California Code, Revenue and Taxation Code - RTC § 17635

(a) An organization described in Section 401(a) of the Internal Revenue Code 1 which is subject to the provisions of this section shall not be exempt from taxation under Section 17631 if it has engaged in a prohibited transaction after December 31, 1960.

(b) An organization described in Section 401(a) of the Internal Revenue Code shall be denied exemption from taxation under Section 17631 by reason of subdivision (a) only for taxable years after the taxable year during which it is notified by the Franchise Tax Board that it has engaged in a prohibited transaction, unless the organization entered into the prohibited transaction with the purpose of diverting corpus or income of the organization from its exempt purposes, and the transaction involved a substantial part of the corpus or income of the organization.