It can be a blessing and also a burden to be a church operating in California. We live in the state that receives more scrutiny from government entities than most others. California Southern Baptist churches need to be concerned about three entities: California Secretary of State, Franchise Tax Board and Internal Revenue Service.
State of California Statement of Information (SOI)
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.
Every incorporated church must complete a statement of information every other year designating three officers and the 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 the fee is $20, which can be paid by credit card.
Penalty for not filing the SOI
What happens if a church does not file a SOI? Instead of operating in active status the church becomes a suspended corporation. This means the church may not operate. The church 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 will also be fined for not completing a SOI. Additional penalties will be added to the fines the longer the church waits to file. Consequently, 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 the church 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 form. Fill out this form 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 today from time to time change their name. It is alright to do so, but you must remember the church's 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 website . 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 the corporate income tax. Nonprofit corporations have to pay this tax as well, though churches are the exception. In order for the church to be exempt, the church must fill out the FTB 3500A, which can be accessed in English or Spanish (available in a pdf format). Fill out this one-page document and mail it to the FTB. Once the document has been processed, the church will no longer be charged the $800.
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. From time to time, churches contact CSBC with 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 involuntary action to collect delinquent taxes.
Maintaining active status
This is a one-time filing. Once the church has filed its FTB 3500A form, the church 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. Cooperating 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 for the church as long as it remains a cooperating congregation.
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.
Both the IRS and State of California have a plethora of forms the church needs to file. A list of those forms can be access by clicking here.
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