All the Other Filings to Make Sure Your California 501(c)(3) Gets Off to a Compliant Start

If you have been following along, we have been conducting a series of posts on how to launch a 501(c)(3) nonprofit in California. Now that the Defending Equity Initiative has filed its Articles of Incorporation and is officially formed in California, we need to complete the initial filings with various key regulators to properly set up our new nonprofit.

As the Managing Paralegal here at MLC, part of my job is to make sure all of the initial filings and registrations get done  – the same goes for the nonprofit we just formed.

A few disclaimers:

• Like with all of our other blog posts – this post is not intended as legal advice – we recommend that you work with a law firm or other experts if you can to launch a nonprofit.  These are just samples of how we work through some of these forms that you might use as a reference.

• These are the filings required for a California nonprofit that is only operating and soliciting charitable donations in California.  If you’re incorporated in a different state or operating in other states you probably have different filings to worry about.  California gives you a good idea of the type of forms states want, but every state is a little bit different.

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EIN Application (IRS Form SS-4 and Online Form)

This is actually something that needs to be done early on. Without the EIN, you won’t be able to file IRS Form 1023, and you won’t be able to create a bank account.

When forming a California nonprofit, as soon as we get back the filed Articles of Incorporation from the California Secretary of State, we apply for an Employer Identification Number (more commonly known as EIN), a 9-digit number that the IRS will assign to our new nonprofit for tax filing and reporting purposes. This EIN will also enable us to open a bank account for the Defending Equity Initiative.

The first step is to complete IRS Form SS-4 – this is a blank form; here is how we filled ours in. Most of the answers are self-explanatory, but let me highlight a few lines that sometimes confuse people and how we filled them in here. Remember, just because we filled them in this way doesn’t necessarily mean you should, too – every organization is different, and this isn’t intended to be legal advice.

• Lines 7a and 7b, Responsible Party and their Social Security Number: The Responsible Party is the person who ultimately owns or controls the entity or who exercises ultimate effective control over the entity. Usually, we would list the person serving as the President of an organization and enter their full name (first name, middle initial, last name, if applicable) and their Social Security Number. We did that for Karl here, though we left his SSN off the form we are sharing with you of course.

• Line 9a, Type of Entity: We typically check the “Other nonprofit organization (specify)” box and enter 501(c)(3) or another tax-exempt status that is applicable to the new nonprofit (e.g., 501(c)(4), 501(c)(5), etc.).

• Line 10, Reason for Applying: We typically check the “Started new business” box.

• Line 13, Employee(s): If your new nonprofit plans to hire employees within the next 12 months, you need to specify that number under the “Other” column. If you plan to hire employees but are unsure about the number, you can enter an estimate. The IRS just wants to know if your organization plans to hire employees so they can send employment-related information, like W2s, etc.

  • Line 14, Employment Tax Liability: We don’t usually check this box unless you expect your new nonprofit’s employment tax liability to be $1,000 or less in a full calendar year and want to file Form 944 annually instead of Forms 941 quarterly.

• Signature: The same officer who provided their Social Security Number (usually the President) would typically sign and date this form.

Once complete, you can apply for an EIN through the IRS online portal. The Form SS-4 should have most of the information you need to fill it in. Assuming there are no errors or issues, you should be able to obtain an EIN for your new nonprofit within a few minutes.

Remember: this is just an EIN.  It doesn’t meet you have tax-exempt status – that’s what the Form 1023 is for. This is just getting your organization on the IRS’s radar.

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Initial Statement of Information, filed with the California Secretary of State

If you incorporated in California, your new nonprofit is required to file a Statement of Information with the California Secretary of State within the first 90 days of incorporation. This report asks for the following information:

• Principal Address (you cannot use a P.O. box address here – it needs to be a physical street address)

• Mailing Address

• Chief Executive Officer or President

• Secretary

• Chief Financial Officer or Treasurer

• Agent for Service of Process (an individual residing in California or a service provider, such as National Registered Agents, Inc., can fill this role – you need to list a California physical street address here)

• Type of Business

• Confirming that the officers and directors of your new nonprofit do not have an outstanding final judgment issued by the Division of Labor Standards Enforcement or a court of law, for which no appeal therefrom is pending, for the violation of any wage order or provision of the Labor Code.

You can file this report electronically through bizfile Online. Here is what was printed out after we filled ours in.  After you file this initial Statement of Information, your new nonprofit needs to file this report every other year. You can confirm this biennial report filing deadline for your nonprofit through the California Secretary of State database.

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Initial Registration Form CT-1, filed with the California Attorney General’s Office

Your new nonprofit also needs to register with the California Attorney General’s office by filing a Form CT-1. Here is a copy of what we will be filing. Every charitable corporation holding assets for charitable purposes or doing business in California, unless exempt (e.g. religious corporations, colleges, schools), is required to register with the Attorney General within thirty (30) days after receipt of assets (e.g., cash or other forms of property).

As you complete this form, please please take account a few items that commonly raise questions:

• Part E, Date Assets First Received in/from California: This can be the date your nonprofit first received a donation from a California donor or opened a bank account in California.

• Part H, Fundraising Professionals: Review this carefully if it applies to you and answer honestly – commercial fundraisers, fundraising counsels, and commercial coventurers are engaged in regulated activity and this is where the AG asks whether you are working with any.  If you’re unsure, check out the AG’s website on this topic. 

• Question 3, Common Control, Close Connection With, and Related to Any Other Organization: The Attorney General wants to know if there’s another organization in the picture that it would consider “related”. You should answer Yes and provide the name of the related organization if your nonprofit and the related organization has:

  • A majority of directors or officers appointed by the same organization(s) or person(s),

  • A majority of directors or officers consisting of the same individuals,

  • Control of one organization by another through common directors or officers,

  • Coordination or sharing of operations as to facilities, programs, employees, or other activities,

  • Common persons exercising substantial influence over the organizations, or

  • Control over the other (in either direction).

Once your nonprofit is registered with the California Attorney General’s office, you will need to track and file an annual report (Form RRF-1), which is due four months and fifteen days after the end of an organization's accounting period. If your nonprofit has a fiscal year end of December 31st, then the Form RRF-1 filing deadline is May 15 of every year. If a six-month extension is requested on the organization's IRS Form 990 series, the Form RRF-1 filing deadline is extended automatically. We recommend working with a CPA or your Treasurer to maintain this annual filing. If you have charitable solicitation registrations in many states, it may make sense to work with a multistate charitable solicitation registration service, like MLC Compliance.

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Submission of Exemption Request, Form 3500A, filed with the California Franchise Tax Board

Once you receive a determination letter from the IRS granting tax exemption (under IRC Sections 501(c)(3), 501(c)(4), 501(c)(5), 501(c)(6), 501(c)(7), or 501(c)(19)) to your nonprofit, you will need to file a Form 3500A so that the California Franchise Tax Board will recognize your nonprofit’s tax-exempt status at the state level. We actually have not done this one for Defending Equity Initiative because we are waiting until we get the federal determination letter – which will probably be another 5-8 months from when we filed it.

We recommend taking some time to go over these items on the form:

• Part I – Entity Information, Line 4: You will need to provide total revenue or gross receipts amounts for the current year and the three immediately preceding taxable years in existence, if applicable. For the current year, and if your nonprofit has been in existence for less than one year, you can list the projected amount. We’ll provide an updated projection based on how things look when we end up filing this.

• Part III – Purpose and Activity: Check the box that best fits your nonprofit’s primary purpose and activity. We’ll be checking “charitable” for ours when the time comes.

Similar to the California Attorney General, your nonprofit will also need to adhere to annual filing obligations with the Franchise Tax Board and submit an annual return (Form 199 series), which is due on the 15th day of the 5th month after the close of the organization's tax year. If your nonprofit has a fiscal year end of December 31st, then the Form RRF-1 filing deadline is May 15 of every year. The Franchise Tax Board grants an automatic six-month extension if the organization is in good standing on the return's original due date. Again, we recommend you work with a CPA or your Treasurer to maintain this annual filing.

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If you’ve made it to the end of all these filings for your new organization, congratulations on completing this big step! It’s important that your nonprofit complies and continues to be in good standing with these regulatory agencies.  Getting back in compliance once you fall out of it is much harder than just doing everything correctly from the beginning.

If you ever need a reminder or more information about the initial California filings process or ongoing reports your nonprofit must maintain, please feel free to come back to this blog post to refresh your memory.