It can be a blessing and also a burden to be a church operating in California. We live in a state that receives more scrutiny from government entities than most. California Southern Baptist churches need to be concerned about three entities: California Secretary of State, Franchise Tax Board and Internal Revenue Service.
Every church is a church in entity by IRS law. This means that every member in the church can be sued if the church is not incorporated. When a church incorporates, an “artificial man” is created. This means the church corporation can be sued, but gives some protection against individuals inside the corporation being sued. Your church can fill out IRS form 1023 for individual entity incorporation -- you may need to do this if you plan to have another organization within your church, such as a Christian school or a store.
A simpler way to deal with the issue is to apply for a customized letter from California Southern Baptist Convention. This letter states that your church is part of the CSBC family and is in good standing with the Convention. To be in good standing, your church must give annually to the Cooperative Program through our CSBC office. Contact Sherri Bridges at 559-229-9533, ext. 214 for qualification; she will then issue a customized letter.
State of California Statement of Information (SOI)
Every incorporated church must complete a statement of information every other year designating three officers and an “agent for service of process.” The three officers are the chief executive officer (pastor), chief financial officer (church treasurer) and secretary (church clerk); the agent for service of process is often the CEO. This form is filed electronically and there is a $20 fee, payable by credit card.
Penalty for Not Filing the SOI
What happens if a church does not file an SOI? Instead of operating in active status the church becomes a suspended corporation. This means the church may not operate -- it may not pay salaries, may not enter into a lawsuit, may not defend itself in a lawsuit and may not take offerings. Basically, the church must cease operating as a church. The church also will be fined for not completing an SOI. Additional penalties will be added to the fines the longer the church waits to file. Therefore, it is very important for churches to remain in active status.
Maintaining Active Status
Maintaining active status is not difficult. Churches receive a postcard from the State of California letting them know when it’s time to fill out the SOI. (If a postcard isn't received, the church still is obligated to submit the form.) Here is the link for the SOI. Fill it out and use a credit card to pay the $20 fee.
Church status can be checked at http://kepler.sos.ca.gov/ by filling in the corporate name. Be sure to check the corporate name box and use the church's legal name on file. Churches sometimes change their name, which is fine, but you must remember the original name. If the church changes its name, the Secretary of State must be notified. If the church moves, the Secretary of State also must be informed about the address change. The Secretary of State will not forward the notification card, so the church may not even know it is supposed to submit the SOI.
Once the SOI is filed, the church should be able to check its status in about a week. The status (the last time the SOI was filed) will be noted on the top left of the status pane, once you have completed a name search for your church. If the filing is current, but the church's status is still suspended, the Franchise Tax Board form probably hasn't been completed. Until that form is filed, the church's status will remain suspended.
Franchise Tax Board (FTB)
What is a franchise tax? Per Wikipedia, the FTB levies a franchise tax on businesses for doing business in California. The FTB's name reflects the fact that it originally was created to collect this tax. The agency's name was left unchanged even after the state created a personal income tax and added it to the FTB's responsibilities.
The corporate tax is imposed on businesses in California. Annually, the FTB collects more than $10 billion from it. Nonprofit corporations have to pay this tax as well, though churches are the exception. In order for the church to be exempt, it must fill out the FTB 3500A, which can be accessed in English or Spanish (available in PDF format). Fill out this one-page document and mail it to the FTB. Once it has been processed, the church will no longer be charged an $800 fee.
Penalty for Not Filing the FTB 3500A
The FTB will send a bill for $800 annually to any entity that has not filed the FTB 3500A. Churches sometimes contact CSBC wondering about a bill, because they have failed to file. At some point the FTB will take further action, including a garnishment on the church, liens and collection cost recovery fees when they must take action to collect delinquent taxes.
Maintaining Active Status
This is a one-time filing. Once the church has filed its FTB 3500A, it should have no further contact from the FTB.
Internal Revenue Service
Every church has a general exemption from the IRS code. Every church must be incorporated in order to limit personal liability. CSBC has a corporate umbrella exemption for all cooperating Southern Baptist churches. Churches must contribute to the Cooperative Program in order to be considered cooperating. Cooperating churches may obtain a customized letter from CSBC by calling 559-229-9533, ext. 214. This letter is in force as long as the church remains a cooperating congregation.
New in 2014, the IRS now requires churches to give their current address and a responsible party on form 8822-b. This form must be filed whenever either piece of information changes.
Churches should not file form 990. If the IRS requests a 990, send a copy of the customized letter. Churches will file a 990T if they have unrelated business income.
For more information contact:
CP Ministries & Church Finance Specialist
678 E. Shaw Avenue
Fresno, CA 93710-7704
559.229.9533 x. 258
E-mail Rod Wiltrout
Director of Strategic Giving
678 E. Shaw Avenue
Fresno, CA 93710
559.229.9533 x. 267
E-mail Judy Logan