Filing Requirements - Form 109, Exempt Organizations Business Income Tax Return

R&TC Section 23771 sets forth the requirements as to which exempt organizations must file Form 109 when they have income in excess of $1,000 from a trade or business that is unrelated to their exempt purposes – even if the profits are used for exempt purposes. California and federal laws are generally the same with regard to unrelated business income.

Exceptions: The following organizations do not file Form 109:

  • Organizations formed to carry out a function of the state and controlled by the state.
  • Political organizations exempt under R&TC Section 23701r and homeowners’ associations exempt under R&TC Section 23701t must refer to the Form 100 filing requirements.

Due date

The due date for Form 109 depends upon how the organization was created.

  • An incorporated organization, unincorporated association, or trust (other than a pension trust) must file on or before the 15th day of the 5th month after the close of its taxable year. If the taxable year ends on December 31, the return is due on May 15.
  • A pension trust must file on or before the 15th day of the 4th month after the close of its taxable year. If the taxable year ends on December 31, the return is due on April 15.

If the due date falls on a Saturday, Sunday, or legal holiday, file by the next regular workday.

Tax rates

The rate at which tax is computed depends upon how the organization was created.

  • An incorporated organization or unincorporated association computes its tax using the general corporation tax rate.
  • A trust computes its tax using the trust rate. That rate is the same as the rate used by single individuals on their personal income tax returns. If the trust’s taxable year is a fiscal year, use the rate for the calendar year in which the fiscal year began. (Example: If the fiscal year began July 1, 2005, use the rate for 2005.)

Penalties

  • Post-Amnesty Penalty: We impose a penalty when your organization owes new or additional tax on a tax year that qualified for tax amnesty. The penalty is equal to 50 percent of the interest that accrued on the tax assessment from the original due date of tax to March 31, 2005. You cannot protest this penalty. You can file a claim for refund of this penalty only on the grounds that Franchise Tax Board did not properly compute the amount of the penalty. (R&TC Section (19777.5(a)(2))
  • Delinquent Penalty: If you do not file your organization’s tax return by the extended due date, we impose a penalty of 5 percent of the tax due, after applying any payments and credits made on or before the original return due date, for each month or part of a month the return is late. The maximum penalty is 25 percent. We impose the penalty from the original due date of the return. (R&TC Section 19131)
  • Demand to File Penalty: If we send you a demand to file your organization’s tax return and you do not file it, we impose a penalty of 25 percent of the tax liability before applying any payments or credits. Therefore, your organization may owe penalties and interest even if its tax return shows that a refund is due. This penalty is in addition to the 25 percent delinquent penalty. (R&TC Section 19133)
  • Underpayment and Monthly Penalty: We impose a penalty if you do not pay the total amount due shown on your organization’s return by the original due date. The penalty is 5 percent on the unpaid tax, plus 0.5 percent on the unpaid tax for each month or part of a month it remains unpaid. The maximum penalty is 25 percent of the unpaid tax. (R&TC Section 19132)
  • Underpayment of Estimated Tax Penalty: We impose a penalty if your organization does not pay, pays late, or underpays an estimated tax installment. We calculate the penalty on the unpaid amount from the due date of the estimated tax installment to the date we receive your payment, or to the due date of the return, whichever is earlier. (R&TC Section 19142-19161)

Extension of time to file

The extension allows you more time to file the return, not an extension of time to pay any taxes that may be due.

We will grant an automatic 7-month extension to file a return if both of the following conditions exist:

  • Your organization is not suspended on the original due date.
  • You file your organization’s return on or before the extended due date.

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