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Penalties, IRS, FTB, Current Topcis, Tax Exempt Colette Karam Penalties, IRS, FTB, Current Topcis, Tax Exempt Colette Karam

California Updates UBTI Conformity for Exempt Organizations: What Nonprofits Should Review Now

California’s Franchise Tax Board recently highlighted an important conformity update for tax-exempt organizations. In its June 2026 Tax News, FTB explained that Senate Bill 711 updated California’s conformity to Internal Revenue Code section 512 as of January 1, 2025, subject to California-specific modifications.

For California nonprofits and other exempt organizations, this matters because California is now aligning more closely with the federal rules requiring separate reporting of unrelated business taxable income, commonly referred to as UBTI, for each unrelated trade or business under IRC section 512(a)(6).

This is not merely a form change. It may require exempt organizations to revisit how they identify unrelated business activities, track revenue and expenses, allocate shared costs, preserve net operating loss information, and prepare for future California reporting requirements.

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