How to get CA tax-exemption by filing federal exempt 1023-EZ after 27 months? Would denial of a 2nd 3400 application be fatal?
If we can get federal tax-exemption apply retroactively since the beginning then that can help us get the CA tax-exempt status more easily (we'll have to file much easier 3500A form instead of California 3500 form).
1023-EZ instructions state the following to request retroactive tax-exemption after 27 months.
If you do not file Form 1023-EZ within 27 months of formation,
and you believe you qualify for an earlier effective date than the
submission date, you can request the earlier date by sending
correspondence to the address below. The correspondence
should ..the effective date you are requesting, an explanation of why the
earlier date is warranted, and any supporting documents.
Our explanation is: we thought per 1023-EZ instructions we were already federal tax-exempt due to $0 revenues (the form instructions suggest so).
Does it mean that we can still get federal exemption and then CA exemption retroactively?
1 attorney answer
Unless you actually incorporated, your formation date may be later and the 27 month window possibly open still. If you did incorporate, you can still file the 1023ez. When the determination letter arrives and does not show it retroactive, at that point you will send in the referenced correspondence. Alternately, you prepare the full 1023, pay the higher application fee and complete Schedule E in an attempt to receive retroactive status at the outset. The explanation statement you provided for not filing the 1023 earlier may not be sufficient. The sooner you file the 1023, the more likely it will be granted retroactive status.
Keep in mind, if you did incorporate within CA, until you submit your 3500 application, you may be subject to the $800 franchise fee (FTB retroactive status is important). You should also be going online and filing 199N returns to minimize issues. You can mark IRS determination is pending. Trying to avoid the work of a full 3500 may be costly.
Once you obtain exemption - very important you file with both IRS and FTB so as not to lose status.
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Answers are intended as general informational purposes only and may not be used as legal and/or tax advice. Questions generally require further evaluation, any reliance is not intended. An attorney/client relationship is not formed nor inferred.