Summary of Developments Related to Advising California Nonprofit Corporations

Courtesy of CEB, we are bringing you selected legal developments in areas of California business law that are covered by CEB’s publications. This month’s feature is a preview of the July 2025 update of Advising California Nonprofit Corporations. References are to the book’s section numbers. The most significant developments since the last update include a discussion of the Corporate Transparency Act, the status of which remains in legal limbo.

The Corporate Transparency Act (CTA) (31 USC §5336), the final status of which has yet to be determined, would require all persons/entities who have substantial control over or who own 25 percent or more of a company subject to the CTA that was formed (i.e., registered with the respective Secretary of State’s office) to file either themselves or someone else on behalf of the “reporting company,” a Beneficial Ownership Information Report (BOIR) with the Financial Crimes Enforcement Network (FinCEN). The status of the CTA is yet to be determined based on the resolution of several court cases involving constitutional challenges as well as the pending issuance of final regulations from the Department of the Treasury. On March 2, 2025, a press release from the U.S. Department of the Treasury (Treasury) announced that penalties or fines for failure to comply with existing CTA regulatory filing deadlines would not be enforced. Moreover, the press release stated that Treasury would not enforce subsequent penalties or fines for CTA noncompliance, following the issuance of new federal rulemaking, against U.S. citizens or domestic reporting companies (and their beneficial owners). The March 2, 2025, announcement can be found on Treasury’s website at https://home.treasury.gov/news/press-releases/sb0038. While U.S. citizens and domestic reporting companies (and their beneficial owners) are, at the time of this writing, theoretically immune from penalties and fines for noncompliance with the CTA, those foreign domestic companies and beneficial owners who are not U.S. citizens may still be subject to CTA compliance in the future, or could face fines or penalties. Accordingly, when advising California nonprofit corporations with an ownership in foreign entities or with foreign individuals serving as board members, counsel should ensure the CTA has been complied with. As of the time of this writing, the extent of the CTA’s effect has been the subject of ongoing litigation in federal courts (including the U.S. Supreme Court). Advisors should be aware of the CTA and potential compliance issues as this area of law evolves. See §§1.40, 5.71; chap 2A.

Fiscal sponsorships may also be donor‑advised funds, requiring adherence with the Pension Protection Act of 2006 (PPA) (Pub L 109–280, 120 Stat 780) and the proposed regulations. See §3.81. 

The Fifth Circuit has held that the “no substantial nonexempt purpose” test, rather than the “primary purpose” test, is the appropriate standard by which to evaluate a §501(c)(4) organization’s qualification for exemption. See Memorial Hermann Accountable Care Org. v Commissioner (5th Cir 2024) 120 F4th 215. See §3.48.

A meeting of the members may be conducted, in whole or in part, by electronic transmission by and to the corporation or by electronic video screen communication if one or more of the following conditions apply: (A) All of the members consent; or (B) the board determines it is necessary or appropriate because of an emergency; or (C) the meeting includes a live audiovisual feed for the duration of the meeting. See §7.23.

Beginning January 1, 2024, for certain taxable sales on or before June 30, 2029, special reporting rules apply to certain taxable sales on or within the real property of a confirmed “historic venue” in Alameda, Los Angeles, and Santa Clara counties and their cities. This statute sunsets on November 1, 2030. Rev & T C §7103. See §8.63.

Effective until January 1, 2027, property owned by a community land trust (as defined in Rev & T C §402.1(a)(11)(C)(ii)), which is being or will be developed or rehabilitated for affordable housing, is eligible for the welfare exemption if certain requirements are met. Rev & T C §214.18. However, the property shall be subject to tax if the property was not developed or rehabilitated, or if the development or rehabilitation is not in the course of construction, as follows: (a) in the case of property acquired by the community land trust before January 1, 2022, by January 1, 2027; and (b) in the case of property acquired by the community land trust on and after January 1, 2022, and before January 1, 2027, within 5 years of the lien date following the acquisition of the property by the community land trust. Rev & T C §214.18(d)(1).  See Letter to Assessors No. 2021/052 (Dec. 1, 2021). See §11.38A.

California employers are generally subject to unemployment insurance (UI) taxes on the taxable wages paid to employees. No similar tax is imposed on employees. The tax rate for new employers is 3.4 percent of each employee’s wages up to a prescribed dollar amount ($7,000 in 2025) for the first 2 or 3 years, depending on whether the new employer meets certain criteria. Un Ins C §§930, 982. See §13.17.

On July 1, 2024, the California Governor signed AB 2288 (2024) and SB 92 (2024) to amend Private Attorneys General Act (PAGA). These changes took effect on January 1, 2025. They include but are not limited to requiring that the “aggrieved employee” have personally suffered each of the violations alleged. However, nonprofit legal aid organizations that have served as counsel of record in PAGA litigation for at least 5 years prior to January 1, 2025, are exempt from this provision. The amendments also reduce the civil penalty amount if there are certain mitigating factors, such as if the alleged violation resulted from an isolated, nonrecurring event, or if the employer took all reasonable steps to comply with the provisions in the notice of violation. The amendments also do not allow employees to “stack” penalties for certain wage violations that are not willful or intentional, if the employee has already collected a penalty for the underlying unpaid wage violation. Additionally, the amendments allow employers to “cure” (correct) more Labor Code violations. These new PAGA changes are not retroactive, and apply only to lawsuits arising on or after June 19, 2024. See §13.35.

Effective January 1, 2025, SB 1100 (2024) makes it an unlawful employment practice for an employer to include a statement in a job advertisement, posting, application, or other material, that an applicant must have a driver’s license, unless both of the following conditions are satisfied: (1) The employer reasonably expects driving to be one of the job functions for the position; and (2) the employer reasonably believes that satisfying the job function using an alternative form of transportation would not be comparable in travel time or cost to the employer. See §13.38.

Effective January 1, 2025, SB 1137 (2024) amended the Fair Employment and Housing Act (FEHA), Unruh Civil Rights Act, and Education Code to recognize the concept of “intersectionality” and establish that discrimination can occur not just because of one protected trait, but also because of a combination of two or more protected traits. See §13.38.

Effective January 1, 2025, AB 1815 (2024) expanded FEHA’s definition of “race” to include traits associated with race, including, but not limited to, hair texture and protective hairstyles (e.g., braids, locs, twists). See Govt C §12926(w)–(x).See §13.38.

Effective January 1, 2025, the Labor Commissioner’s Office developed a model list of employees’ rights and responsibilities under the whistleblower laws that employers must prominently display. See https://www.dir.ca.gov/dlse/WhistleblowersNotice.pdf. See §13.39.

Title 8 Cal Code Regs §3205(j), which addresses reporting and recordkeeping, remains in effect until February 3, 2026. It requires the employer to keep a record of and track all COVID-19 cases with the employee’s name, contact information, occupation, location where the employee worked, the date of the last day at the workplace, and the date of the positive COVID-19 test and/or COVID-19 diagnosis. These records must be retained for 2 years. With the exception of 8 Cal Code Regs §3205(j), the COVID-19 prevention regulations (8 Cal Code Regs §§3205–3205.3) remained in effect until February 3, 2025. Accordingly, as of February 3, 2025, there is no longer a specific set of regulatory requirements relating to COVID-19 prevention in the workplace. Employers will still be required to maintain a safe and healthful place of employment as required by Lab C §6400, and must establish, implement, and maintain an effective Injury and Illness Prevention Program (IIPP) as required by 8 Cal Code Regs §3203. See https://www.dir.ca.gov/dosh/coronavirus/Non_Emergency_Regulations/.  See §13.39.

Effective January 1, 2025, an employee who is a victim of a qualifying act of violence may use vacation, personal leave, paid sick leave, or compensatory time off. A qualifying act of violence includes any of the following: domestic violence, sexual assault, stalking, or an act, conduct, or pattern of conduct where an individual causes bodily injury or death to another; exhibits, draws, or brandishes a firearm or other dangerous weapon to another; and/or makes a reasonably perceived or actual threat of force against another to cause physical injury or death. See Govt C §12945.8. See §13.47.

Charts that contain information on local charitable solicitation permit requirements for California cities and counties have been comprehensively updated. See chap 14A.

The inflation‑adjusted standard deduction is $30,000 for married couples filing jointly and $15,000 for individual taxpayers in 2025 (see Rev Proc 2024–40, 2024–45 Int Rev Bull 1100). See §15.3.

The Tax Cuts and Jobs Act (Pub L 115–97, §11061(a), 131 Stat 2054) amended IRC §2010(c)(3) to add a new subparagraph (C), which increases the estate tax basic exclusion amount from $5 million to $10 million per person, indexed for inflation for estates of decedents dying after 2017 and before 2026. In 2025, the amount is $13,990,000. Rev Proc 2024–40, §3.41. See §15.5. The value of some benefits received from charities by donors is so small that it will not be taken into account to reduce the deduction. Under this de minimis rule, the full charitable gift is deductible if either the fair market value of all benefits received by the donor is no more than 2 percent of the gift or $136 for tax years beginning in 2025 and $68 for tax years beginning in 2025, and the only benefits received are token items (e.g., coffee mug, T‑shirt) bearing the charity’s name or logo and having a total cost of no more than $13.60 for tax years beginning in 2025). See Treas Reg §1.170A–13(f)(8)(i); Rev Proc 2022–38, §3.34, 2022–45 Int Rev Bull 445; Rev Proc 2023–34, §3.34, 2023–48 Int Rev Bull 1287; Rev Proc 2024–40). See §15.21.

Section 307(b) of the Consolidated Appropriations Act, 2023, which has been referred to as “SECURE Act 2.0” (Pub L 117–328, 136 Stat 4459), enacted on December 29, 2022, provides a further benefit to IRA owners by adding subparagraph (G) to IRC §408(d)(8). This amendment indexes the $100,000 IRA distribution limit for inflation effective for tax years beginning in 2023. The inflation-adjusted amount for 2025 is $108,000 (Notice 2024–80, 2024–47 Int Rev Bull 1120). See §15.25.

Several requirements must be satisfied in order for the IRA distribution to qualify under the SECURE Act rules:  The distribution can only be made once, and the maximum amount is $50,000 (indexed for inflation, beginning in 2024). The inflation-adjusted amount for 2024 is $53,000 (Notice 2023–75, 2023–47 Int Rev Bull 1256) and the inflation adjusted amount for 2025 is $54,000 (Rev Proc 2024–80). See §15.46.

A tax‑exempt entity must disclose to the IRS that it is a party to a prohibited tax shelter transaction subject to tax under IRC §4965, and must provide the identities of other participating parties known to the tax‑exempt entity. IRC §6033(a)(2); Treas Reg §1.6033–5. The required disclosure is made on IRS Form 8886‑T. For returns required to be filed in 2026, the penalty for each failure to disclose is $130 per day, not to exceed $65,000 with respect to any one disclosure. IRC §6652(c)(3); Rev Proc 2024–40. If a pay entity or manager of a tax‑exempt entity fails to make the required disclosures after a demand by the IRS, an additional penalty of $130 applies per day, up to $13,000 for any one disclosure. IRC §6652(c)(3)(B)(ii); Rev Proc 2024–40. The penalty amounts are indexed for inflation. See §17.78.

If the corporation is required to make arbitrage payments, it must do so at least once every 5 years. Each payment must equal at least 90 percent of the arbitrage profits. A $1,400 credit may be applied for the bond year ending in 2007, and for bond years ending after 2007, the credit is increased by an amount equal to $1,400 multiplied by a cost‑of‑living adjustment, against rebate payments owed to cover the costs of complying with this rebate requirement. Treas Reg §1.148–3(d)(1)(iv), (d)(4). The credit amount for 2025 is $2,120. Rev Proc 2024–40. See §18.23.

Contributions to a §527 political fund are exempt from gift tax under IRC §2501(a)(1). See IRS Letter Ruling 9652026. The annual gift tax exclusion for 2025 is $19,000 for a single taxpayer and $38,000 for a married couple. Rev Proc 2024–40. The amount of the exemption is adjusted for inflation periodically. See IRC §2503(b). See §19.33.

The rules governing how much candidate electioneering a noncharitable tax-exempt organization may conduct are in dramatic flux as of this writing, particularly for social welfare organizations (IRC §501(c)(4)). Until recently, both the IRS and counsel for social welfare organizations have operated under the principle that a social welfare organization (IRC §501(c)(4)) that wishes to engage in candidate electioneering must ensure that its social welfare programs remain primary, and that its electioneering activities, combined with all other nonsocial welfare activities (such as unrelated business income activities or private benefit activities) remain no more than secondary activities. Rev Rul 81–95, 1981–1 Cum Bull 332. Under the approach, nonsocial welfare activity, including candidate electioneering, is primary in any tax year, the organization’s §501(c)(4) tax status may be revoked. See §19.73.

If the public benefit corporations, religious corporations, and mutual benefit corporations that hold assets in charitable trusts have certain assets that need to be disposed of, then either (1) the disposition shall be made by decree of the superior court of the proper county in proceedings to which the Attorney General is a party (Corp C §6716(b)) or (2) without the decree of the superior court if the Attorney General makes a written waiver of objections to the distribution (Corp C §§6716(c), 8716(c), 9680(e)). See §20.105.

Title 11 Cal Code Regs §316(c) provides that a charitable fundraising platform or platform charity may nonetheless solicit, permit, or otherwise enable solicitations for, or receive, hold, control, or send funds from donations or recommended donations to a charitable organization that is on the “May Not Operate or Solicit for Charitable Purposes” list for a 5-business-day grace period that begins depending on when the list was published (either the first Wednesday of the month or the third). See §22.10A.