D R A F T
FOR DISCUSSION ONLY
OVERSIGHT OF CHARITABLE ASSETS ACT
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
For November 5 – 7, 2010 Committee Meeting
With Prefatory Note and Comments
Copyright © 2010
By
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
____________________________________________________________________________________________
The ideas and conclusions
set forth in this draft, including the proposed statutory language and any
comments or reporter’s notes, have not been passed upon by the National
Conference of Commissioners on Uniform State Laws or the Drafting
Committee. They do not necessarily
reflect the views of the Conference and its Commissioners and the Drafting
Committee and its Members and Reporter.
Proposed statutory language may not be used to ascertain the intent or
meaning of any promulgated final statutory proposal.
October 20, 2010
DRAFTING COMMITTEE ON OVERSIGHT OF CHARITABLE ASSETS ACT
The Committee appointed by and representing
the National Conference of Commissioners on Uniform State Laws in drafting this
Act consists of the following individuals:
K. KING BURNETT, P.O. Box 910, Salisbury, MD 21803-0910, Chair
JAMES BOPP, 1 S. 6th St., Terre Haute, IN 47807
MARY JO H. DIVELY, Carnegie Mellon University, Warner Hall, 6th Floor, 5000 Forbes Ave., Pittsburgh, PA 15213
BARRY C. HAWKINS, 300 Atlantic St., Stamford, CT 06901
LYLE W. HILLYARD, 595 S. Riverwoods Pkwy., Suite 100, Logan, UT 84321
THOMAS L. JONES, University of Alabama Law School, P. O. Box 865557, Tuscaloosa, AL 35486-0050
CARL H. LISMAN, 84 Pine St., P.O. Box 728, Burlington, VT 05402
JOHN J. MCAVOY, 3110 Brandywine St., N.W., Washington, DC 20008
FREDERICK P. STAMP, U.S. District Court, P.O. Box 791, Wheeling, WV 26003
CHARLES A. TROST, Tennessee Department of Revenue, 500 Deaderick St., Suite 1200, Nashville, TN 37242
DAVID S. WALKER, Drake University Law School, 2507 University Ave., Des Moines, IA 50311
LAURA B. CHISOLM,
Case Western Reserve University, 11075 East Blvd., Cleveland, OH 44106, Co-Reporter
SUSAN N. GARY,
University of Oregon, 1515 Agate St., Eugene, OR 97403, Co-Reporter
EX OFFICIO
ROBERT A. STEIN,
University of Minnesota Law School, 229 19th Ave. S., Minneapolis, MN 55455, President
BARRY C. HAWKINS,
300 Atlantic St., Stamford, CT 06901, Division
Chair
AMERICAN BAR ASSOCIATION ADVISOR
BETSY B. ADLER, 235 Montgomery St., Suite 1220, San Francisco, CA 94104-3103, ABA Advisor
CYNTHIA ROWLAND, One Ferry Bldg., Suite 200, San Francisco, CA 94111, ABA Section Advisor
LISA A. RUNQUIST,
17554 Community St., Northridge, CA 91325-3922, ABA Section Advisor
ELAINE WATERHOUSE WILSON, 300 N. LaSalle St., Suite 4000, Chicago, IL 60654-5141, ABA Section Advisor
EXECUTIVE DIRECTOR
JOHN A. SEBERT, 111 N. Wabash Ave., Suite 1010, Chicago, IL 60602, Executive Director
Copies of this Act may be obtained from:
NATIONAL CONFERENCE OF COMMISSIONERS
ON UNIFORM STATE LAWS
111 N. Wabash Ave., Suite 1010
Chicago, Illinois 60602
312/450-6600
www.nccusl.org
OVERSIGHT OF CHARITABLE ASSETS ACT
TABLE OF CONTENTS
SECTION 3. AUTHORITY OF [ATTORNEY GENERAL] TO PROTECT
CHARITABLE ASSETS.
SECTION 4. INVESTIGATION BY [ATTORNEY GENERAL].
SECTION
7. NOTICE TO [ATTORNEY GENERAL].
SECTION 8. NOTICE OF PROCEEDING CONCERNING COVERED
CHARITABLE OR CHARITABLE ASSETS.
SECTION 9. PARTICIPATION BY [ATTORNEY GENERAL] IN
PROCEEDING INVOLVING COVERED CHARITY.
SECTION 10. COOPERATION WITH OTHER OFFICIAL.
SECTION 11. UNIFORMITY OF APPLICATION AND CONSTRUCTION.
SECTION 12. RELATION TO ELECTRONIC SIGNATURES IN GLOBAL
AND NATIONAL COMMERCE ACT.
OVERSIGHT OF CHARITABLE ASSETS ACT
The Charitable Sector. [Importance of charitable sector in the U.S.
and history of charitable sector in the U.S. ]
American charities provide a wide range of services and benefits – from
arts organizations, to hospitals, to the relief of poverty, to educational
institutions, to environmental protections.
American charities manage substantial funds in conjunction with
carrying out their charitable purposes, holding some funds for current
operating needs and others as endowments.
[cite to recent data] Charities
carry out important functions, lessening the role of government in some cases
and improving the quality of life for many people.
Public confidence in charities will
help maintain the vibrancy of the charitable sector. If potential donors worry that charities will
misuse contributed funds, donors are unlikely to contribute. The good work charities do will suffer if
reports of abuse, fraud, or other types of misbehavior reduce public confidence
in the sector.
The regulation of charities remains
minimal, and yet the importance of public confidence in the sector points to
the need for some modicum of oversight.
In the charitable sector, self-regulation has always been important and
will continue to be important. [note
third sector report] The Internal
Revenue Service has begun to increase its role in charitable supervision, by
expanding the information required under the Form 990 annual report that many
charities must file. In order to protect
the role of the states in supervising charities, the role of the attorney
general should be clarified.
Charity regulators in some states
are more active than those in other states, but the committee has not seen
evidence of overreaching by charitable regulators. Instead, the concern voiced by some observers
of the sector is that many states should increase resources available to
charity regulators, so they can do a better job of providing the appropriate
level of regulation.
Goals of the Act. The Uniform Oversight of Charitable Assets
Act will articulate and confirm the role of the state attorney general in
protecting charitable assets. The
attorney general’s oversight function exists in most states in the common law
or by statute, but in a few states courts have found no common law authority
and in a few other states the scope of the authority is unclear. The attorney general’s authority is broad and
this Act will not limit or narrow that authority.
The Act will also make sure the
attorney general has the information needed to perform the oversight function,
without overburdening the charities or the attorney general with excessive
reporting requirements. The Act
specifies which transactions and legal proceedings require notice to the
attorney general and provides for registration and annual reports for some
charities.
The Act will replace the Uniform
Supervision of Trustees for Charitable Purposes Act (1954). That Act has been adopted in a small number
of states and is out-of-date.
The term “attorney general” is used
to mean the charity regulator in a state.
In many states, the Office of the Attorney General has a division called
the Charity Section or something similar.
A lawyer in that section typically has the title Assistant Attorney
General, but the person in that role may have a different title.
It is useful to remember that the
attorney general has an educational role and a facilitative role as well as a
regulative role. The attorney general
wants to educate charities and work with charities to help them become more
efficient and more effective. The
attorney general will be better able to perform these roles with adequate
information about the charities operating in the state.
Which Charities Does the Statute Cover? The Act has a relatively broad definition of “covered charity” and then
will apply certain sections of the Act (registration and reporting) more
narrowly. The Drafting Committee
continues to discuss which charities should be covered by the statute, which
should be required to register, and which should file additional reports. “Covered charity” is an entity that holds
property for charitable purposes, but the term excludes governmental entities
and businesses.
General Authority of the Attorney General. The Act states the broad duty of the attorney general to represent the
public interest in the protection of charitable assets. The Act states that the
attorney general may enforce the use of charitable assets by a charity for the
purposes for which the assets were given to the charity, may take action to
prevent or correct a breach of a fiduciary duty in connection with the
administration of a charity or charitable assets, and may intervene in an
action brought to correct a misapplication of charitable funds, a departure
from the purpose of the charity, or a breach of a fiduciary duty owed the
charity.
Registration. A charity covered by the registration section
must register with the attorney general within a specified period of time after
the charity is established or receives property. The charity must provide basic information
about the charity (name, address, statutory agent, purpose) and a copy of the
charity’s organizing document (articles of incorporation or trust instrument).
Annual Reports. Charities that file a report with the
Internal Revenue Service such as a Form 990 or a Form 990-EZ will file a copy
with the attorney general. Other
charities will file an annual report with some basic information, listed in the
Act, about the charity. The Act may
limit the requirement to file an annual report to charities with assets above a
minimum amount.
Notice of “Life Events.”
One of the
concerns the Drafting Committee sought to address was the problem that occurs
when an attorney general learns about the loss of charitable assets after a
charity has disposed of the assets. The Act requires a charity to file a notice
of the following, a specified number of days [20, 30 or 60 days] before the
event occurs:
In addition, the
personal representative of an estate or the trustee of a trust that involves
the distribution of property to a charity must send the attorney general a copy
of the will or trust.
Any person who asserts a claim in a
proceeding involving a charity or charitable assets must give written notice to
the attorney general if the value of the charitable assets involved is at least
$25,000. The notice must include a copy
of the pleading. The proceedings that
require notice are the following:
Cooperation with Other Officials. The Act permits the attorney general to cooperate with any official of
the state, of another state, or of the United States. The attorney general can provide information
or documents concerning an investigation or proceeding to the other official in
connection with the other official’s role in the oversight of charities and
charitable assets. The attorney general
can also acquire information or documents from the other official.
OVERSIGHT OF CHARITABLE ASSETS ACT
SECTION
1. SHORT TITLE. This [act] may be
cited as the [Uniform][Model] Oversight of Charitable Assets Act.
SECTION
2. DEFINITIONS. In this [act]:
(1) “Charitable asset” means property that is
held by [or for a covered charity] or donated [to a covered charity] for a
charitable purpose.
(2) “Charitable purpose” means the relief of
poverty, the advancement of education or religion, the promotion of health, the
promotion of a governmental purpose, or any other purpose the achievement of
which is beneficial to the community.
(3) “Covered charity”:
(A) means a person other than an individual which
holds or administers [property irrevocably dedicated to or donated for a
charitable purpose] [charitable assets] and which:
(i) is organized under the law of this state;
(ii) has its principal place of
[governance][activities][management] in this state;
(iii) holds substantial charitable assets in this
state on more than a temporary basis;
(iv)
conducts significant activities in this state; or
(v)
holds assets that are specifically dedicated to the benefit of persons
in this state; and
(B) does not include:
(i)
a government, governmental subdivision, agency, or instrumentality,
unless it holds funds exclusively for a charitable purpose;
(ii)
a person organized primarily for business purposes and not primarily for
charitable purposes;
(iii) an organization the primary purpose of which
is to influence elections; or
(iv) a financial institution, investment company,
or storage facility that holds charitable assets that belong to another person.
(4) “Person” means an individual, corporation,
business trust, statutory trust, estate, trust, partnership, limited liability
company, association, joint venture, public corporation, government or
governmental subdivision, agency, or instrumentality, or any other legal or
commercial entity.
(5) “Record”
means information that is inscribed on a tangible medium or that is stored in
an electronic or other medium and is retrievable in perceivable form.
Comment
Subsection (1). Charitable Asset. The term Property includes all interest in real or personal property, including remainder interests and conservation or preservation easements or restrictions.
Subsection
(2). Charitable purposes. The definition of charitable purposes follows
that of UTC § 405, Restatement (Third) of Trusts § 28 (2003), and UPMIFA § 2(1)
(2006). This long-familiar standard
derives from the English Statute of Charitable Uses, enacted in 1601.
Some 17 states have created
statutory definitions of charitable purpose for various purposes. See,
e.g., 10 Pa. Cons. Stat. § 162.3 (2005) (defining charitable purpose within
the Solicitation of Funds for Charitable Purposes Act to include “humane,” “patriotic,” “social
welfare and advocacy,” and “civic” purposes).
The definition in subsection (4) applies for purposes of this Act and
does not affect other definitions of charitable purpose.
Subsection
(3). Covered charity. Charity is defined broadly in the
Act, with the definition explicitly including entities of any legal form that
hold or administer property dedicated to or donated for charitable
purposes. The definition of “charity” is
broad enough to take in not only organizations traditionally thought of as charitable,
but also non-charitable organizations that hold or administer assets dedicated
to charitable purposes or that have been donated for charitable purposes. Because the definition underlies the
obligation to register with the attorney general, it limits the term to
organizations that have significant
contacts in the state. The drafting
committee believes that the threshold strikes an appropriate balance between
the risk of overburdening charities that have little contact with a particular
state and the need for the attorney general to be alerted to the existence of
charitable organizations and assets in the state that might call for
oversight. Simply having a bank or
investment account in the state does not cause an entity to fall within the
definition, and financial institutions and investment companies are not
included within the definition by virtue of having accounts owned by charities,
unless the institution serves as trustee for a charity.
Governmental entities and political organizations are excluded from the definition of “charity” for purposes of the [act]. [Does the exclusion of political organizations exclude organizations for candidates, issue-focused organizations?]
Assets must be in a state on more than a temporary basis so that a traveling art exhibit will not cause the charity that owns the artwork to become subject to oversight in the state in which an exhibit is held. The committee may need to clarify further what it means to hold assets on more than a temporary basis. For example, a probate estate might hold assets dedicated to a charitable purpose during the period of administration.
The committee will continue to discuss the appropriate scope of the definition of covered charity. In particular, more clarity is needed with respect to subsection (4)(C) and the meaning of “substantial” and with respect to subsection (4)(D) and the meaning of “significant.” For example, the act should clarify inclusion (or lack of inclusion) of a charity that holds one meeting a year in the state or makes grants in the state. We also need to address L3Cs and companies like Newman’s Own that provide a percentage of profits for charitable purposes. L3Cs may qualify as IRC §501(c)(3) charities or they may not.
Subsection
(4). Person. The Act uses as the definition of person
the definition approved by the Uniform Law Commission.
Subsection
(5). Record. Record is defined, using the Uniform Law
Commission standard definition, in order to use one word instead of several
when the act deals with papers, reports, instruments, and records, and to make
clear that information in electronic form is included.
(a) The [attorney general] may represent the
public interest in the oversight and protection of charitable assets by:
(1)
enforcing the due application of
charitable assets for the charitable purpose of a covered charity or any
charitable purpose for which the assets were given or committed; and
(2)
acting to prevent or correct a breach of
fiduciary or other legal duty in the administration of a covered charity or
charitable assets.
(b) The [attorney general] may commence or
intervene in an action to enjoin, correct, or obtain damages for a violation of
this [act], or seek other remedy to enforce a provision of this [act] or to
prevent or correct:
(1) a misapplication or diversion of charitable
assets from use for the charity’s designated charitable purposes;
(2)
a departure from the charitable purpose
of a covered charity or from the terms of a charitable trust or a restricted
gift; or
(3) a breach of fiduciary or other legal duty in
the administration of a charity or charitable assets.
(c) This [act] does not limit or restrict the
powers and duties of the [attorney general] under law of this state other than
this [act].
Comment
One of the major goals of the Act is to articulate the attorney general’s oversight authority to protect charitable assets. In most states, whether or not that function is embodied in a statute, the authority is inherent in the common law powers of the attorney general. In at least a few states, however, it has been held that no such common law authority exists, and in some other states, whether it exists and what it consists of is not clear. The drafting committee intends that the Act clarify and articulate attorney general authority to protect charitable assets. At the same time, that authority is not unlimited. The attorney general’s legitimate role is to correct abuses, but not to take over governance or to substitute the attorney general’s judgment for the legitimate judgment of the charity’s board or trustees; to protect the interests of the indefinite beneficiaries of charity, while recognizing that charitable assets are private, not quasi-public property; and to protect the donor’s expressed intent and hold the charity to its expressed purposes.
Subsection (c) reflects the
committee’s desire to articulate that the statute does not replace any common
law or other statutory powers the attorney general may have. The language of this provision also specifies
that the act does not limit or restrict the rights of others provided by common
law or statute. Thus, existing (or
evolving) state law with respect to standing of those other than the attorney
general is undisturbed by the Act.
[add discussion of
relator statutes and consider adding a legislative note for states with relator
statutes]
Language specifying the attorney general’s authority to issue an order to stop or to seek an assurance of voluntary compliance is provided in the Legislative Note following Section 4. States that provide for similar instruments to exercise attorney general authority elsewhere in the state code, for instance, in the consumer protection statutes, will want to coordinate the language here with that language.
The Act does not, either expressly or by implication, affect existing law concerning the rights of persons other than the [Attorney General] to standing in connection with a matter involving a charity.
Although a charity’s purposes need not be static, the terms of the organizing documents in effect at the time the charity receives assets constrain the use of those assets.
SECTION 4. INVESTIGATION BY [ATTORNEY GENERAL]. The [attorney general] may conduct an investigation to ascertain whether:
(1) an action may be
advisable within the authority of the Attorney General pursuant to Section 3;
(2) a law or legal
duty concerning the use or management of charitable assets has been violated;
or
(3) this [act] has been violated.
Legislative
Note: If a state does not provide through other law
for the process the attorney general uses for civil investigative demands, the
state should consider making the text of this section subsection (a) and
enacting the following provisions as part of this section. A separate possible Section concerning
enforcement is also set out for consideration of the states:
[(b)
The [attorney general] may sign and cause to be served on a person
that is believed to have information,
documentary material, or physical evidence relevant to the subject matter of an
investigation pursuant to subsection (a) a civil investigative demand requiring
the person to appear and testify, or to produce documentary material or
physical evidence for examination, at a reasonable time and place stated in the
demand. Service of a civil investigative demand, notice, or subpoena may be
made by any person authorized by law to serve process or by any duly authorized employee of the [attorney general].
(c) A civil investigative demand must:
(1) state the general subject matter of the
investigation and grounds for the alleged violation being investigated;
(2) describe the class or classes of information,
documentary material, or physical evidence to be produced, with reasonable
specificity so as fairly to indicate the material demanded;
(3) prescribe a return date by which the
information, documentary material, or physical evidence is to be produced; and
(4) identify the member of the [attorney
general's] staff to whom the information, documentary material, or physical
evidence requested is to be produced.
(d) A civil investigative demand may not:
(1) contain a requirement that would be
unreasonable or improper if contained in a subpoena duces tecum issued by a
court of this state; or
(2) require the disclosure of information that
would be privileged or, for any other reason, could not be required by a
subpoena duces tecum issued by a court of this state.
(e) Service of a civil investigative demand,
notice, or subpoena may be made by:
(1) delivering a duly executed copy thereof to
the person to be served, or to an officer or agent authorized by appointment or
by law to receive service of process on behalf of the person;
(2) delivering a duly executed copy thereof to
the principal place of business or the residence in this state of the person to
be served;
(3)
mailing a duly executed copy thereof by registered or certified mail ,
addressed to the person to be served, to the principal place of business or the
residence in this state of the person or, if the person has no place of
business or residence in this state, to the principal office or place of
business or the residence of the person; or
(4) mailing a duly executed copy thereof by
registered or certified mail, requesting a return receipt signed by the
addressee only, to the last known place of business, residence, or abode within
or without this state of the person to be served.
(f) An individual may not refuse to answer a
material question, produce documentary material, or testify in an investigation
pursuant to this section on the ground that the testimony or documentary
material may tend to incriminate the individual or subject the individual to a
penalty. If the individual asserts a
right against self-incrimination, the individual may not be subjected to
criminal prosecution or an action for a criminal penalty or forfeiture because
of a transaction, matter, or thing about which the individual may testify or
produce documentary material. An individual may assert the right against
self-incrimination on the record or make the assertion known to the [attorney
general].
(g) Information, documentary material, or
physical evidence demanded pursuant to a civil investigative demand must be
produced during normal business hours at the principal office or place of
business of the person served, or at such other time and place as may be agreed
by the person served and the [attorney general].
(h)
No information, documentary material, or physical evidence requested
pursuant to a civil investigative demand shall, unless otherwise ordered by a
court for good cause shown, be produced for or the contents thereof be
disclosed to, any person other than the [attorney general] without the consent
of the person that produced the information, documentary material, or physical
evidence; provided, that under such reasonable terms and conditions as the
[attorney general] shall prescribe, such information, documentary material or
physical evidence shall be made available for inspection and copying by the
person who produced such information, documentary material or physical
evidence, or any duly authorized representative of the person.
(i) Material containing trade secrets must not be
presented before any c except with the approval of the court in which the
action is pending after adequate notice to the person furnishing the material
or, in the case of disclosure to agencies of other states, the approval of the
[court].
(j) At any time before the return date specified
in a civil investigative demand or not later than 20 days after the demand has
been served, whichever period is shorter, the person served with the demand may
petition the [court] to extend the return date for, or to modify or set aside
the demand, stating good cause.
(k) A person on which a civil investigative
demand is served shall comply with its terms unless otherwise provided by order
of a court. A person that, with intent
to avoid, evade, or in whole or in part prevent compliance with a civil
investigative demand, removes from a place, conceals, withholds, destroys,
mutilates, alters, or falsifies information, documentary material, or physical
evidence in the possession, custody, or control of the person, which is the
subject of the demand, is guilty of [XX]. The [attorney general] shall have
original jurisdiction to enforce the provisions of this subsection.
(l) If a person fails to comply with a civil
investigative demand duly served on the person or the person refuses to
surrender material when whenever satisfactory copying or reproduction of the
material cannot be done, the [attorney general] may file, in the [trial court
of general jurisdiction] in a county or judicial district in which the person
resides, is found, or transacts business, and serve upon the person, a petition
for an order of the court for enforcement of the demand. If the person transacts business in more than
one county or judicial district the petition must be filed in the county or
judicial district in which the person maintains the person’s principal place of
business, or in such other county or judicial district as may be agreed by the
parties. When the petition is filed, the
court shall have jurisdiction to hear and determine the matter presented, and
to enter an order required to enforce the provisions of this [act]. A final order may be appealed to the [state
supreme court]. Disobedience of a final
order entered under this section may be punished as a contempt of court.
SECTION ___. ORDER TO STOP; ASSURANCE OF VOLUNTARY COMPLIANCE.
(a)
When it appears to the [attorney general] that a person has engaged in,
is engaging in, or is about to engage in a misapplication of charitable assets,
a breach of fiduciary duty, or a violation of this [act] or law of this state
other than this [act] concerning the use or management of charitable assets,
the [attorney general] may issue an order to stop, prohibiting the person and
any other person that participated, is participating or is about to participate
in the act, from engaging or continuing to engage in the act. The order must
not be issued until the [attorney general] has given notice to each person that
will be subject to the order of the nature of the alleged violation and the act
that is the basis of the alleged violation and the time for the person to file
an answer has expired. A person that
will be subject to the order may file with the [attorney general] an answer to
the notice not later than two business days after delivery of the notice.
(b)
An order issued by the [attorney general] under subsection (a) must be
served on each person that is subject to the order in the manner provided [in
Section 4 for service of a civil investigative demand]. The order expires 10 days after being served.
(c) A
person that has been duly served with an order issued under this section and
willfully and knowingly violates a provision of the order while the order
remains in effect, either as originally issued or as modified, is guilty of
[XXX]. The [attorney general] may commence a criminal action for the violation.
(d) The
[attorney general] may accept an assurance of voluntary compliance with respect
to an act that would be subject to an order to stop pursuant to subsection (a).
The assurance of voluntary compliance must be in writing and must be filed with
and approved by the [court] of the county in which the alleged violator resides
or has its principal place of business. An assurance of voluntary compliance
must not be considered for any purpose as an admission of violation. A person that violates the terms of an
assurance of voluntary compliance shall pay to the state a civil penalty of not
more than $[ ] per violation. A [court] approving an assurance of voluntary
compliance retains jurisdiction to award a civil penalty under this subsection,
and the attorney general acting in the name of the state may petition for
recovery of the civil penalty.]
Comment
The Act articulates the Attorney General’s authority to undertake an investigation as a means of fulfilling the authority articulated in Section 3. The Attorney General acts in the public interest to protect charitable assets. The committee discussed the threshold for initiating an investigation. Some states (e.g., Massachusetts) require court approval before beginning a civil investigation. Others do not, and specify no particular threshold standard to justify commencing a civil investigation. The committee concluded that a less demanding threshold standard is appropriate. Information often comes to the attorney general in a form much less formal than a sworn complaint; for example, information about abuses and misdeeds is often brought to light in newspaper stories. The committee was sensitive to the burden that an investigation can impose on a charity, but concluded that a reasonable amount of discretion and flexibility in the attorney general is more often likely to diminish the burden on charities than to justify inappropriate intrusion.
States vary with respect to process and procedure relating to attorney general investigative authority. States that detail attorney general subpoena power in code sections dealing broadly with attorney general power will have no need for this section. States that provide in their codes for attorney general civil subpoena power specifically in connection with another attorney general function (such as consumer protection) can use that language in this section. The language used in this section is modeled on Missouri code sections concerning consumer protection. The language in subsection (b) that refers to Section 4 will have to be modified after a decision on how best to proceed with the language about civil investigative demands.
Subsection (c) of new Section in legislative note. In many states the attorney general has civil jurisdiction but not criminal jurisdiction. For example, in Connecticut the attorney general is the civil charitable regulator but if the attorney general wishes to initiate a criminal proceeding the attorney general must do so through the chief state’s attorney. In other states (e.g. Maryland) the county state’s attorney has general criminal jurisdiction. The committee also needs to determine whether the addition of a new crime in this subsection is appropriate. In some states crimes can only be created in the criminal code.
The committee has not yet had the opportunity to discuss this Legislative Note. Both of these sections come from the Missouri statutes and will require re-working. In particular, committee members have raised questions about subsection (f) in the Legislative Note because of concerns about self-incrimination and the granting of immunity. The committee will think through these sections at its fall meeting.
(a) The [attorney general] shall establish and
maintain a registry of covered charities.
(b) A covered charity shall register with the
[attorney general] on or before the later of:
(1) [___] [days] [months] after the effective
date of this [act];
(2) [
] [days] [months] after the date the charity is [created][formed][established];
or
(3) [
] [days] [months] after the date the charity receives charitable assets,
(c) The registration required by subsection (b)
must include:
(1)
the name and address of the covered
charity;
(2) the name and address of the statutory agent of
the charity;
(3) the name and address of a director, trustee,
or executive director of the charity;
(4)
a short statement of the charity’s
purpose;
(5) a true copy of the current version of the
charity’s articles of incorporation, trust instrument, or other record, if any,
creating the charity; and
[(6) the federal employer identification number,
if any, for the charity.]
(d) The [attorney general] may establish a fee to
accompany the registration required by subsection (b) and a penalty for late
registration.
(e) The registry established pursuant to
subsection (a) and records filed with the [attorney general] are public records,
except that the [attorney general] shall:
(1)
withhold from public inspection a record
or any part of a record filed with the [attorney general] or with a
governmental agency of this state, another state, or the United States, or any
governmental subdivision thereof, which is required by law to be kept
confidential; and
(2) on
the written request of a covered charity, withhold from public inspection a
record or any part of a record filed which does not relate to a charitable
purpose or charitable assets and is not otherwise a public record.
Comment
The main thrust of the 1954 Uniform Supervision of Trustees for Charitable Purposes Act was to provide a mechanism to facilitate the supervisory role of the Attorney General by providing for registration that would alert the Attorney General to the existence and administration of charitable trusts. This Act continues to incorporate that function. The drafting committee has opted to keep the registration obligation simple, so as to avoid overburdening either charitable organizations or attorney generals’ offices. It is expected that the registration function will move to an electronic system, thereby reducing some of the burden. Only entities that meet the Act’s definition of “covered charity” have the obligation to register in the state. While a large organization that operates in many states will likely have an obligation to register in multiple states, the committee hopes that the Act’s move toward uniformity will minimize the burden of multiple registrations.
Charity regulators involved in the drafting process noted that availability of information to the public serves an important function. The Act opens the registration and supporting documents to the public, with the exception of documents made confidential by any other law and, upon request of a charity or charity actor, any part of a document that does not relate to charitable assets and is not otherwise a public record. Since the required information does not require disclosures that are generally considered confidential, the committee will give further consideration to inclusion of Subsection (e)(2).
The committee may develop a registration form and include the form in the comments. Also, the committee intends that electronic registration be permitted and will determine whether the Act needs to include a reference to electronic registration or whether making clear the permissibility of electronic registration in the comments will be sufficient.
(a) This section does not apply to:
(1) a church or other house of worship; or
(2)
a covered charity that receives revenues of less than $[ ] during the charity’s annual accounting
period for which this section would otherwise require an annual report and
holds less than $[ ] in assets
throughout that period.
(b) A covered charity shall file with the
[attorney general], not later than five months and fifteen days after the end
of the covered charity’s accounting period, a report in one of the following
forms:
(1) a copy of the charity’s annual federal tax
return, if the return includes the information listed in paragraph (2); or
(2) an annual report providing the following information:
(A) a current list of the charity’s directors, trustees, and officers;
(B) the charity’s gross annual revenues for the accounting period;
(C) the charity’s total assets as of the last day of the accounting period;
(D) a description of any contracts, loans, leases, or other financial transactions during the accounting period between the charity and any officer, director, or trustee, either directly or with an entity in which the officer, director, or trustee had a financial interest;
(E) a description of any suspected embezzlement, theft, diversion, or misuse of the charity’s charitable assets of which the charity became aware during the accounting period;
(F) a list of any instances of which the charity became aware during the accounting period of use of the charity’s funds to pay any penalty, fine, or judgment;
(G) a statement describing any change in the charity’s federal, state, or local tax exempt status during the accounting period;
(H) a statement describing any use during the accounting period or of which the charity became aware during the accounting period of restricted funds for a purpose other than those specified in the restriction; and
(I) a description of the charity’s three most significant program activities during the accounting period.
Comment
The committee intends to exclude from this section religious organizations but not organizations that are not purely religious, for example religious schools. The committee recognizes that “church or other house of worship” may not capture all of the religions practiced in this country and will consider other formulations.
Many charities will be able to meet the annual report requirement of Section 6 simply by filing a copy of the federal tax return the charity files. If the charity files a Form 990, Form 990-EZ, or a Form 990-PF, the charity may file a copy of that return and need not file an additional report. If the charity files Form 990-N, the charity will need to file an additional report, because the Form 990-N does not request a significant level of information. This draft states the requirement without reference to specific tax return numbers because the return numbers may change over time. The difficulty with stating the requirement in this way, however, is to convey the idea that a return that provides information similar to that required by this section (Form 990, Form 990-EZ, Form 990-PF) is sufficient but a return that provides only a minimal level of information (Form 990-N) is not. The committee will compare the requirements of Section 6 with the requirements of the tax returns and consider whether to require information beyond that listed in the tax returns.
The Internal Revenue Code requires a private foundation to file a copy of its Form 990-PF, IRC 6033(c)(2), with the state, so we should be able to exempt private foundations who already file that form with the state. The committee needs to consider this exemption, but the committee will likely be able to exempt private foundations from Section 6.
States that require annual reporting under a statute that regulates charitable solicitation will want to coordinate the report required here with that required by the solicitation statute and may find the reporting requirement in Section 6 duplicative and unnecessary.
The drafting committee did not reach consensus on the optimal threshold for the small organization exception. Some committee members noted that the reporting requirement can encourage good governance, and some members also noted that the small organizations are often the ones that get into trouble. The [attorney general] needs to receive information in a timely fashion to be able to address problems before charitable assets are lost. The registration and reporting requirements are important in promoting appropriate oversight of charitable assets.
(a) A covered charity shall deliver to the
[attorney general] a copy of an amendment to its articles of incorporation,
trust instrument, or other record creating the charity within [ ] days after adoption of the amendment if
the amendment changes the purposes of the charity or results in a material
change to the structure, governance, or activities of the covered charity.
(b) A covered charity shall give written notice
to the [attorney general] not later than [20] [30] [60] days before the
adoption by agreement with the donor of a modification of a restriction on the
management, investment, purpose, or use of charitable assets if the amount
subject to the agreement is more than $[25,000].
(c) The following rules apply to a covered
charity in connection with a dissolution, termination, disposition of assets, or
merger:
(1) A charity that is a nonprofit corporation
shall give written notice to the [attorney general] that it intends to dissolve
at or before the time it delivers articles of dissolution to the [secretary of
state] pursuant to [dissolution provisions of nonprofit corporation
statute]. The notice must include a copy
of the plan of dissolution.
(2) A charity that is a trust shall give written
notice to the [attorney general] not later than [ ] days before the termination of the trust
pursuant to [provision in trust statutes allowing termination of small trust]
or the record creating the trust. The
notice must include an explanation of the distribution of the charitable assets
on termination.
(3)
The charity shall give written notice to
the [attorney general] at least [ ]
days before it sells, leases, exchanges, otherwise disposes of, or encumbers
all or substantially all of its assets unless:
(A) the transaction or series of transactions
that result in the transfer or encumbrance is in the usual or regular course of
the charity’s activities; or
(B)
the [attorney general] has given the
charity a written waiver of one or more of the requirements of this section.
(4)
The charity shall give written notice to
the [attorney general] at least [ ]
days before consummating a merger with another person. The notice must include a copy of the
proposed plan of merger.
(5) No assets may be transferred in connection
with a dissolution, termination, or disposition of assets, and a merger may not
be consummated until the earliest of:
(A) [20] days after the notice required by this
section has been delivered to the [attorney general];
(B) the charity’s receipt of the [attorney
general]’s consent in writing to a proposed transfer; or
(C)
the charity’s receipt of written notice
that the [attorney general] will take no action regarding the transfer.
(6) If, not later than [20] days after the
charity has delivered a notice required by this subsection to the [attorney
general], the [attorney general] objects to a plan of dissolution, termination,
disposition of asserts, or merger in a writing delivered to the charity, the
transfer may not proceed until the [attorney general] consents in writing or
the charity obtains approval of the [court].
(7)
When substantially all of the assets of the
charity have been transferred pursuant to a plan of dissolution, termination,
disposition of assets, or merger, the charity shall deliver to the [attorney general]
a list of the names and addresses of each person, other than a creditor, to which
the assets were transferred. The list
must include a description of the assets each transferee received.
(d) If a probate estate involves, or may involve,
the distribution of property totaling at least $[25,000] to one or more covered
charities, or cause the creation of one or more covered charities, the
[personal representative] at the time the will is admitted to probate shall deliver
to the [attorney general] a true copy of the will.
(e) If a revocable trust becomes irrevocable because
of the settlor’s death and if the distribution under the trust involves, or may
involve, distribution of property totaling at least $[25,000] to one or more
covered charities or cause the creation of one or more covered charities, the
trustee, not later than [30] days after the date of the settlor’s death, shall
deliver to the [attorney general] a description of the charitable interests.
(f) On the creation of an irrevocable trust that
includes an interest, present or future, in a covered charity or for charitable
purposes, the trustee not later than [30] days after the date of the creation
of the trust, shall deliver to the [attorney general] a description of the
charitable interests.
(g) A covered charity shall give notice to the
[attorney general] of a decision to file for bankruptcy not later than the date
on which the charity files a bankruptcy petition under Title 11 of the United
States Code, files a receivership under [state receivership statute] or any
similar receivership statute of another state, makes an assignment for the
benefit of creditors, or initiates any other insolvency proceeding.
(h) A covered charity shall give notice to the
[attorney general] not later than [20]
days after receipt of notice of revocation or modification of its federal,
state, or local tax exemption.
Comment
The Act requires notice to the attorney
general of a variety of transactions and events that raise particular
opportunities for misapplication of charitable assets, so that the attorney
general has an opportunity to monitor the events in time to prevent problems in
addition to correcting problems that have already arisen.
Subsection
(a). Amendment. This subsection requires a charity to file with
the attorney general any amendment to its governing documents that changes the
purpose of the charity or results in a material change to the structure,
governance, or activities of the charity. For example, a charity should report a change
in voting structure, either the elimination of a class of voting members or the
creation of voting members. [Need examples here of “material” changes].
Subsection
(b). Modification. If
a charity and a donor agree to modify a restriction imposed by a donor on a
gift to the charity, then the charity must notify the [attorney general] of the
modification. If a charity intends to
use the doctrines of cy pres or deviation, either under trust law or under
UPMIFA, to modify a restriction, the charity will need court approval and
notice to the [attorney general] will be required under Section 8.
Subsection
(c). Dissolution, termination,
disposition of assets, and merger. If the charity will terminate or dispose of
substantially all of its assets, the charity must notify the [attorney general]
before the charity gives up control of the assets. This notice provision gives the [attorney
general] time to review the proposed transaction and recommend changes if
necessary while the assets can still be reached. If the [attorney general] objects to the
proposed transaction, the [attorney general] must deliver the objection to the
charity in writing and then the charity cannot proceed with the transaction
until the [attorney general] consents (presumably after negotiations between
the charity and the [attorney general]) or a court approves the
transaction. This subsection gives the
[attorney general] the information needed to work with the charity on an
appropriate plan of distribution or other transfer, and then provides for a
court determination if the [attorney general] and the charity cannot reach
agreement.
Subsection
(d) Probate estate. If a probate estate contains a gift to a
charity, the [personal
representative] must notify the attorney general of the distribution of an
estate that may involve the distribution of charitable assets. This provision is necessary, because the
public’s interest in a charitable bequest may not be protected if an heir
contests the will and the [attorney general] does not know that a charitable
bequest existed.
Subsection
(e). Revocable trust. If a
decedent’s property will be distributed through a revocable trust rather than
through probate, the [attorney general] should still get notice of any
significant charitable gifts. The amount
that is “significant” is left in brackets for states to consider. The drafting committee thought that gifts to
charity worth at least $25,000 collectively represented a “significant”
charitable interest.
Subsection
(f). Irrevocable trust. The creation of an irrevocable trust with charitable interests that may not have
risen to the level that requires registration, still merits notification to the
attorney general of the trust’s existence.
Subsection
(g). Bankruptcy. The [attorney general] should be aware of a
charity’s decision to file for bankruptcy so that the [attorney general] can
protect the public’s interest in the charitable assets.
Subsection
(h). Revocation of tax exemption. The revocation of a federal or state tax
exemption may signal problems with a charity that the [attorney general] should
consider. This subsection requires
provides for notification to the [attorney general] of revocation or
modification of a charity’s exempt status for any tax purpose.
(a) This section applies to:
(1)
an action against or on behalf of a covered charity or an action seeking
to enforce the terms governing charitable assets given to a covered charity;
(2)
an action against a covered charity or other person concerning an
application of charitable assets or a breach of fiduciary or other legal duty
owed to a covered charity;
(3) a proceeding by, against or on
behalf of a covered charity seeking:
(A)
instruction, injunction or declaratory relief relating to the
management, use, or distribution of charitable assets or income produced by
charitable assets;
(B) construction of a record under which
charitable assets are held;
(C) modification, interpretation or termination
of the terms of a record under which
charitable assets are held; or
(D)
removal, appointment of or replacement of a trustee of a charitable
trust;
(4)
a proceeding relating to the administration of a probate estate or trust
in which matters affecting charitable assets may be decided; and
(5)
a proceeding to contest or set aside the probate of a will or
establishment, funding or dissolution of a trust under which property is given
for charitable purposes.
(b) When a person commences an action or
proceeding to which this section applies, the person shall give notice in a
record to the [attorney general] if the value of the charitable assets involved
in the action or proceeding is at least $[25,000]. The notice must include a copy of the initial
pleading. No order, decree or judgment
rendered in any action as to which notice is required under this section shall
be binding upon the [attorney general] if the required notice has not been
given. The statute of limitations for
the [attorney general] to bring an action shall not commence until such time as
the requisite notice has been given.
Comment
The list of kinds of proceedings that require notice to the attorney general is adapted from provisions found in charitable corporation, trust, and probate sections of various state codes, although no one state provides a model for the entire section. The drafting committee concluded that the attorney general ought to be made aware of a wide range of proceedings that might affect charitable assets or the structure or governance of a charity. [Might include examples here, too. For example, changing the membership structure by eliminating one or more classes of voting members, should require notification.]
In states where the attorney general
is a necessary party to any or all of the kinds of actions addressed in this
section, parts or all of the section will be unnecessary.
SECTION 9. PARTICIPATION BY [ATTORNEY GENERAL] IN PROCEEDING INVOLVING COVERED CHARITY. The [attorney general] may commence an action pursuant to this [act] and may intervene in an action or proceeding listed in Section 8(a).
Comment
This section articulates attorney general authority to bring an action or intervene in a proceeding brought by someone else. The committee intends to make the attorney general a proper party to a wide array of proceedings involving charities, charitable fiduciaries, or charitable assets, so that the attorney general may exercise the discretion to participate or refrain from participating in court proceedings that relate the attorney general duty and authority under this Act.
(a) The [attorney general] may cooperate with an
official of this state, another state, or the United States, or any political
subdivision or agency thereof, charged with overseeing covered charities or
charitable assets.
(b) The [attorney general] may:
(1) notify an official described in subsection
(a) of the commencement, status, or resolution of an investigation or
proceeding pursuant to this [act];
(2) make available to the official a statement,
record, or other information relating to a covered charity which is relevant to
the official’s oversight of covered charities and charitable assets; or
(3) request from
the official a statement, record, or other information relevant to an
investigation pursuant to Section 4.
Comment
This section authorizes cooperation
between a state attorney general and relevant officials of other states and the
federal government.
SECTION 11. UNIFORMITY OF APPLICATION AND CONSTRUCTION. In applying and construing this uniform act,
consideration must be given to the need to promote uniformity of the law with
respect to its subject matter in the states that adopt it.
SECTION 12. RELATION TO
ELECTRONIC SIGNATURES IN GLOBAL AND NATIONAL COMMERCE ACT. This [act] modifies,
limits, and supersedes the federal Electronic Signatures in Global and National
Commerce Act, 15 U.S.C. Section 7001, et seq., but does not modify, limit, or
supersede Section 101(c) of that act, 15 U.S.C. Section 7001(c), or authorize
electronic delivery of any of the notices described in Section 103(b) of that
act, 15 U.S.C. Section 7003(b).
SECTION
13. REPEALS. The following acts
and parts of acts are repealed:
SECTION 14. EFFECTIVE DATE. This [act] takes
effect . . . .