivision is not a tax imposed by this part.

history: (History: Amended by Stats. 2018, Ch. 92, Sec. 199. (SB 1289) Effective January 1, 2019.)


text:
(a) Section 1366(a)(1) of the Internal Revenue Code, relating to determination of shareholder’s tax liability, is modified to apply to the final taxable year of a trust or estate that terminates before the end of the corporation’s taxable year.

(b) Section 1366(d)(1)(A) of the Internal Revenue Code, relating to losses and deductions that cannot exceed shareholder’s basis in stock and debt, is modified to additionally provide that the adjusted basis of a shareholder’s stock in the “S corporation” is to be decreased by distributions by the corporation that were not includable in the income of the shareholder by reason of Section 1368 of the Internal Revenue Code.

(c) Section 1366(d)(3) of the Internal Revenue Code, relating to carryover of disallowed losses and deductions to post-termination transition period, is modified to provide that to the extent that any increase in adjusted basis described in Section 1366(d)(3)(B) of the Internal Revenue Code would have increased the shareholder’s amount at risk under Section 465 if the increase had occurred on the day preceding the commencement of the post-termination transition period, rules similar to the rules described in Section 1366(d)(3)(A) to (C), inclusive, of the Internal Revenue Code shall apply to any losses disallowed by reason of Section 465(a) of the Internal Revenue Code.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 8. Effective January 1, 2004.)


text:
(a) With respect to credits that are otherwise allowed to reduce the taxes imposed under this part:

(1) The amount of any credit to be claimed shall be limited to one-third of the amount otherwise allowable.

(2) (A) Any unused portion of the credit allowable under paragraph (1) (one-third of the total credit) shall be allowed to be carried forward and may not be subject to additional reductions under paragraph (1) in later years.

(B) No carryforward shall be allowed for the portion of the credit denied under paragraph (1) (two-thirds of the total credit).

(C) Credits carried forward from taxable years beginning prior to the first taxable year in which the corporation is treated as an “S corporation” under this part, shall be reduced in accordance with paragraph (1) for that first taxable year and may not be subject to additional reductions under paragraph (1) in later years.

(D) The provisions of paragraphs (2) and (3) of subdivision (f) of Section 23802 shall be applied prior to the reduction required by paragraph (1).

(E) No portion of any credit to which this subdivision applies shall be passed through to the shareholders of the “S corporation.”

(F) The provisions of this subdivision do not affect the amount of any credit computed under Part 10 (commencing with Section 17001) for pass through to shareholders in accordance with the provisions of Section 1366 of the Internal Revenue Code.

(b) Section 1366(f) of the Internal Revenue Code, relating to special rules, shall be modified as follows:

(1) The amount of tax used to compute the loss allowed by Section 1366(f)(2) shall be the amount of tax imposed on built-in gains under this part.

(2) The amount of tax used to compute the reduction allowed by Section 1366(f)(3) shall be the amount of tax imposed on excess net passive income under this part.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 9. Effective January 1, 2004.)


text: Section 1367(b)(4) of the Internal Revenue Code, relating to adjustments in case of inherited stock, shall apply for decedents dying after December 31, 1996.

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 10. Effective January 1, 2004.)


text:
(a) Section 1371(a) of the Internal Revenue Code, relating to application of Subchapter C rules, is modified to provide that, notwithstanding subdivisions (a) and (e) of Sections 17024.5 and 23051.5, any election by an “S corporation” or its shareholders under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, for federal purposes shall be treated as an election for purposes of this part and a separate election under paragraph (3) of subdivision (e) of Section 17024.5 or 23051.5 shall not be allowed.

(b) No election under Section 338 of the Internal Revenue Code, relating to certain stock purchases treated as asset acquisitions, shall be allowed for state purposes unless the “S corporation” or its shareholders made a valid election for federal purposes under Section 338 of the Internal Revenue Code.

(c) Section 1371(d) of the Internal Revenue Code shall not apply.

(d) (1) Subdivisions (a) and (b) shall apply to any transaction occurring on or after January 1, 1998, in a taxable year beginning on or after January 1, 1997.

(2) Subdivision (c) shall apply to taxable years beginning on or after January 1, 1997.

(e) Section 1371(f) of the Internal Revenue Code, relating to cash distributions following post-termination transition period, shall not apply.

history: (History: Amended by Stats. 2025, Ch. 231, Sec. 86. (SB 711) Effective October 1, 2025.)


text: Section 1372 of the Internal Revenue Code shall be modified so that references to partnership treatment shall be to Internal Revenue Code partnership provisions, as modified by Part 10 (commencing with Section 17001).

history: (History: Added by Stats. 1987, Ch. 1139, Sec. 55. Effective September 25, 1987. Applicable to income years beginning on or after January 1, 1987, by Sec. 241 of Ch. 1139.)


text: Sections 1373 and 1379 of the Internal Revenue Code shall not be applicable.

history: (History: Amended by Stats. 1988, Ch. 11, Sec. 64. Effective February 19, 1988. Applicable to income years beginning on or after January 1, 1988, by Sec. 93 of Ch. 11.)


text:
There is hereby imposed a tax on built-in gains attributable to California sources, determined in accordance with the provisions of Section 1374 of the Internal Revenue Code, relating to tax imposed on certain built-in gains, as modified by this section.

(a) (1) The rate of tax specified in Section 1374(b)(1) of the Internal Revenue Code shall be equal to the rate of tax imposed under Section 23151 in lieu of the rate of tax specified in Section 11(b) of the Internal Revenue Code.

(2) In the case of an “S” corporation that is also a financial corporation, the rate of tax specified in paragraph (1) shall be increased by the excess of the rate imposed under Section 23183 over the rate imposed under Section 23151.

(b) The provisions of Section 1374(b)(3) of the Internal Revenue Code, relating to credits, are modified to provide that the tax imposed under subdivision (a) may not be reduced by any credits allowed under this part.

(c) The provisions of Section 1374(b)(4) of the Internal Revenue Code, relating to coordination with Section 1201(a), do not apply to taxable years beginning before January 1, 2018, and ending before January 1, 2025.

(d) (1) For corporations described in paragraph (2), the provisions of Sections 1374(c)(1) and 1374(d)(7) of the Internal Revenue Code apply, based upon the effective date of the election to be treated as an “S” corporation for federal tax purposes, regardless of the date on which the corporation became an “S” corporation for state tax purposes.

(2) This subdivision applies to a corporation that, for its last taxable year beginning before January 1, 2002, was an “S” corporation for federal tax purposes and a “C” corporation for purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part, and, as a result of the enactment of Chapter 35 of the Statutes of 2002, is an “S” corporation for the corporation’s taxable years beginning on or after January 1, 2002.

(e) Section 1374(d)(7)(A) of the Internal Revenue Code, relating to recognition period, is modified by substituting “10-year” in lieu of “5-year.”

(f) The amendments to this section made by Section 1 of Chapter 782 of the Statutes of 2004 shall apply to taxable years beginning on or after January 1, 2002.

history: (History: Amended by Stats. 2025, Ch. 231, Sec. 87. (SB 711) Effective October 1, 2025.)


text:
Except as otherwise provided in this section, there is hereby imposed a tax on passive investment income attributable to California sources, determined in accordance with the provisions of Section 1375 of the Internal Revenue Code, relating to tax imposed on passive investment income, as modified by this section.

(a) The tax imposed under this section may not be imposed on an “S corporation” that has no excess net passive income for federal income tax purposes determined in accordance with Section 1375 of the Internal Revenue Code.

(b) (1) The rate of tax shall be equal to the rate of tax imposed under Section 23151 in lieu of Section 11(b) of the Internal Revenue Code.

(2) In the case of an “S corporation” that is also a financial corporation, the rate of tax specified in paragraph (1) shall be increased by the excess of the rate imposed under Section 23183 over the rate imposed under Section 23151.

(c) Section 1375(c)(1) of the Internal Revenue Code, relating to credits, is modified to provide that the tax imposed under subdivision (a) may not be reduced by any credits allowed under this part.

(d) The term “subchapter C earnings and profits” or “accumulated earnings and profits” as used in Section 1375 of the Internal Revenue Code shall mean the “subchapter C earnings and profits” of the corporation attributable to California sources determined under this part, modified as provided in subdivision (e).

(e) (1) In the case of a corporation that is an “S corporation” for purposes of this part for its first taxable year for which it has in effect a valid federal S election, there shall be allowed as a deduction in determining that corporation’s “subchapter C earnings and profits” at the close of any taxable year the amount of any consent dividend (as provided in paragraph (2)) paid after the close of that taxable year.

(2) In the event there is a determination that a corporation described in paragraph (1) has “subchapter C earnings and profits” at the close of any taxable year, that corporation shall be entitled to distribute a consent dividend to its shareholders. The amount of the consent dividend may not exceed the difference between the corporation’s “subchapter C earnings and profits” determined under subdivision (d) at the close of the taxable year with respect to which the determination is made and the corporation’s “subchapter C earnings and profits” for federal income tax purposes at the same date. A consent dividend must be paid within 90 days of the date of the determination that the corporation has “subchapter C earnings and profits.” For this purpose, the date of a determination means the effective date of a closing agreement pursuant to Section 19441, the date an assessment of tax imposed by this section becomes final, or the date of execution by the corporation of an agreement with the Franchise Tax Board relating to liability for the tax imposed by this section. For purposes of Part 10 (commencing with Section 17001), Part 10.2 (commencing with Section 18401), and this part, a corporation must make the election provided in Section 1368(e)(3) of the Internal Revenue Code.

(3) If a corporation distributes a consent dividend, it shall claim the deduction provided in paragraph (1) by filing a claim therefor with the Franchise Tax Board within 120 days of the date of the determination specified in paragraph (2).

(4) The collection of tax imposed by this section from a corporation described in paragraph (2) shall be stayed for 120 days after the date of the determination specified in paragraph (2). If a claim is filed pursuant to paragraph (3), collection of that tax shall be further stayed until the date the claim is acted upon by the Franchise Tax Board.

(5) If a claim is filed pursuant to paragraph (3), the running of the statute of limitations on the making of assessments and actions for collection of the tax imposed by this section shall be suspended for a period of two years after the date of the determination specified in paragraph (2).

history: (History: Amended by Stats. 2003, Ch. 268, Sec. 13. Effective January 1, 2004.)


text:
Section 1377(b)(2) of the Internal Revenue Code, relating to determination defined, is modified to include, in addition to the items specified therein, the following:

(a) A decision by the State Board of Equalization that has become final.

(b) A closing agreement made under Article 6 (commencing with Section 19441) of Chapter 6 of Part 10.2.

(c) A final disposition by the Franchise Tax Board of a claim for refund.

history: (History: Added by Stats. 1997, Ch. 611, Sec. 76. Effective October 3, 1997.)


text:
The tax on any taxpayer for a period beginning in one calendar year (called “first calendar year”) and ending in the following calendar year (called “second calendar year”) where the law applicable to the computation of taxes for calendar year taxpayers for the second calendar year is different from the law applicable to computation of taxes for calendar year taxpayers for the first calendar year, shall, except as otherwise provided, be the sum of:

(a) The same proportion of a tax for the entire period, determined under the law and rates applicable to the first calendar year which the portion of the period falling within the first year is of the entire period; and

(b) The same proportion of a tax for the entire period, determined under the law and rates applicable to the second calendar year which the portion of the period falling within the second calendar year is of the entire period.

Any tax that has been paid under the law applicable to the first calendar year if in excess of the tax imposed by this section shall be refunded or credited to the taxpayer as provided in Chapter 22. Any tax in addition to that paid under the law applicable to the first calendar year made necessary by this article shall be immediately due and payable upon notice and demand from the Franchise Tax Board.

history: (History: Added by Stats. 1955, Ch. 938.)

chapter: 5. Computation of Tax When Law Changed

path: 2. OTHER TAXES > 11. CORPORATION TAX LAW > 5. Computation of Tax When Law Changed