The California Franchise Tax Board (FTB) issued FTB Notice 2016-04 to announce changes to extensions of time for filing certain returns for taxpayers subject to the state's Corporation Tax Law, including tax-exempt organizations, for tax years beginning on or after January 1, 2016.

Background

Under California law,¹ the FTB may grant reasonable extensions of time for taxpayers subject to the state's Corporation Tax Law to file their returns. An extension, however, may not exceed seven months from the due date of the return. In 1992, the FTB announced (FTB Notice 92-11) a seven-month extension for C corporation returns, giving taxpayers filing returns beginning in 1993 until the 15th day of the 10th month after the close of their tax year to file. In 2016, California law was amended to correspond with federal law by making the original due date for C corporation returns the 15th day of the fourth month after the close of the tax year for returns reporting on tax years beginning on or after January 1, 2016. (See Tax Alert 2016-1617).

Changes to extension term

FTB Notice 2016-04 announced a reduction to the extension term for C corporations to six months, maintaining extended due dates for C corporations and limited liability companies taxed as C corporations as the 15th day of the 10th month after the close of the tax year (October 15 for calendar-year taxpayers) for "all taxpayers in good standing²" filing:

— Form 100, California Corporation Franchise or Income Tax Return

— Form 100W, California Corporation Franchise or Income Tax Return — Water's Edge Filers

For tax-exempt organizations, the automatic extension of time to file beyond the original due date of the 15th day of the 5th month after the close of the tax year is now six months for:

— Form 109, California Exempt Organization Business Income Tax Return

— Form 199, Exempt Organization Annual Information Return

To qualify for the automatic extension, a taxpayer must file its return within the extended time and pay any tax due by the original due date; there is no requirement to file a written request.

Effective for tax years beginning on or after January 1, 2016, FTB Notice 2016-04 specifies extended filing deadlines for:

— Tax-exempt organizations: the 15th day of the 11th month after the close of the tax year

— Cooperative associations (described in CR&TC Section 24404 ): the 15th day of the 15th month after the close of the tax year

— S corporations: the 15th day of the 9th month after the close of the tax year

— Employee trusts (under IRC Section 401(a)) and IRAs: 15th day of the 10th month after the close of the tax year

In addition, for tax years beginning between January 1, 2016 and December 31, 2025, FTB Notice 2016-04 announced the extended filing deadline for a short-period C corporation return for a period ending June 30 will be the 15th day of the 10th month after the close of the tax year.

The notice emphasizes that these filing extensions do not extend the time to pay any tax due, and that a failure-to-file penalty will apply based on the original due date for any return not timely filed by the extended due date.

Implications

FTB Notice 2016-04 operates to reduce the extension of time that tax-exempt organizations currently have for filing California Form 199, Exempt Organization Annual Information Return, and California Form 109, California Exempt Organization Business Income Tax Return. Prior to this notice, tax-exempt organizations were allowed an automatic seven month extension of time to file Form 199 and Form 109 beyond the original due date of the 15th day of the 5th month after the close of their tax year. FTB Notice 2016-04 shortens the automatic extension period for filing Form 109 and Form 199 to six months. This means that the extended due date for filing Form 109 and Form 199 of December 15th (for calendar year filers having an initial deadline of May 15th) will be shortened to November 15th. The extension of time to file will remain automatic and tax-exempt organizations will not be required to submit any written extension requests.

Please contact your EY professional for further information.

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RELATED RESOURCES

— For more information about EY's Exempt Organization Tax Services group, visit us at www.ey.com/ExemptOrg

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ENDNOTES

¹ CR&TC Section 18604.

² Remember, entities that are suspended or forfeited by either the FTB or the California Secretary of State are not entitled to an extension of time to file income or franchise tax returns.