MODEL PROTECTION OF CHARITABLE ASSETS ACT
SECTION 1. SHORT TITLE. This [act] may be
cited as the Model Protection of Charitable Assets Act.
SECTION 2. DEFINITIONS.
In
this [act]:
(1) “Charitable asset” means property that is received
or held 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) “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.
(4) “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.
(5) “Responsible individual” means an individual
who, with respect to a person holding charitable assets:
(A) is generally familiar with the affairs of the
person; and
(B) participates,
directly or indirectly, in the control or management of the person or, in the
case of a person being formed, will participate in the control or management of
the person.
(6) “State” means a state of the United States,
the District of Columbia, Puerto Rico,
the United States Virgin
Islands, or any territory or insular possession subject to the jurisdiction of the
United States.
Comment
Subsection (1). Charitable Asset. The term “property” includes all interest in real or tangible or
intangible personal property, including cash, remainder interests, and
conservation or preservation easements or restrictions. The property need not be held in perpetuity
for a charitable purpose but must be irrevocably committed to a charitable
purpose. The term “charitable asset”
means that property will be used, whenever it is used, for charitable purposes
and cannot be diverted from the charitable stream. The remainder interest in a charitable
remainder trust is property held for a charitable purpose, as is the current
interest in a charitable lead trust, property held for ten years in a building
fund, and property given to a charity subject to a restriction on its use. Property held in a revocable trust that
provides a remainder interest for a charitable purpose is not a charitable
asset because the settlor can revoke or change the interest.
The
word “asset” does not have the meaning it would have in an accounting context,
for example on a balance sheet.
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 in
U.S. trust law derives from the English Statute of Charitable Uses, enacted in
1601. As used in this Act the definition
means the definition of charitable that has developed under the common law.
The definition includes purposes
“beneficial to the community,” because that concept is part of the traditional
definition of charitable purposes. The
definition means purposes considered charitable and not merely beneficial. Many activities and organizations, such as
social welfare organizations, cooperative associations, and business entities,
benefit the community. Nonetheless,
these organizations and the activities they carry on are not charitable within
the meaning of the Act. The definition
of charitable has long been limited to those beneficial purposes that are
charitable in nature. By using the
standard definition in the Act, the Drafting Committee intended to include the case law that has developed around the term
“charitable” in trust law.
Case law has distinguished between purposes that are charitable and
those that are merely beneficial. For
example, in Shenandoah Valley National Bank v. Taylor, 63 S.E.2d 786 (1951), a settlor attempted
to create a trust to provide small amounts of money to children just before
winter and spring holidays. The
distributions were not restricted in their purpose and were not limited based
on the financial need of the recipients.
The court concluded that the purpose was beneficial and not
charitable. As the court explained,
“charitable” means either distributions in response to
financial need or distributions that support an educational purpose or one of
the other identified purposes.
An example of something that is now considered charitable but does not
fit neatly in one of the other delineated categories is environmental
protection. An organization that
protects a watershed and improves water quality will be considered charitable
even though it does not provide for the relief of poverty, the advancement of
education or religion, the promotion of health (except, perhaps, tangentially),
or the promotion of a governmental purpose (although local governments may
become involved in local water quality).
The phrase “beneficial to the community” allows some development of the
term charitable in the case law, but the phrase should not be read to mean that
anything that benefits the community is charitable for purposes of this
Act. Thus, the Act does not apply
to community, social welfare, issue advocacy, and political advocacy
organizations, unless and only to the extent that, an organization holds assets
for a charitable purpose. Further, the definition of charitable purpose
does not include property held in benefit corporations or in low profit,
limited liability companies (L3Cs) unless an L3C has a purpose that is
primarily charitable.
Some states have created statutory
definitions of charitable purpose for various reasons. 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 (2) applies for purposes of this Act and
does not affect other definitions of charitable purpose. If a state has another definition of
charitable purpose, the state may consider substituting the other definition
for the definition in the Act. However,
because definitions in different contexts serve different purposes, the state
should consider any substitution carefully.
For example, some states have narrowed the definition of charity for tax
purposes, but protection of assets devoted to a charitable purpose might be
appropriate even if the purpose does not qualify for tax exemption under state
law.
Subsection
(3). Person. The Act uses as the definition of person
the definition approved by the Uniform Law Commission. The definition includes individuals as well
as entities. Charities organized as
nonprofit corporations, charitable trusts or unincorporated associations are
included within this definition.
Subsection
(4). Record. Record
is defined, using the standard Uniform Law Commission definition, in order to
use one word instead of several when the act deals with traditional forms of
paper, as well as information in electronic form.
Subsection
(5). Responsible
Individual. This term
describes someone the Attorney General could contact for information about the
charity. Often the Attorney General will
be able to resolve a question about a charity’s use of assets informally, and
having someone identified as a contact person for the charity will make that
informal discussion more efficient and effective. A responsible individual should be someone
who is generally familiar with, among other things, how the charity is managed,
but the person need not be a director or trustee. The definition is based on one in the Uniform
Law Enforcement Access to Entity Information Act (2009).
SECTION 3.
AUTHORITY OF [ATTORNEY GENERAL] TO PROTECT CHARITABLE
ASSETS.
(a) The [Attorney General] represents the public
interest in the protection of charitable assets.
(b) The [Attorney General] may:
(1)
enforce the
application and prevent the misapplication or diversion of a charitable asset in
accordance with:
(A) the purpose for
which the asset was given;
(B) the terms under
which the asset was given; and
(C) the charitable
purpose of the person holding the asset;
(2)
act to prevent or
remedy a breach of fiduciary or other legal duty:
(A) in the governance,
management, or administration of a charitable asset; or
(B) in the governance of
a person organized primarily for a charitable purpose;
(3) seek declaratory,
injunctive, or other equitable relief to determine that an asset is a
charitable asset; and
(4) commence or
intervene in an action to:
(A) prevent, remedy, or obtain
damages for a violation of this [act]; or
(B) seek equitable
relief or other remedy to enforce this [act].
(c) If the [Attorney General] has reason to
believe an investigation is necessary to determine whether action may be
advisable under this [act], the [Attorney General] may conduct an
investigation, including exercising administrative subpoena power under [section
of the law of the state providing for administrative subpoena power].
(d) This [act] does not limit the powers and
duties of the [Attorney General] under law of this state other than this [act].
Legislative Note: States
vary with respect to process and procedure relating to Attorney General
investigative authority. States that
detail Attorney General subpoena power in statutes dealing
broadly with Attorney General power will have no need for additional provisions
here. States that do not provide
specific statutory authority for the Attorney General will need to add a
section to do so. States that provide in
their statutes for Attorney General civil subpoena power specifically in
connection with another Attorney General function (such as consumer protection)
may want to add that language to this section with any necessary
adaptations. In many states the Attorney
General has civil jurisdiction but another agency has criminal
jurisdiction. For example, the
Connecticut 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.
For examples of state statutes that
provide for the power to issue subpoenas or orders with the effect of subpoenas
in connection with investigations of charities, see Haw. Rev. Stat. § 467B-9.3 (2010); Mich. Comp.
Laws § 400.291 (2010); N.H. Rev. Stat. Ann. § 7:24 (2011).
If a state gives an official other than the
Attorney General the authority to protect charitable assets and limits that
official’s duties to those under this Act, the state should not adopt
subsection (d).
Comment
One of the major goals of the
Act is to articulate the Attorney General’s duty to protect charitable
assets. The duty exists in the common
law and in statutes in many states, but the scope of the duty is sometimes
uncertain. The Act will declare and
clarify the scope of the duty, although the Act does not limit the authority
that already exists.
The
Attorney General’s duty has sometimes been described as the “parens patriae”
power – the duty to protect the public interest in property that has been
dedicated to charitable purposes. Unlike
a private corporation or a private trust, no shareholder or private beneficiary
has an incentive to supervise the proper management of the assets held for
charitable purposes. The Attorney
General fills this void, providing a voice for the public’s interest in
charitable assets. A Massachusetts
statute, first enacted in 1847, describes the duty as the duty to “enforce the
due application of funds given or appropriated to public charities . . . and
prevent breaches in the administration thereof . . . .” Mass. Gen. Laws ch. 12, §8. A court in Pennsylvania recently explained:
The Commonwealth has parens patriae
standing whenever it asserts quasi-sovereign interests, which are interests
that the Commonwealth has in the well-being of its populace. Here, the Commonwealth's interest in the
well-being of the public that Citizens was created to serve is a clear example
of such a quasi-sovereign interest. In fact, “in every proceeding which affects a charitable trust, whether the
action concerns invalidation, administration, termination or enforcement, the
attorney general must be made a party of record because the public as the real
party in interest in the trust is otherwise not properly represented.” In re
Pruner's Estate, 390 Pa. 529, 532-33, 136 A.2d 107, 110 (1957) (emphasis
added). It is the duty of the Attorney General to ensure that the purpose of
the charity remains charitable.
The Attorney General’s authority
over charitable assets does not depend on the organizational form of the
charity. Charitable assets may be held
by nonprofit corporations as well as by trustees of charitable trusts, and the
Attorney General will protect the interests of the public in these assets,
however held. In a recent case a
defendant tried to distinguish between cases involving charitable trusts and
the defendant’s organization, a nonprofit corporation. Applying Massachusetts law, the court simply
noted: “Charitable corporations and trusts are both considered ‘public
charities’ under Massachusetts law and, as such, are subject to the Attorney
General's supervisory authority.” Lifespan Corp. v. New England Medical
Center, 2010 WL 3718952, at 3.
The Attorney General’s authority extends over a charity organized as a
nonprofit corporation as well as one organized as a charitable trust.
The
Attorney General protects the public interest in charitable assets, but assets
held by a charity are not converted to public (governmental) assets. Restrictions imposed by donors and the
governing documents of the charity control the use of the assets and the
government will not take over and manage the charity. Rather, the Attorney General will provide
oversight to enforce the donor’s intent with respect to the property and to
prevent self-dealing and mismanagement of the property. In Dartmouth
College v. Woodward, the U.S. Supreme Court held that the constitutional
restriction on the impairment of contracts applied to the “contract” that created
Dartmouth College – the granting of its corporate charter by the Crown. The opinion by Justice Marshall explains that
because Dartmouth College is a charitable organization the legislature cannot
change the use of the funds held by the trustees. The fact that the government had granted the
charter did not make the college a government-controlled entity. A concurrence by Justice Story explains:
A private donation, vested in a
trustee, for objects of a general nature, does not thereby become a public
trust, which the government may, at its pleasure, take from the trustee, and
administer in its own way. . . .The only authority remaining to the government
is judicial, to ascertain the validity of the grant, to enforce its proper
uses, to suppress frauds, and, if the uses are charitable, to secure their
regular administration, through the means of equitable tribunals, in cases
where there would otherwise be a failure of justice. Dartmouth College v.
Woodward, 17 U.S. 518 (1819). [697-98 – correct page references needed].
Thus, the role of the state in
protecting charitable assets has long been recognized. The state cannot substitute its own judgment
as to how a charity should be managed or who should manage it, and the
legislature cannot convert charitable assets to government assets, but the
state can, and should, protect assets from mismanagement. The Attorney General is charged with this
authority. If the Attorney General finds
a breach of fiduciary duty or identifies mismanagement of charitable assets, a
court can impose sanctions.
Subsection (a). Duty of Attorney General.
Subsection (a) states the duty of the Attorney General concerning charitable
assets. This subsection follows existing
law in most states and may serve as a declaration of the role of the Attorney
General in states in which the duty is not clear. Subsection (a) includes the duty to preserve
and protect charitable assets and ensure their proper use and administration.
Subsection (b). Powers. Subsection
(b) states the powers within the discretion of the Attorney General. Subsection (b) explains that to carry out the
duty stated in subsection (a), the Attorney General may take action to enforce
the purposes or terms for which an asset was given to a charity and may act to prevent
or remedy a breach of a duty owed to a charity by a fiduciary or by another
person. The Attorney General may
intervene in an action involving a charity and may begin an action to enforce
the Act.
Purpose Restrictions. Subsection (b)(1)(B)
provides that 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. The
Drafting Committee concluded that when a donor contributes to a charity, the
donor expects the charity to use that gift for the purposes for which the
charity was organized and operating at that time. A charity organized as a nonprofit
corporation can change its purposes by amending its articles of incorporation
and bylaws, but amendments should not allow the charity to change the purpose
of donations already received. See the Uniform Prudent Management of
Institutional Funds Act, §2(3) (defining “gift instrument” to include governing
documents of the charity); Attorney
Gen. v. Hahnemann Hosp., 494 N.E. 2d 1011, 1020–21 (Mass. 1986) (stating that
the charity could broaden its purposes by amending its articles, but that the
charity could not use unrestricted donations received prior to the amendment
for the new purposes); Queen of Angels Hosp. v. Younger, 66 Cal. App. 3d 359,
365 (Ct. App. 1977) (agreeing with the Attorney General that the nonprofit
corporation held assets “impressed with a charitable trust” to operate as the
articles provided and in the manner in which it had been conducting its
activities).
The Drafting Committee recognizes
that whether governing documents create purpose restrictions for gifts will
depend on evolving case law. The Principles of the Law of
Nonprofit Organizations allow changes in governing instruments to change the
purposes of existing assets. See Principles of the Law of Nonprofit Orgs.
§400, cmt. (d)(3) (The American Law Institute Preliminary Draft No. 5 2009)
(stating, “a facially unrestricted gift made to
a charity having a single, narrow purpose is not viewed as a restricted gift.
Rather, a donor’s desire that the gift be used for a specific purpose must be
expressed, in writing, in order for the recipient charity to be bound to use
that gift for that purpose.”).
Whether an
Attorney General will enforce a purpose restriction based on governing
instruments will depend on specific facts.
An Attorney General is not likely to seek to enforce the original
purpose where the change in the governing documents is minor or necessary to
comply with changing laws. For example,
an Attorney General might not be concerned about donor intent when a charity
established to provide care for boys is expanded to cover girls. However, the court in Hahnemann notes a different sort of example: “As the Attorney
General, colorfully, but no doubt correctly, observes in his reply brief,
‘those who give to a home for abandoned animals do not anticipate a future
board amending the charity’s purpose to become research vivisectionists.’” Attorney Gen.
v. Hahnemann Hosp., 494 N.E. 2d 1011, 1021 n. 18 (Mass. 1986).
Subsection (c). Power to Investigate.
Subsection (c) states the authority of the Attorney General to conduct
an investigation under the Act. The
Attorney General must have a reason to believe the investigation is necessary
to determine whether further action under the Act is appropriate. In conducting investigations, an Attorney
General will be bound the scope of the authority of the office. [more here]
Oftentimes, the Attorney General
will be able to resolve an issue with a charity through the exchange of
information followed by discussion without the need for a court
proceeding. The Attorney General’s
authority to investigate will make non-judicial resolution of matters involving
charities more likely, so that more assets will be preserved for charitable
purposes. Of course, if the Attorney
General and the charity cannot agree on appropriate steps, a court will be the
final arbiter.
Subsection
(d). Other Authority. Subsection (d) reflects the Drafting Committee’s
intention that the statute not replace any common law
or other statutory powers the Attorney General may have. For example, some states regulate charitable
solicitation through other statutes.
Relators. A few states provide for the use of relators. A relator is a private person who sues a
charity on behalf of the Attorney General. A California statute permits persons granted
relator status by the California Attorney General to sue a charity on behalf of
the Attorney General. Cal. Corp. Code §5142(a)(5)
(2011). Pursuant to the regulations,
Cal. Code Regs. Tit.11 §§ 1-10 (2011), a private person can notify the
Attorney General of abuse by the charity or its fiduciaries. The suit must be
one that the Attorney General could have brought, and the Attorney General must
authorize the suit before the relator can proceed. The private relator pays the court costs, but
the attorney general remains in control of the action. The Act does not provide for relators, but
states are free to add such provisions.
Standing of Others. 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. As stated in the Prefatory Note, limited standing has been recognized
by courts and other authorities.
Religious Organizations. The Act does not exclude religious
organizations from oversight by the Attorney General. Due to Constitutional protections, the
Attorney General would not determine whether property was used for a religious
purpose. For example, if a rabbi kept
paintings in the offices used by the rabbi and others, it would not be
appropriate for the Attorney General to try to determine whether the paintings
had religious significance and were used for religious purposes. In contrast, if a religious body decided to
divide into two and a dispute developed between the two factions about property
owned by the original body, the Attorney General might be involved to ensure
that the property stayed with the two successor organizations and did not end
up in private hands. The Attorney
General is properly concerned that property committed to religious purposes not
be taken for an individual’s personal purposes.
SECTION
4. REGISTRATION.
(a) The [Attorney General] shall establish and
maintain a registry of persons required to register under this section.
(b) Except as otherwise provided in subsection
(c), a person is required to register if the person holds, or within the
preceding 12 months has received, charitable assets with a value in excess of $[50,000] and:
(1)
is formed under
the law of this state, or if the person is a trust, has its principal place of
administration in this state;
(2)
has its principal
place of business in this state;
(3)
holds
charitable assets in this state other than assets held primarily for investment
purposes; or
(4) subject to subsection (d), conducts activities in this state
for a charitable purpose.
(c) The following are exempt from subsection (b):
(1) a government or
governmental subdivision, agency, or instrumentality;
(2) an organization the
primary purpose of which is to influence elections or legislation;
(3)
a financial
institution, investment company, or storage facility that holds charitable
assets that belong to another person;
(4) an individual
holding a charitable asset other than in a fiduciary capacity;
(5) a [personal
representative] of a decedent’s estate that holds a charitable asset, during
the period of administration of the estate; [and]
(6) a trustee of a
revocable trust that becomes irrevocable because of the settlor’s death, during
a period of administration following the settlor’s death not to exceed two
years[.][; and]
[(7) a person that
has as its primary activity advocacy on issues of public or governmental policy][.][;
and]
Alternative A
[(8) a religious organization, an
organization operated, supervised, or controlled by or in connection with a religious
organization, or an officer or director of, or a trustee that holds property in
an official capacity for,either.]
Alternative B
[(8)
a [church][house of worship], a convention or
association of [churches][houses of worship], or an integrated auxiliary of a [church][house
of worship.]
Alternative C
[(8)
a religious organization as defined by law of this
state other than this [act].]
End of Alternatives
(d) The following activities, without more, do
not constitute conducting activities in this state within the meaning of
subsection (b)(4):
(1) maintaining,
defending, mediating, arbitrating, or settling an action or proceeding;
(2) holding a meeting of
trustees, directors, or members;
(3) maintaining an
account in a financial institution or an investment account;
(4) owning real or
personal property;
(5) engaging in an
insubstantial and isolated activity that is not in the course of similar
activities; [and]
(6) making a grant to a
person in this state[.][; and
(7) soliciting or accepting contributions.]
(e) A person required to register under this
section shall register with the [Attorney General] not later than [three]
months after the date the person receives charitable assets that have a value
in excess of $[50,000] or such later date as the [Attorney General] authorizes.
(f) The registration required by subsection (b)
must provide:
(1)
the name and
address of the person;
(2) the name and address
of the statutory agent of the person or the individual on whom service of
process may be made;
(3) the name and address
of a responsible individual of the person;
(4) the federal employer
identification number, if any, for the person; [and]
(5) information concerning the federal tax status of the person[.][;
and]
[(6) a copy of the record,
however denominated, that describes the charitable purposes of the person and the
use and administration of charitable assets held by the person[.]
[; and]
[(7) the
name under which the person has registered under [the state’s solicitation statute]
and the registration number, if any.]
Legislative Note: If the
state has a solicitation statute, the state should include Section 4(f)(7). If the state
does not have a solicitation statute, the state should not include the section.
A state without the resources to
manage the filings required under Sections 4-7 may want to adopt only Sections
1-3. The Act will still provide valuable
guidance if the state adopts only Section 3, providing clarification of
Attorney General authority. A state may also choose to require
registration but not require annual reports.
If a state does not adopt Section 4, the state will want to delete
Section 2(5), the definition of responsible person, used only in Section 4.
Comment
The Act
requires charities and others holding charitable assets to register with the
Attorney General so that the Attorney General will have basic information about
the charitable assets the Attorney General has a duty
to protect. The Act directs the Attorney
General to maintain a registry of the charities who must register, and the
registry will serve as a resource for the public as well as for the Attorney
General. The registration requires
minimal information, to avoid overburdening either charitable organizations or
Attorneys General. The hope is that states will be able to move to an
electronic system for registration and reporting, thereby reducing some of the
burden on persons required to register. Electronic registration will be sufficient to
meet the requirements of Section 4, and the Drafting Committee hopes that
states will soon be able to accommodate electronic registration. While a large organization that operates in
many states will likely have an obligation to register in multiple states, the
Act’s move toward uniformity will minimize the burden of multiple
registrations. Electronic registration,
when it comes, will further ease the burden.
The Act includes a statutory form of registration so that states can
adopt a requirement that is consistent across states.
Registration
is important for several reasons. First,
the list of registered charities can serve as a quick resource of information
for the Attorney General and for the public.
If the Attorney General receives a question from a member of the public,
the Attorney General may be able to answer the question simply by reviewing the
information provided in the registration.
No further inquiry may be necessary, and both the Attorney General and
the charity will save time and expense.
Second, a
potential donor may consult the list of registered charities to determine
whether a charity requesting a donation is current in its filings with the
Attorney General. If the charity is not
registered, the donor will want to investigate further before making a
donation. If the charity has
consistently made the required filings, that information suggests the charity
is more likely to be well managed, with fiduciaries who comply with their
duties.
Finally,
the requirement to register serves as a reminder to someone organizing a
charity of the seriousness of the fiduciary role an individual undertakes when
acting as a director or trustee of a charity.
If the individual does not want the responsibility of managing
charitable assets, the individual can give the assets to an existing charity or
start a donor advised fund.
Subsection (b). Threshold Amount. Charities and others holding charitable assets in money or value in
excess of $50,000 must register under the Act. The Act suggests $50,000 as the floor for
requiring registration, but places that amount in brackets to indicate that a
state may use a larger or smaller number.
The Drafting Committee considered
using $5,000 as the threshold because that amount necessitates filing a Form
1023, Recognition of Exempt Status, with the Internal Revenue Service. The information required to register with the
Attorney General is significantly less than the information required to
complete a Form 1023, so an organization should not face an undue burden if
required to register with the Attorney General.
The advantage of a threshold as low as $5,000 is that a smaller charity
may be more likely to encounter difficulties due to the lack of adequate checks
and balances within the organization or lack of expertise on the part of the
founding directors. The Attorney General
can provide education and other assistance that may be particularly beneficial
for smaller charities.
After much discussion, the Drafting
Committee decided to use $50,000 rather than $5,000, to minimize the burdens on
smaller charities and in recognition of the limited resources in some Attorney
General offices. The committee chose the
larger number because that number is the threshold for charities filing annual
information reports with the Internal Revenue Service (a charity with annual
gross receipts of more than $50,000 must file a Form 990-EZ).
The National Center for Charitable
Statistics reports that in 2008, 1,071,851 charities had registered with the
IRS. Of that number, fewer than half
(458,963) filed annual returns reporting financial information. See
http://nccsdataweb.urban.org/PubApps/reports.php?rid=35. In 2008, the filing threshold for reporting
financial information was $25,000, so with the increase in the threshold to
$50,000, the number of returns filed should decease. The National Center for Charitable Statistics
reports the number of charities filing returns by state, so a state can get an
idea of the number of potential filers by examining that data. Illinois, which currently requires annual
returns for charities with assets in excess of $4,000, receives about – returns
a year.
Of the states that have
registration requirements apart from solicitation requirements, California,
Michigan, New Hampshire, Oregon, Rhode Island and Washington have no threshold
amount. Illinois requires registration
when a charity has more than $4,000 in assets; Minnesota requires registration
when assets exceed $25,000; New York requires registration when assets or
receipts exceed $25,000, and Pennsylvania requires registration when
contributions exceed $25,000. Registration
requirements in England and Wales, Scotland, the Irish Republic and Northern
Ireland generally require registration without regard to annual receipts. See
Prefatory Note.
A state enacting Section 4 and the
other sections requiring reports to the Attorney General (Sections 5-7) should
make its decision on the appropriate threshold amount by considering the
resources available in that state for managing the filings. States should be aware that the $50,000
amount in the Act is a higher number than the number used in existing statutes.
Fair Market Value. The valuation of assets held for charitable
purposes, should be made based on the fair market value of the assets,
reasonably determined. The Act does not
use the term “fair market value” because the Drafting Committee did not want to
suggest that appraisals were required to determine value. A person holding charitable assets can
estimate the value, as long as the estimate is reasonable. Because the determination of value is used
only for deciding whether a charity meets the thresholds for registration and
reporting, a reasonable estimate of value is sufficient. The value determined for purposes of the Act
should be the value to the charity and not the value on the market. For example, a conservation easement has a
negative effect on the valuation of the underlying property, but the easement
has a positive value in the hands of the charity that controls the easement.
Subsection (b). Significant Contacts.
The Act requires registration of only those organizations that have
significant contacts in the state. The Drafting Committee believes that the inclusions
and exclusions strike 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.
Although the types of contact
listed in subsection (b) are not limited by the terms “substantial” or
“significant,” the intention is that a negligible level of activity or other
contact not be considered sufficient to cause an Attorney General to assert
protection powers. The state
constitution will control the level of activity necessary for Attorney General protection.
Subsection (b)(1). A
nonprofit corporation must register in its state of incorporation, even if the
nonprofit corporation conducts all of its activities in another state (the
nonprofit will need to register in the other state, too). A trust must register in its principal place
of administration. A trust’s principal
place of administration is typically where the trustee is located. If the trust
has trustees located in more than one jurisdiction, then other factors,
including the location of assets and activities, will be used to determine the
principal place of administration. See UTC §108, cmt. UTC §108 provides that the terms of a trust
can name the place of administration, so long as the trustee’s principal place
of business or residence is in the state named or all or part of the
administration of the trust occurs in that state. If a trustee moves the principal place of
administration, the trustee would have to register in the new state.
The trustee of an irrevocable trust with a charity as a beneficiary
must register. For example, the trustee
of a charitable remainder trust or a charitable lead trust must register if the
value of the charitable interest exceeds $50,000. The charity named in the trust is not
required to register because the trustee, and not the
charity is the person holding the charitable assets.
Subsection (b)(2). The term “principal place of business” is
used to mean principal place of administration, governance, activities, and
operation. Although using the term
“business” for charitable activities sounds odd, the term is used to bring with
it the substantial case law connected with the term.
Subsection (b)(3). If a
charity holds investment assets located in a state and has no other contacts
with the state, the charity need not register.
If a charity holds assets used for its charitable purposes, however, the
charity must register. In most cases, if
the charity holds assets for its charitable purposes it will also be likely to
be conducting charitable activities in the state. For example, a charity organized in Chicago
might own land in Wisconsin that it uses as a summer camp for disadvantaged
children.
Subsection (b)(4). If a
charity conducts its principal activities in one state but also conducts
activities in another state, the charity must register in both states (under
(b)(2) and (b)(4)). A charity with
minimal contacts in a state does not need to register there, but if the charity
conducts significant activities, the charity should register. For example, a charity organized in
Philadelphia might operate homeless shelters in Philadelphia and across the
state border in New Jersey and Delaware.
The charity would register in Pennsylvania, New Jersey, and Delaware.
Subsection (c). Exemptions. Subsection (c) exempts a number of entities
and individuals from the registration requirement.
Subsection (c)(1). The Attorney General already supervises government
subdivisions, so the Act excludes government subdivisions and agencies from
registration. This exemption applies
even if a government agency holds a fund for charitable purposes that are not
usually governmental purposes, for example a scholarship fund.
Subsections (c)(2) and (c)(7). Political, Lobbying and
Advocacy Groups. Organizations
created primarily to influence elections, to lobby, or as policy or issue
advocacy organizations are not primarily charitable organizations. These exclusions may be unnecessary, because
these organizations would not be included under (b) in most circumstances. The Drafting Committee decided to provide
these exclusions in the Act to clarify that organizations engaged primarily in
these activities are not required to register, even if they hold assets for a
charitable purpose.
Subsection (c)(3). Financial Institutions.
Financial institutions and
investment companies are not included within the definition by virtue of having
accounts owned by charities. If a bank
or trust company serves as trustee for a charity, the trustee must register
based on the other subsections of Section 4(b).
Subsection (c)(4). Volunteers. The Act excludes individuals who may hold
charitable assets as volunteers but not in a fiduciary capacity. For example, a volunteer might hold assets in
connection with a school’s PTO fundraiser.
The PTO will register, but a volunteer who holds assets connected with
the fundraiser does not need to register.
Subsections (c)(5),
(c)(6). Wills and Revocable Trusts. If an individual provided a gift to charity
under a will or through a revocable trust that acts as a will substitute at
death, the personal representative of the decedent’s estate or the trustee of
the trust must notify the Attorney General after the individual’s death under
Section 6, but they do not need to register under Section 5. The exclusion for a decedent’s estate applies
for the period of administration of the estate, and the exclusion for a
revocable trust applies for two years from the date of the settlor’s
death. Because a revocable trust does
not have an identifiable period of administration, the two year time period
serves as an approximation of the time needed for administration.
Subsection (c)(8). Religious Organizations.
Religious organizations fall within the scope of the Attorney General’s
duty to protect charitable assets, but a state may decide not to require
religious organizations to register or report.
The Act provides three alternatives for use if a state chooses to exempt
religious organizations from registration.
Alternative A uses a broad definition for this exemption and includes
religious organizations as well as houses of worship. Under Alternative A, a Jewish temple would be
exempt, as would a Catholic K-12 school and a Muslim food pantry, whether or
not the school and pantry were under the control of a particular religious
entity or freestanding with a religious connection. In many religions operating a food bank, a
school, or other activity is a way to carry out religious purposes, so the
provision is not limited to houses of worship.
The second alternative limits the exemption to houses of worship and
“integrated auxiliaries.” The term ”integrated auxiliaries” comes from the tax definition
of “house of worship.” The intention is
to include a K-12 school run by a particular church, but not to include a
free-standing school. The third
alternative suggests that a state use its own state definition of religious
organization or cross-reference that definition. All three alternatives are intended to
include a corporation sole in a state that has that organizational form.
The Act provides two alternative
terms, “church” and “house of worship.”
The term “church” is the term used in the Internal Revenue Code, and a
state may decide to use that term to be consistent with the I.R.C. Although “church” suggests a Christian
religious body, the I.R.C. uses the term to include temple, synagogue, mosque,
and any other place used for worship.
The Act also provides the term “house of worship,” because that term
seems more inclusive. Either term is
intended to mean an organized religion that is carrying out religious
practices. The terms do not mean merely
a building, but instead mean a group of people organized to practice a
religion. In some religions,
“congregation” would convey the meaning, but that term cannot be used for all
religions. Therefore, “church” and
“house of worship” are used as stand-ins for the idea of a group of people
engaged in a religion.
Although the Internal Revenue Code
does not require houses of worship to register, the I.R.C. does require
religious organizations that are not houses of worship to establish their
exempt status and report.
The Constitutional protections of
the free exercise of religion mean that the government cannot interfere with
the exercise of tenets of religious doctrine.
The Constitution does not prohibit registration and reporting by
religious organizations.
Subsection (d). Minimal Activities. This subsection lists a number of activities
a charity might engage in that do not rise to the level of activity that
requires registration. The goal is to
limit registration to states in which the charity has sufficient activity or
assets for the Attorney General to be concerned about proper administration.
Subsection (f). Registration Information. The Act requires minimal registration
information. Some states that currently
provide for registration of charities ask for more information. If a state wants to consider more extensive
registration requirements, the state can look at California, Illinois,
Massachusetts, or New York for examples.
Subsections (f)(1)-(3). The registration must include an address,
which can be the address of the charity and need not be the address of an
individual. In addition to the statutory
agent for the charity, the charity must provide the name of a “responsible
individual” who can answer questions about the charity. If the Attorney General has a question or
receives a complaint, the Attorney General can often resolve the issue with a
phone call if the Attorney General is able to reach a person who is
knowledgeable about the charity.
Resolving issues quickly in this way saves time and resources for both
the Attorney General and the charity.
Subsection (f)(4). The registration includes the federal
employer identification number for the charity.
This number should be the EIN for the charity (the nonprofit
corporation, charitable trust or some other organizational structure) and not for
an individual associated with the charity.
If the charity for some reason does not have an EIN, the individual
filing the registration should so indicate and should not provide a social
security number.
Subsection (f)(5). Most new charities will need to register
before they receive their determination letters from the IRS, indicating that
they are tax exempt. The registration
can state that the organization has applied for recognition of its tax-exempt
status and the request is pending.
Subsection (f)(6) is in brackets to
indicate that some states will not want to include this provision. Subsection (f)(6)
requires the charity to provide documents that describe the charitable purposes
of the charity and how the charity will use and administer its assets. Most charities will provide articles and
bylaws or a copy of the trust instrument.
The Drafting Committee decided not to require organizing documents
specifically, because those documents depend on the organizational structure of
the charity, and because not all persons who hold charitable assets are
charities. The intent is for the person
holding charitable assets to provide documents that indicate the charitable
purposes for the assets and any restrictions on use of the assets so the
Attorney General will have information to determine whether the assets are
being used impermissibly.
If a person holding charitable
assets is a business corporation that has set aside assets in a charitable
fund, the business need only furnish the portions of its documents that relate
to the charitable assets. The business
corporation need not provide its articles and bylaws in their entirety because
most of the content of those documents will not apply to the charitable assets. The same is true for a trust if part of the
trust applies to private beneficiaries and part has a charitable purpose. Only the portions of the trust applicable to
the charitable assets need be provided and the rest of the trust instrument can
be redacted.
Website Benefits. A charity required to register in a state may
benefit from posting its registration on its website. Although registration by itself does not
indicate Attorney General approval, knowing that an
organization is registered and current with its annual reports may make potential
donors more likely to contribute.
SECTION 5.
ANNUAL REPORT.
(a) A person required to register under Section 4
which holds charitable assets with a value in excess of $[50,000] at the end of
the person’s most recent annual accounting period or receives charitable assets with a value in excess
of $[50,000] during the period shall file with the [Attorney General], not
later than four months and 15 days after the end of the period or such later
date as the [Attorney General] authorizes, an annual report providing [and
verifying][and certifying the accuracy of] the following information:
(1) the name and address
of the person;
(2) the name and address
of the statutory agent of the person or the individual on whom service of
process may be made;
(3) a list of the names
of the individuals responsible for the management of the person during the
period;
(4) the person’s total
revenue for the period;
(5) the value of the
person’s assets as of the last day of the period;
(6) a description of the
person’s most significant program activities, not exceeding three activities,
during the period;
(7) a copy of any
amendment, during the period, of the record that describes the charitable
purpose of the person and the use and administration of charitable assets held
by the person;
(8) whether during the
period the person:
(A) engaged in an event
described in Section 6(a) or (b);
(B) entered into a contract, loan, lease, or
other financial transaction with an officer, director, trustee, or other fiduciary
of the person, or a spouse, sibling, descendant or ascendant of an officer,
director, trustee, or other fiduciary of the person, either directly or with an
entity in which the officer, director, trustee, other fiduciary, spouse,
sibling, descendant or ascendant had a material financial interest;
(C) became aware of an embezzlement, theft, or
diversion of a charitable asset of the person;
(D) became aware of use of a charitable asset of
the person to pay any penalty, fine, or judgment;
(E) became aware of the payment by an officer,
director, trustee, or other fiduciary of the person of a penalty, fine, or
judgment with respect to the person; or
(F) became aware of the use of restricted funds
of the person for a purpose other than the purpose specified in the
restriction;
(9) an explanation of an
affirmative answer reported under paragraph (8); and
(10) a change to any
information provided under Section 4 [.][; and]
[(11)
the name under which the person has registered under
[the state’s solicitation statute] and the registration number, if any.]
(b) If a person required to file an annual report
under subsection (a) is required to file a federal information return with the
Internal Revenue Service, the person shall attach to the annual report a copy
of the most recently filed return.
Comment
A charity
with assets in excess of a suggested $50,000 or which receives assets in excess
of $50,000 during the accounting period, will file an annual report providing
basic information about revenue, assets, and activities during the year. The Act requires that all charities that meet
the filing requirements file a short annual report and attach a copy of the
charity’s federal tax filing. The
Drafting Committee concluded that having an annual report form in addition to
the federal form would allow the Attorney General to review quickly the
information provided by the charity. The
annual report requires minimal information, and if states adopt the annual
report form uniformly, the burden on charities required to file in multiple
states will be reduced. The report is
due four months and 15 days after the end of the accounting period, the due
date for the annual reporting to the IRS.
The Act adds “or such later date as the Attorney General authorizes”
because many charities receive extensions for filing their annual forms with
the IRS. The assumption is that the
Attorney General will authorize extensions for state filings to match due dates
for federal filings.
The Drafting Committee noted that
the reporting requirement can encourage good governance. The annual report can serve an educational
purpose, providing a reminder of some of the duties owed with respect to
charitable assets. 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 protection
of charitable assets. Further, timely
filing of annual reports will give the public confidence that a charity is
managed properly.
The Drafting Committee decided to
make the filing threshold for the annual report consistent with the threshold
for registration. Although some committee
members noted that small organizations are often the ones that get into
trouble, the committee decided on the $50,000 threshold to minimize the impact
on charities and the Attorneys General.
If a state decides to lower the threshold for registration, the state can
choose to keep the threshold for the annual report at $50,000 or lower it.
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 5 duplicative and unnecessary.
Subsection
(a)(3) asks for a list of the names of the managers of
the charity. This list could include the
directors, the trustees, the executive director, and high-level officers or
employees.
Subsection
(a)(4) asks for the charity’s total revenue for the
most recent accounting period. The
intention here is to have the charity report the same number reported on line
12 of Part I of the Form 990, so that only one computation is necessary.
Subsection
(7) requires the charity to attach copies of amendments to the documents filed
pursuant to Section 4(f)(6). If a state deletes that requirement for
registration, the state should also delete subsection (5).
Subsection
(8) asks the charity to indicate whether the charity engaged in certain
activities or became aware of certain incidents, any of which might indicate a
problem in the management or use of the charitable assets. The charity checks “yes” or “no” on the
annual report form for each item, so in most cases this part of the report will
take little time. If the charity answers
“yes” for any item, then subsection (9) asks the charity to explain. The information will give the Attorney
General a quick way to determine whether the Attorney General should take a
closer look at something involving the charity.
Subsection
(9) asks the charity to attach to the annual report a copy of its federal
filing. Although
federal filings are public records and are eventually posted on Guidestar, obtaining
a copy of the form immediately after it is filed can be difficult. The Drafting Committee concluded that the
benefits to the Attorney General of having immediate access to the federal form
outweighed the burden on charities of a requirement to file a photocopy of the
federal form.
SECTION 6. NOTICE TO [ATTORNEY GENERAL] of Reportable event.
(a) A person required to register under Section 4
shall give notice in a record to the [Attorney General] not later than [20]
days before the occurrence of any of the following proposed events:
(1) dissolution of the
person;
(2) termination of the
person;
(3) disposition by the
person of all or substantially all of the charitable assets of the person;
(4) removal of the
person from the jurisdiction of this state; or
(5) removal of
significant charitable assets of the person from this state.
(b) A
person required to register under Section 4 shall give notice in a record to
the [Attorney General] not later than [90] days before the proposed consummation
of a merger, conversion, or domestication of the person.
(c) A transfer of a charitable asset in
connection with an event described in subsection (a) or (b) which occurs
earlier than [20] days after delivery of the notice required by subsection (a) or
[90] days after delivery of the notice required by subsection (b) is a
violation of this [act] unless before the transfer the person receives from the
[Attorney General] in a record consent to the proposed event or notice that the
[Attorney General] will take no action regarding the event.
(d) If a decedent’s estate opened by a court in
this state involves, or may involve, the distribution of property to a person
holding charitable assets, unless the distribution is a nonresiduary devise
with a value of less than $[50,000] to a named person holding charitable assets,
the [personal representative] shall deliver to the [Attorney General] not later
than [90] days after the date the [personal representative] is appointed:
(1) a copy of the will;
(2) a copy of the [application] [petition] for probate; and
(3) a copy of the
inventory or, if none is filed with the court, a statement of the value of the
estate.
(e) If a revocable trust becomes irrevocable because
of the settlor’s death, has its principal place of administration in this state
after the settlor’s death, and provides for a distribution of property to a
person holding charitable assets, unless the distribution is a nonresiduary
devise with a value of less than $[50,000] to a named person holding charitable
assets, the trustee shall deliver to the [Attorney General] not later than [90]
days after the date of the settlor’s death:
(1) a description of the
charitable interests; and
(2) a statement of the
value of the trust assets.
(f) A person required to register under Section 4
shall give notice in a record to the [Attorney General] not later than [20] days after receipt of a notice of
revocation, modification, or denial of its federal or state [income] tax
exemption.
Comment
The Act requires notice to the Attorney General
of a limited number of significant events that might occur in the life of a
charity. The events that trigger the
notice requirement are those that raise particular opportunities for
misapplication of charitable assets.
Notice will give the Attorney General an opportunity to monitor the
events in time to prevent problems and to correct problems that have already
arisen. There are other significant events not included, for example, notice of
a proposed change to an agreed gift restriction. Some states have required notice of certain
proposed changes which could trigger concerns over breach of the Charitable
Trust Doctrine or application of the Cy
Pres Doctrine (e.g., see action of the Attorney General of New Hampshire in requiring notice of certain
proposed amendments to restrictions in conservation easements [cite)). States
may wish to consider such additions, but adequate staffing is a significant
issue in many states.
Subsections (a) – (c).
Disposition or Removal of All or Significantly All
Assets. If the charity will terminate, dispose of
substantially all of its assets, or move to another state, the charity must
notify the Attorney General before the charity gives up control of the assets
or removes them from the jurisdiction.
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. This subsection gives the Attorney General
the information needed to work with the charity on an appropriate plan of
distribution or other transfer. If the Attorney
General and the charity cannot reach agreement, they can request a court
determination to resolve the issue.
Subsection
(d). Decedent’s Estate. If a decedent’s estate contains a gift to a charity or creates a
charity through a gift under the will, the personal representative must notify
the Attorney General. This notice is
necessary to protect the charitable bequest which could be adversely affected if
an heir contests the will or if the personal representative or others take
excessive fees in managing the estate.
An exception exists for a nonresiduary bequest to a named charity in an
amount less than $50,000, because the named charity will have an incentive to
monitor the bequest. The Drafting
Committee did not create an exception for residuary gifts to named charities
because the Attorney General may need to monitor fees that would reduce the
value of the residue. A charity may be
reluctant to challenge fees because of concerns about public goodwill or the
hope of future gifts from the same family.
Subsection
(e). Revocable Trust. Many
property owners use a revocable trust rather than a will to distribute property
at death. This subsection applies the
same notice requirement for property distributed through a revocable trust that
applies to property distributed under a will.
Notice should be given to the Attorney General of the state in which the
trust has its principal place of administration after the settlor’s death. A revocable trust typically gets a new
trustee after the settlor’s death, and if the trustee is in a different state,
the place of administration may move.
The appropriate state for notice is the state in which the trust will be
administered during the period immediately following the settlor’s death.
Subsection
(f). Action Affecting 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 notice to the Attorney General of revocation or modification of a
charity’s exempt status for any tax purpose.
A state may want to limit notice to actions affecting only a particular
state tax exemption. In some states the
important state tax exemption may be an income tax exemption, but in other
states the property tax exemption may be of greater importance. The Attorney General may not need
notification of action affecting every state tax exemption.
SECTION 7.
NOTICE to attorney general OF action or PROCEEDING.
(a) This section applies to an action or
proceeding in this state:
(1) by, against
or on behalf of a person holding a charitable asset in which the relief sought
relates to a gift of a charitable asset;
(2) concerning
the use of a charitable asset or a breach of duty or other obligation owed to a
person holding a charitable asset;
(3) by,
against, or on behalf of a person holding a charitable asset in which the
relief sought includes:
(A)
instruction, injunction, or declaratory relief
relating to the management, use, or distribution of a charitable asset;
(B) construction of a
record under which a charitable asset is held;
(C) modification, interpretation,
or termination of the terms of a record under which a charitable asset is held;
(D)
removal, appointment, or replacement of a
trustee of a charitable trust; or
(E) a challenge to the
administration of or a distribution from a decedent’s estate or a trust in
which matters affecting a charitable asset may be decided; and
(4) for bankruptcy under
federal law, receivership under [state receivership statute] or a similar
receivership statute of another state, or relief in any other insolvency
proceeding.
(b) If an action or proceeding to which this
section applies is commenced by or brought against a person in this state, the party
seeking relief shall give notice in a record to the [Attorney General]. The notice must include a copy of the initial
pleading. An order, decree, or judgment
rendered in an action in which notice is required by this section is not
binding on the [Attorney General] if the notice has not been given.
Legislative Note: In states where the Attorney General is a
necessary party to any or all of the actions addressed in this section, parts
or all of the section may be unnecessary.
Comment
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. However, some states may not
have the resources to handle this level of reporting. The information will be beneficial
to the Attorney General, but a state without the resources to receive and
review the notices provided for in this section may not want to adopt this
section or every part of this section.
State law
may already require notice to the Attorney General for some of the actions
identified in this section. For example,
the Uniform Prudent Management of Institutional Funds Act, adopted in all but
two states, requires notice to the Attorney General before a charity modifies a
donor-imposed restriction or asks a court to modify a restriction. UPMIFA §6. If other law requires notice to the Attorney
General under certain circumstances, a state should remove the requirement of
notice for those circumstances from this section.
The
intention of this section is for the applicable Statute of Limitations, if any,
to control. In some states, the common
law bars the application of a statute of limitations to the Attorney General’s
enforcement of fiduciary duties in connection with charities. See,
e.g., Lifespan
Corp. v. New England Medical Center, Inc., 731
F.Supp.2d 232 (D.R.I. 2010), clarification order 2010 WL 3718952 (Sept. 20,
2010)(applying Massachusetts law); Com. ex. rel. Corbett v. Citizens Alliance
for Better Neighborhoods, Inc., 983 A.2d 1274, 1278 (Pa. Cmwlth. Ct.
2009). The equitable doctrine of laches
may apply if the delay in bringing a suit is inexcusable and would
significantly prejudice the defendant. Com. Ex rel. Corbett, at
1279.
SECTION 8. WAIVER OF FILING.
(a) The [Attorney General] may waive a filing
required under Section 4 if a person required to register only by Section
4(b)(3) or (4) is registered in another state under a
law that is substantially similar to this [act] and files with the [Attorney
General] a copy of the registration filed in the other state.
(b) The [Attorney General] may waive a filing
required under Section 5 if a person required to register only by Section
4(b)(3) or (4) files, pursuant to law of this [state] other than this
[act], a report substantially similar to
the report required to be filed under Section 5.
Comment
The
Attorney General can agree to accept another required filing in lieu of an
annual report. For example, in a state
that requires an annual report in connection with solicitation, that filing may
satisfy the requirement of an annual report under this section. This Section waives the requirement to
register (subsection (a)) and to file annual reports (subsection (b)), but it
does not waive the requirements to notify the Attorney General under Sections 6
and 7.
SECTION 9. FEES.
(a) A person required to register under Section 4
shall pay a fee of $[15] with the registration and, if the registration is not
filed timely, a late fee of $[100].
(b) A person required to file reports under
Section 5 shall pay a fee of $[15] with the report and, if the report is not
filed timely, a late fee of $[100].
Comment
The Act provides limited provisions for fees, and a state may want to
delete these requirements or add more.
Some states with current registration statutes use a sliding scale based
on ---
SECTION 10.
COOPERATION WITH OTHER OFFICIAL.
(a) The [Attorney General] may cooperate with an
official of this state, another state, or the United States, or any
governmental subdivision, agency, or instrumentality of any of the foregoing,
charged with the protection of 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 information relating to a charitable asset which is relevant to
the official’s protection of charitable assets; or
(3) request from the
official information relevant to an investigation pursuant to Section 3.
Comment
This section authorizes cooperation
between a state Attorney General and relevant officials of other states and the
federal government. In some states a
charity submits reports to the Secretary of State or to other state offices. This section allows the Attorney Genera] to
coordinate with any other state agency and provide information to other
agencies as well as request information from other agencies.
SECTION 11.
PUBLIC RECORDS. A registration filed under Section 4 and an annual report filed under Section 5 are public records. The [Attorney General], on the written
request of a person required to register under Section 4, shall withhold from
public inspection any part of the person’s registration or annual report which
does not relate to a charitable purpose or charitable assets and is not
otherwise a public record.
Legislative
Note: In some states an amendment to the state’s
Freedom of Information Act may be necessary, and in some states, the state’s
Freedom of Information Act may require additional statutory language in Section
11. In other states this section will be
unnecessary because the state’s Freedom of Information Act will apply without a
provision in this statute.
SECTION 12.
Form of REgistration. Completion of the following
form is sufficient to comply with the requirements of Section 4:
REGISTRATION OF CHARITY
Name of Organization:
Federal Employer
Identification Number (EIN):
Street Address:
City, State, and ZIP Code:
Phone number: Website:
Name of Statutory Agent or Individual on Whom
Service of Process May Be Made:
Street Address:
City, State, and ZIP Code:
Name of Individual to Contact with Questions:
Street Address:
City, State, and ZIP Code:
Phone number: E-mail address:
Tax-Exempt
Status
Which of the following
describes the organization’s tax-exempt status application with the Internal
Revenue Service? Please note that an
application for tax-exempt status is different from an application for an
employer identification number.
( ) The
organization holds IRS tax-exempt status.
( ) The
organization applied for tax-exempt status on _____/_____/_____ but a determination
letter has not been received from the IRS.
( ) The
organization has not applied for tax-exempt status. Explain the reason for not
applying on an attached page.
[Registration Under Charitable Solicitation Act
If the organization is
registered under [the state’s solicitation statute]:
Name registered:
Registration number: ]
Required
Documents
Attach to this registration
form a copy of the document (articles of incorporation, bylaws, articles of
association, trust agreement, or other document) that describes the
organization’s charitable purpose and the use and administration of its
charitable assets.
SECTION 13.
form of Annual Report. Completion of the following
form is sufficient to comply with the requirements of Section 5.
ANNUAL REPORT OF CHARITY
Name of
Organization:
Federal Employer Identification Number (EIN):
Street Address:
City, State, and ZIP Code:
Phone number: Website:
Name of
Statutory Agent or Individual on Whom Service of
Process may Be Made:
Street address:
City, State, and ZIP Code:
Check if:
( ) Change of name
( ) Change of address
( ) Change in statutory agent
( ) Change in individual for questions
( ) Amendment of document (articles of
incorporation, bylaws, articles of association, trust agreement, or other
document) changing charitable purpose or use and administration of charitable
assets (attach copy of amendment)
( ) Registered Under Charitable Solicitation
Act, Registration Number _________________
Name of Individual to Contact with Questions:
Street Address:
City, State, and ZIP Code:
Phone number: E-mail address:
PART A – ACTIVITIES
For your most recent full accounting period beginning / /
and ending
/ / ,
list:
Individuals responsible for management (directors,
officers, key employees):
Total revenue: $
Total assets at end of period: $
Description of most significant program activities,
not to exceed three:
PART B –
STATEMENTS ABOUT ORGANIZATION DURING THE PERIOD OF THIS REPORT
Note: If you
answer “yes” to any of the questions below, attach an explanation of each “yes”
response. During this accounting period:
Yes No
1.
Were there any contracts, loans, leases, or other financial ( ) ( )
transactions
between the organization and an officer, director,
trustee,
or other fiduciary or a spouse, sibling, child, grandchild, or
parent of
an officer, director, trustee, or other fiduciary of the
organization,
either directly or with an entity in which the fiduciary
or family
member had a material financial interest?
2.
Did the organization become aware of any embezzlement, ( ) ( )
theft, or
diversion of the organization’s charitable assets?
3.
Did the organization become aware of the use of a charitable ( ) ( )
asset of
the organization to pay any penalty, fine, or judgment?
4.
Did the organization become aware of the payment by an ( ) ( )
officer,
director, trustee, or other fiduciary of the organization of
a penalty,
fine, or judgment with respect to the organization?
5. Did the organization become aware of the use
of restricted ( ) ( )
funds of
the organization for a purpose other than the purpose
specified
in the restriction?
6.
Did the organization dissolve? ( ) ( )
7.
Did the organization terminate? ( ) ( )
8.
Did the organization dispose of all or substantially all of ( ) ( )
its
charitable assets?
9.
Did the organization leave the jurisdiction of this state? ( ) ( )
10.
Did the organization remove significant charitable assets ( ) ( )
of the
organization from this state?
11.
Did the organization enter into or begin the process of entering (
) ( )
into a
merger, conversion, or domestication?
I declare [under penalty of
perjury] that I have examined this report, including accompanying documents,
and to the best of my knowledge and belief, it is true, correct, and complete.
Signature of authorized
individual:
Name and Title:
Date:
Comment
Sections
12 and 13 contain statutory forms. The
Drafting Committee decided to include forms in the Act itself, rather than in
the Comments, in the hope that states will adopt the forms as part of the
statutory language. Uniformity of forms
will substantially decrease the burden on charities that need to register and
file annual reports in more than one state.
The forms should be simple to complete.
The
form for registration should fit on one side of one page, if it is formatted
with single spacing in the tax-exempt status section. For registration, a state may want to require
the charity to submit a copy of its IRS determination letter. If so, the form can add, under “Required
Documents,” “IRS Determination letter, if applicable.”
The
form for the annual report will fit on two pages and can be printed as one
page, double-sided. The form should be
formatted so that Part B is single-spaced, with double spaces between items.
SECTION 14. 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 15. REPEALS. The following are
repealed:
SECTION 16.
EFFECTIVE DATE. This [act] takes
effect . . . .
