The Nonprofit Corporation Law, among other things, generally regulates the organization and operation of nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

(1)Existing law authorizes the corporate powers, rights, and privileges of a domestic taxpayer to be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state to be forfeited, if certain tax liabilities are not paid or a taxpayer fails to file a tax return. Existing law also authorizes the corporate powers, rights, and privileges of a domestic corporation exempt from income tax to be suspended and the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state exempt from income tax to be forfeited if the organization fails to file the annual information return or a specified statement for organizations not required to file the information return or pay a specified amount due. Existing law requires notice prior to the suspension or forfeiture of a taxpayers corporate powers, rights, and privileges. Existing law requires the Franchise Tax Board to transmit to the Secretary of State the names of those taxpayers subject to these suspension or forfeiture provisions and thereby makes the suspension or forfeiture effective. Under existing law, the Secretary of States certificate is prima facie evidence of the suspension or forfeiture.

This bill would make a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, and a foreign nonprofit corporation, subject to administrative dissolution or administrative surrender, as specified, if the nonprofit corporations or foreign corporations corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a specified period of time. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the bill would require the Franchise Tax Board to provide notice to the corporation of the pending administrative dissolution or administrative surrender. The bill would require the Franchise Tax Board to transmit to the Secretary of State and the Attorney Generals Registry of Charitable Trusts the names and Secretary of State file numbers of the corporations subject to administrative dissolution or administrative surrender. The bill would also require the Secretary of State to provide notice of the pending administrative dissolution or administrative surrender on its Internet Web site, as specified. The bill would authorize a nonprofit corporation or foreign corporation to provide the Franchise Tax Board with a written objection to the administrative dissolution or administrative surrender. If there is no written objection or the written objection fails, the bill would require the corporation to be administratively dissolved or administratively surrendered and would provide that the certificate of the Secretary of State is prima facie evidence of the administrative dissolution or administrative surrender. Upon administrative dissolution or administrative surrender, the bill would abate the nonprofit corporations liabilities for qualified taxes, interest, and penalties, as provided.

(2)Existing law, the Nonprofit Corporation Law, authorizes a nonprofit public benefit corporation, nonprofit mutual benefit corporation, and nonprofit religious corporation to elect voluntarily to wind up and dissolve by either approval of a majority of all members or approval of the board and approval of the members. Under existing law, the General Corporation Law, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, are authorized to sign and verify a specified certificate of dissolution. Existing law requires the certificate to be filed with the Secretary of State and requires the Secretary of State to notify the Franchise Tax Board of the dissolution. Existing law provides that, upon the filing of the certificate, a corporation is dissolved and its powers, rights, and privileges cease.

This bill would enact provisions similar to those General Corporation Law provisions and make them applicable to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. The bill would additionally provide that liability to creditors, if any, is not discharged, the liability of the directors of the dissolved nonprofit corporation is not discharged, and the dissolution of a nonprofit corporation does not diminish or adversely affect the ability of the Attorney General to enforce specified liabilities.

(3)Existing law requires every corporation doing business within the limits of this state and not expressly exempted from taxation to annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, as specified. Under existing law, every corporation, except as specified, is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within the limits of this state. Upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.

This bill would require the Franchise Tax Board to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the nonprofit corporation certifies, under penalty of perjury, that it was not doing business, as defined. The bill would make this abatement conditioned on the dissolution of the qualified corporation within a specified period of time of filing the request for abatement. The bill would require the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions and would exempt these rules and regulations from the Administrative Procedure Act.

(4)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.

This bill would make certain legislative findings and declarations that abatement of a nonprofit corporations liabilities for specified taxes, penalties, and interest serves a public purpose, as provided.

(5)By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Nonprofit Corporation Law, among other things, generally regulates the organization and operation of nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

(1)Existing law authorizes the corporate powers, rights, and privileges of a domestic taxpayer to be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state to be forfeited, if certain tax liabilities are not paid or a taxpayer fails to file a tax return. Existing law also authorizes the corporate powers, rights, and privileges of a domestic corporation exempt from income tax to be suspended and the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state exempt from income tax to be forfeited if the organization fails to file the annual information return or a specified statement for organizations not required to file the information return or pay a specified amount due. Existing law requires notice prior to the suspension or forfeiture of a taxpayers corporate powers, rights, and privileges. Existing law requires the Franchise Tax Board to transmit to the Secretary of State the names of those taxpayers subject to these suspension or forfeiture provisions and thereby makes the suspension or forfeiture effective. Under existing law, the Secretary of States certificate is prima facie evidence of the suspension or forfeiture.

This bill would make a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, and a foreign nonprofit corporation, subject to administrative dissolution or administrative surrender, as specified, if the nonprofit corporations or foreign corporations corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a specified period of time. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the bill would require the Franchise Tax Board to provide notice to the corporation of the pending administrative dissolution or administrative surrender. The bill would require the Franchise Tax Board to transmit to the Secretary of State and the Attorney Generals Registry of Charitable Trusts the names and Secretary of State file numbers of the corporations subject to administrative dissolution or administrative surrender. The bill would also require the Secretary of State to provide notice of the pending administrative dissolution or administrative surrender on its Internet Web site, as specified. The bill would authorize a nonprofit corporation or foreign corporation to provide the Franchise Tax Board with a written objection to the administrative dissolution or administrative surrender. If there is no written objection or the written objection fails, the bill would require the corporation to be administratively dissolved or administratively surrendered and would provide that the certificate of the Secretary of State is prima facie evidence of the administrative dissolution or administrative surrender. Upon administrative dissolution or administrative surrender, the bill would abate the nonprofit corporations liabilities for qualified taxes, interest, and penalties, as provided.

(2)Existing law, the Nonprofit Corporation Law, authorizes a nonprofit public benefit corporation, nonprofit mutual benefit corporation, and nonprofit religious corporation to elect voluntarily to wind up and dissolve by either approval of a majority of all members or approval of the board and approval of the members. Under existing law, the General Corporation Law, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, are authorized to sign and verify a specified certificate of dissolution. Existing law requires the certificate to be filed with the Secretary of State and requires the Secretary of State to notify the Franchise Tax Board of the dissolution. Existing law provides that, upon the filing of the certificate, a corporation is dissolved and its powers, rights, and privileges cease.

This bill would enact provisions similar to those General Corporation Law provisions and make them applicable to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. The bill would additionally provide that liability to creditors, if any, is not discharged, the liability of the directors of the dissolved nonprofit corporation is not discharged, and the dissolution of a nonprofit corporation does not diminish or adversely affect the ability of the Attorney General to enforce specified liabilities.

(3)Existing law requires every corporation doing business within the limits of this state and not expressly exempted from taxation to annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, as specified. Under existing law, every corporation, except as specified, is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within the limits of this state. Upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.

This bill would require the Franchise Tax Board to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the nonprofit corporation certifies, under penalty of perjury, that it was not doing business, as defined. The bill would make this abatement conditioned on the dissolution of the qualified corporation within a specified period of time of filing the request for abatement. The bill would require the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions and would exempt these rules and regulations from the Administrative Procedure Act.

(4)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.

This bill would make certain legislative findings and declarations that abatement of a nonprofit corporations liabilities for specified taxes, penalties, and interest serves a public purpose, as provided.

(5)By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Nonprofit Corporation Law, among other things, generally regulates the organization and operation of nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

(1)Existing law authorizes the corporate powers, rights, and privileges of a domestic taxpayer to be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state to be forfeited, if certain tax liabilities are not paid or a taxpayer fails to file a tax return. Existing law also authorizes the corporate powers, rights, and privileges of a domestic corporation exempt from income tax to be suspended and the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state exempt from income tax to be forfeited if the organization fails to file the annual information return or a specified statement for organizations not required to file the information return or pay a specified amount due. Existing law requires notice prior to the suspension or forfeiture of a taxpayers corporate powers, rights, and privileges. Existing law requires the Franchise Tax Board to transmit to the Secretary of State the names of those taxpayers subject to these suspension or forfeiture provisions and thereby makes the suspension or forfeiture effective. Under existing law, the Secretary of States certificate is prima facie evidence of the suspension or forfeiture.

This bill would make a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, and a foreign nonprofit corporation, subject to administrative dissolution or administrative surrender, as specified, if the nonprofit corporations or foreign corporations corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a specified period of time. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the bill would require the Franchise Tax Board to provide notice to the corporation of the pending administrative dissolution or administrative surrender. The bill would require the Franchise Tax Board to transmit to the Secretary of State and the Attorney Generals Registry of Charitable Trusts the names and Secretary of State file numbers of the corporations subject to administrative dissolution or administrative surrender. The bill would also require the Secretary of State to provide notice of the pending administrative dissolution or administrative surrender on its Internet Web site, as specified. The bill would authorize a nonprofit corporation or foreign corporation to provide the Franchise Tax Board with a written objection to the administrative dissolution or administrative surrender. If there is no written objection or the written objection fails, the bill would require the corporation to be administratively dissolved or administratively surrendered and would provide that the certificate of the Secretary of State is prima facie evidence of the administrative dissolution or administrative surrender. Upon administrative dissolution or administrative surrender, the bill would abate the nonprofit corporations liabilities for qualified taxes, interest, and penalties, as provided.

(2)Existing law, the Nonprofit Corporation Law, authorizes a nonprofit public benefit corporation, nonprofit mutual benefit corporation, and nonprofit religious corporation to elect voluntarily to wind up and dissolve by either approval of a majority of all members or approval of the board and approval of the members. Under existing law, the General Corporation Law, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, are authorized to sign and verify a specified certificate of dissolution. Existing law requires the certificate to be filed with the Secretary of State and requires the Secretary of State to notify the Franchise Tax Board of the dissolution. Existing law provides that, upon the filing of the certificate, a corporation is dissolved and its powers, rights, and privileges cease.

This bill would enact provisions similar to those General Corporation Law provisions and make them applicable to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. The bill would additionally provide that liability to creditors, if any, is not discharged, the liability of the directors of the dissolved nonprofit corporation is not discharged, and the dissolution of a nonprofit corporation does not diminish or adversely affect the ability of the Attorney General to enforce specified liabilities.

(3)Existing law requires every corporation doing business within the limits of this state and not expressly exempted from taxation to annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, as specified. Under existing law, every corporation, except as specified, is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within the limits of this state. Upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.

This bill would require the Franchise Tax Board to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the nonprofit corporation certifies, under penalty of perjury, that it was not doing business, as defined. The bill would make this abatement conditioned on the dissolution of the qualified corporation within a specified period of time of filing the request for abatement. The bill would require the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions and would exempt these rules and regulations from the Administrative Procedure Act.

(4)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.

This bill would make certain legislative findings and declarations that abatement of a nonprofit corporations liabilities for specified taxes, penalties, and interest serves a public purpose, as provided.

(5)By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Nonprofit Corporation Law, among other things, generally regulates the organization and operation of nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

(1)Existing law authorizes the corporate powers, rights, and privileges of a domestic taxpayer to be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state to be forfeited, if certain tax liabilities are not paid or a taxpayer fails to file a tax return. Existing law also authorizes the corporate powers, rights, and privileges of a domestic corporation exempt from income tax to be suspended and the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state exempt from income tax to be forfeited if the organization fails to file the annual information return or a specified statement for organizations not required to file the information return or pay a specified amount due. Existing law requires notice prior to the suspension or forfeiture of a taxpayers corporate powers, rights, and privileges. Existing law requires the Franchise Tax Board to transmit to the Secretary of State the names of those taxpayers subject to these suspension or forfeiture provisions and thereby makes the suspension or forfeiture effective. Under existing law, the Secretary of States certificate is prima facie evidence of the suspension or forfeiture.

This bill would make a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, and a foreign nonprofit corporation, subject to administrative dissolution or administrative surrender, as specified, if the nonprofit corporations or foreign corporations corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a specified period of time or if the nonprofit corporation has not filed a Statement of Information with the Secretary of State for a specified period of time. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the bill would require either the Franchise Tax Board or the Secretary of State the Franchise Tax Board to provide notice to the nonprofit corporation of the pending administrative dissolution or administrative surrender. The bill would also require the Secretary of State to provide notice of the pending administrative dissolution or administrative surrender on its Internet Web site, as specified. The bill would authorize a nonprofit corporation or foreign corporation to provide the Franchise Tax Board or the Secretary of State with a written objection to the administrative dissolution or administrative surrender. If there is no written objection or the written objection fails, the bill would require the nonprofit corporation to be administratively dissolved or administratively surrendered and would provide that the certificate of the Secretary of State is prima facie evidence of the administrative dissolution or administrative surrender. Upon administrative dissolution or administrative surrender, the bill would abate the nonprofit corporations liabilities for qualified taxes, interest, and penalties, as provided.

(2)Existing law, the Nonprofit Corporation Law, authorizes a nonprofit public benefit corporation, nonprofit mutual benefit corporation, and nonprofit religious corporation to elect voluntarily to wind up and dissolve by either approval of a majority of all members or approval of the board and approval of the members. Under existing law, the General Corporation Law, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, are authorized to sign and verify a specified certificate of dissolution. Existing law requires the certificate to be filed with the Secretary of State and requires the Secretary of State to notify the Franchise Tax Board of the dissolution. Existing law provides that, upon the filing of the certificate, a corporation is dissolved and its powers, rights, and privileges cease.

This bill would enact provisions similar to those General Corporation Law provisions and make them applicable to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. The bill would additionally provide that liability to creditors, if any, is not discharged, the liability of the directors of the dissolved nonprofit corporation is not discharged, and the dissolution of a nonprofit corporation does not diminish or adversely affect the ability of the Attorney General to enforce specified liabilities.

(3)Existing law requires every corporation doing business within the limits of this state and not expressly exempted from taxation to annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, as specified. Under existing law, every corporation, except as specified, is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within the limits of this state. Upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.

This bill would require the Franchise Tax Board to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the nonprofit corporation certifies, under penalty of perjury, that it was not doing business, as defined. The bill would make this abatement conditioned on the dissolution of the qualified corporation within a specified period of time of filing the request for abatement. The bill would require the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions and would exempt these rules and regulations from the Administrative Procedure Act.

(4)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.

This bill would make certain legislative findings and declarations that abatement of a nonprofit corporations liabilities for specified taxes, penalties, and interest serves a statewide public purpose, as provided.

(5)By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

The Nonprofit Corporation Law, among other things, generally regulates the organization and operation of nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations.

(1)Within a specified period of time after the filing of its original articles of incorporation and biennially thereafter, existing law requires nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations to file a statement, known as a Statement of Information, with the Secretary of State containing specified information including the street address of its principal office and its mailing address. Within a specified period of time after filing its original statement and designation and annually thereafter, existing law, the General Corporation Law, requires every foreign corporation, including foreign nonprofit corporations, as specified, to file a statement, known as a Statement of Information, with the Secretary of State containing specified information, including the street address of its principal executive office and its mailing address.

This bill would authorize the Secretary of State to also obtain address information from the Franchise Tax Board to use in providing notices to a foreign corporation, including these foreign nonprofit corporations. This bill would specifically authorize the Franchise Tax Board to disclose this information.

(2)Existing law authorizes the corporate powers, rights, and privileges of a domestic taxpayer to be suspended, and the exercise of the corporate powers, rights, and privileges of a foreign taxpayer in this state to be forfeited, if certain tax liabilities are not paid or a taxpayer fails to file a tax return. Existing law also authorizes the corporate powers, rights, and privileges of a domestic corporation exempt from income tax to be suspended and the exercise of the corporate powers, rights, and privileges of a foreign corporation in this state exempt from income tax to be forfeited if the organization fails to file the annual information return or a specified statement for organizations not required to file the information return or pay a specified amount due. Existing law requires notice prior to the suspension or forfeiture of a taxpayers corporate powers, rights, and privileges. Existing law requires the Franchise Tax Board to transmit to the Secretary of State the names of those taxpayers subject to these suspension or forfeiture provisions and thereby makes the suspension or forfeiture effective. Under existing law, the Secretary of States certificate is prima facie evidence of the suspension or forfeiture.

Under existing law, a corporation that fails to file a Statement of Information with the Secretary of State within a specified time period and was certified for penalty is subject to suspension rather than penalty. Existing law requires the Secretary of State to provide a notice to the nonprofit corporation informing it that its corporate powers, rights, and privileges will be suspended within a specified time period if the Statement of Information is not filed. If the nonprofit corporation does not file the Statement of Information, existing law requires the Secretary of State to notify the Franchise Tax Board and the nonprofit corporation of the suspension and upon that notification the corporate powers, rights, and privileges of the nonprofit corporation are suspended.

This bill would make a nonprofit public benefit corporation, a nonprofit mutual benefit corporation, a nonprofit religious corporation, and a foreign nonprofit corporation, subject to administrative dissolution or administrative surrender, as specified, if the nonprofit corporations corporate powers are, and have been, suspended or forfeited by the Franchise Tax Board for a specified period of time or if the nonprofit corporation has not filed a Statement of Information with the Secretary of State for a specified period of time. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation, the bill would require either the Franchise Tax Board or the Secretary of State to provide notice to the nonprofit corporation of the pending administrative dissolution or administrative surrender. The bill would also require the Secretary of State to provide notice of the pending administrative dissolution or administrative surrender on its Internet Web site, as specified. The bill would authorize a nonprofit corporation to provide the Franchise Tax Board or the Secretary of State with a written objection to the administrative dissolution or administrative surrender. If there is no written objection or the written objection fails, the bill would require the nonprofit corporation to be administratively dissolved or administratively surrendered and would provide that the certificate of the Secretary of State is prima facie evidence of the administrative dissolution or administrative surrender. Upon administrative dissolution or administrative surrender, the bill would abate the nonprofit corporations liabilities for qualified taxes, interest, and penalties, as provided.

(3)Existing law, the Nonprofit Corporation Law, authorizes a nonprofit public benefit corporation, nonprofit mutual benefit corporation, and nonprofit religious corporation to elect voluntarily to wind up and dissolve by either approval of a majority of all members or approval of the board and approval of the members. Under existing law, the General Corporation Law, when a corporation has not issued shares, a majority of the directors, or, if no directors have been named in the articles or have been elected, the incorporator or a majority of the incorporators, are authorized to sign and verify a specified certificate of dissolution. Existing law requires the certificate to be filed with the Secretary of State and requires the Secretary of State to notify the Franchise Tax Board of the dissolution. Existing law provides that, upon the filing of the certificate, a corporation is dissolved and its powers, rights, and privileges cease.

This bill would enact provisions similar to those General Corporation Law provisions and make them applicable to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations. The bill would additionally provide that liability to creditors, if any, is not discharged, the liability of the directors of the dissolved nonprofit corporation is not discharged, and the dissolution of a nonprofit corporation does not diminish or adversely affect the ability of the Attorney General to enforce specified liabilities.

(4)Existing law requires every corporation doing business within the limits of this state and not expressly exempted from taxation to annually pay to the state, for the privilege of exercising its corporate franchises within this state, a tax according to or measured by its net income, as specified. Under existing law, every corporation, except as specified, is subject to the minimum franchise tax until the effective date of dissolution or withdrawal or, if later, the date the corporation ceases to do business within the limits of this state. Upon certification by the Secretary of State that a nonprofit public benefit corporation or a nonprofit mutual benefit corporation has failed to file the required Statement of Information, existing law requires the Franchise Tax Board to assess a specified penalty.

This bill would require the Franchise Tax Board to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the nonprofit corporation certifies, under penalty of perjury, that it was not doing business, as defined. The bill would make this abatement conditioned on the dissolution of the qualified corporation within a specified period of time of filing the request for abatement. The bill would require the Franchise Tax Board to prescribe rules and regulations to carry out these abatement provisions and would exempt these rules and regulations from the Administrative Procedure Act.

(5)Existing state constitutional law prohibits the Legislature from making any gift, or authorizing the making of any gift, of any public money or thing of value to any individual, municipal, or other corporation.

This bill would make certain legislative findings and declarations that abatement of a nonprofit corporations liabilities for specified taxes, penalties, and interest serves a statewide public purpose, as provided.

(6)By expanding the crime of perjury, the bill would impose a state-mandated local program.

The California Constitution requires the state to reimburse local agencies and school districts for certain costs mandated by the state. Statutory provisions establish procedures for making that reimbursement.

This bill would provide that no reimbursement is required by this act for a specified reason.

CONCURRENCE IN SENATE AMENDMENTS

CSA1 Bill Id:AB 557

Author:(Irwin)

As Amended Ver:August 17, 2015

Majority vote

Original Committee Reference: B. & F.

SUMMARY: Establishes an administrative dissolution process and an administrative surrender process for nonprofit and foreign corporations. Specifically, this bill:

1. Provides that a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, a nonprofit religious corporation or a foreign nonprofit corporation (all further references to nonprofits unless stated otherwise) shall be subject to administrative dissolution or administrative surrender if the nonprofit corporation's corporate powers are suspended or forfeited by the Franchise Tax Board (FTB) and have been suspended or forfeited by the FTB for a period of not less than 48 continuous months; or,

2. Prior to the administrative dissolution or administrative surrender of a nonprofit or foreign corporation the nonprofit corporation shall be notified by:

   1. The FTB by mailing a written notice to the last known address of a nonprofit corporation;

   2. If the nonprofit does not have a valid address in the records of the FTB or the Secretary of State (SOS), the notice required by the SOS on its Internet Web site of the pending administrative dissolution or administrative surrender shall be sufficient.

3. Requires the FTB to transmit to the SOS and the Attorney General’s Registry of Charitable Trusts and the names and SOS file numbers of nonprofit and foreign corporations subject to administrative dissolution or administrative surrender.

4. Allows a nonprofit or foreign nonprofit to provide FTB with a written objection.

5. Provides that if no objection is received by FTB during the 60 day period the nonprofit foreign nonprofit corporation shall be dissolved or surrendered. The SOS will provide a certificate as prima facie evidence.

6. Provides that if a written objection is received by the FTB within the 60 day period then the nonprofit corporation shall have another 90 days from the date of the written objection to satisfy all debt and file a current statement of information (SOI) with the SOS.

7. Allows the FTB or the SOS to extend the 90 day period for an additional 90 days.

8. Requires the corporation's liabilities for qualified taxes, interest and penalties to be abated and refunded if the nonprofit corporation has been dissolved or surrendered.

9. Specifies that if a nonprofit corporation is dissolved or surrendered that the liability to creditors is not discharged as well as clarifies that the measure does not diminish or adversely affect the ability of the Attorney General to enforce liabilities.

10. Allows the following related to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations:

    1. A corporation can dissolve when the corporation has not issued any membership if all of the following are verified on a certificate:

       1. Certificate must be filed within 24 months from the date that the articles of incorporation (AOI) was filed;

       2. The corporation does not have any debts or liabilities;

       3. The tax liability shall be satisfied on a taxes-paid basis;

       4. A final franchise tax return;

       5. The corporation was created in error;

       6. Distribution of assets;

       7. No issuance of membership; and

       8. That the corporation is dissolved.

    2. Provides that once the certificate is filed the corporation shall be dissolved.

    3. Specifies that the dissolution does not relieve liability to creditors.

11. Requires the FTB to abate upon written request by a qualified corporation, unpaid taxes, interest, and penalties for the taxable years the nonprofit corporation certifies under penalty of perjury that it was not doing business.

    1. Defines "qualified corporation" as a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, and a nonprofit religious corporation incorporated in California or a nonprofit foreign corporation that satisfies any of the following:

       1. Was operating and previously obtained tax-exempt status with the FTB but had the tax-exempt status revoked;

       2. Was operating and previously obtained tax-exempt status with the Internal Revenue Service (IRS) but had tax-exempt status revoked; or

       3. Never did business in California at any time after the time of its incorporation.

    2. Defines "qualified taxes, interest, and penalties" as a tax imposed and associated interest and penalties but does not include taxes imposed under Revenue and Taxation Code Section 23731 or associated interest or penalties.

    3. Requires the qualified corporation to show that it has ceased all business operations at the time of the filing request for abatement.

    4. Provides that the abatement of unpaid qualified tax, interest, and penalties is conditioned on the dissolution of the qualified corporation within 12 months from the date of filing the request for abatement.

    5. Specifies that if a qualified corporation is not dissolved with 12 months from the date of filing the request for abatement or restarts business operations, then the abatement of qualified tax, interest, and penalties shall be cancelled and treated as if the abatement never occurred.

    6. Allows the FTB to prescribe rules and regulations as necessary.

The Senate amendments require the notice of dissolution to be sent to the Attorney General's Registry of Charitable Trusts and made other technical changes.

EXISTING LAW:

1. Requires foreign corporations to file within 90 days and annually thereafter during the applicable filing period a statement containing specified information. (Corporations Code Section 2117)

2. Requires nonprofit public benefit corporations and nonprofit mutual benefit corporations to file within 90 days and biennially thereafter a statement of information. (Corporations Code Sections 6210 and 8210)

3. Establishes the process for voluntary windup and dissolution for nonprofit corporations which is initiated by an election to dissolve which may be made by the vote or written consent of a majority of all the members of the corporation or, if there are no members, by the board of directors. Following the election the corporation must file documents with the SOS such as a certificate of election to wind up and dissolve prior to or together with a certificate of dissolution. In addition dissolution documents can be filed only if the status of the corporation is active on the records of the SOS. Upon filing of the certificate of dissolution by the SOS, the corporation will be completely dissolved and its corporate existence will cease in California. (Corporation Code, Sections 6611, 6615, 8611, 8615, 9680, 12631 and 12625)

4. Requires that nonprofit public benefit corporations and nonprofit religious corporations provide a letter from the Attorney General's office that either waives objections to the distribution of the corporation's assets or confirms that the corporation has no assets accompanied with the certificate of dissolution. (Corporations Code Sections 6615 and 9680)

5. Requires nonprofit mutual benefit corporations if holding assets in a charitable trust, the distribution of those assets must be approved by the Attorney General or be made by decree of a superior court. (Corporations Code Section 8716)

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill will have one-time General Fund costs of approximately $150,000 to SOS to update systems and implement new processes; minor costs to FTB, likely absorbable; potential long-term savings from no longer having to track and issue notices to defunct nonprofit businesses. No impact to state income tax revenues.

COMMENTS: The goal of this bill is to streamline the dissolution process for nonprofit and foreign corporations. According to the author's office:

There is a significant problem with non-profit corporations filing incorporation papers with the Secretary of State, and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The Secretary of State (SOS), Franchise Tax Board (FTB), and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557.

AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served. This new process will allow FTB and SOS to dissolved non-profits that have been sitting inactive on the 'books'.

This bill allows the FTB to waive delinquent taxes, penalties and interest under specified conditions. This bill establishes a process for involuntary administrative dissolution for a nonprofit corporation, if the entity has been suspended or forfeited by the FTB or the SOS for not less than 48 months. In addition, the measure allows SOS to use the corporation address information obtained from the FTB and allows a nonprofit that was incorporated in error to use a short dissolution process that is currently available to for-profit corporations.

As pointed out in the measure's findings, a number of nonprofits have disbanded but do not take the proper steps to dissolve thus incur taxes, penalties and interest unnecessarily. This bill will put together a process that will allow inactive nonprofits to cease to exist in a more streamlined approach.

Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081 FN: 0001473

 CONSENT  

Bill No: AB 557

Author: Irwin (D)

Amended: 5/28/15 in Assembly

Vote: 21

SENATE BANKING & F.I. COMMITTEE: 7-0, 7/1/15

AYES: Block, Vidak, Galgiani, Hall, Hueso, Lara, Morrell

SENATE GOVERNANCE & FIN. COMMITTEE: 6-0, 7/15/15

AYES: Hertzberg, Nguyen, Beall, Hernandez, Moorlach, Pavley

NO VOTE RECORDED: Lara

SENATE APPROPRIATIONS COMMITTEE: Senate Rule 28.8

ASSEMBLY FLOOR: 78-0, 6/2/15 - See last page for vote

SUBJECT: Nonprofit corporations: abatement: dissolution: surrender

SOURCE: Author

DIGEST: This bill creates a streamlined administrative dissolution and surrender process for nonprofit corporations, as specified.

ANALYSIS:

Existing law:

1. Establishes the rules for dissolving different types of nonprofit corporations, as follows:
   
   

   1. When a nonprofit public benefit corporation or nonprofit mutual benefit corporation has been wound up without court proceedings, a majority of the directors then in office must sign and verify a certificate of dissolution stating that the corporation has been completely wound up; that its known debts and liabilities have actually been paid or adequately provided for, or that it has incurred no known debts or liabilities; that the corporation is dissolved; and that all final returns required under the Revenue and Taxation Code have been or will be filed with the Franchise Tax Board (FTB). The certificate of dissolution must be accompanied by a written waiver of objections to the distribution of the corporation’s assets issued by the Attorney General (AG) or a written confirmation from the AG that the corporation has no assets. The certificate of dissolution and attachment must be filed with the Secretary of State (SOS). The corporate existence ceases upon acceptance by the SOS of the filing. The SOS is then required to notify FTB of the dissolution (Corporations Code Sections 6615 and 8615).
      
      

   2. When a nonprofit religious corporation elects to wind up and dissolve, it may do so either by approval of a majority of its members or by approval of the board and its members, as specified. All of the corporation’s assets must be disposed of in conformance with the corporation’s articles or bylaws, subject to compliance with the provisions of any trust under which such assets are held. Nonprofit religious corporations are generally subject to the same rules for dissolution as nonprofit public benefit corporations, summarized immediately above (Corporations Code Section 9680).
      
      

   3. When a foreign corporation that has qualified to transact intrastate business wishes to surrender its right to engage in business in California, it must file a certificate of surrender signed by a corporate officer or trustee, stating that it surrenders its authority to transact intrastate business and that a final franchise tax return has been or will be filed with the FTB, as specified. The SOS is then required to notify the FTB of the surrender (Corporations Code Section 2112).

This bill:

1. Contains legislative findings regarding the cumbersome and protracted process involved in dissolving a nonprofit corporation’s affairs and the importance of ensuring that nonprofits which have been suspended or have forfeited tax-exempt status are no longer able to do business in the state or solicit donations from unsuspecting Californians.
   
   

2. Provides that a nonprofit mutual benefit, nonprofit public benefit, nonprofit religious, or foreign nonprofit organization that has qualified to transact intrastate business is subject to administrative dissolution or administrative surrender if, as of January 1, 2016 or later, the nonprofit corporation’s or foreign corporation’s corporate powers are and have been suspended or forfeited by the Franchise Tax Board (FTB) for at least 48 continuous months. The administrative dissolution/surrender process involves the FTB, AG, and SOS, but is significantly less time- and labor-intensive than the dissolution/surrender process required under existing law. Notwithstanding the dissolution of a corporation in this manner, the liability of the corporation or its directors or other persons related to the dissolved corporation is not discharged, and the dissolution of a corporation pursuant to this procedure does not diminish or adversely affect the ability of the AG to enforce liabilities as otherwise provided by law.
   
   

3. Provides, under the Nonprofit Public Benefit Corporation Law, Nonprofit Mutual Benefit Corporation Law, and Nonprofit Religious Corporation Law, that, when a corporation has not issued any memberships, a majority of the directors, or, if no directors have been named in the articles of incorporation or elected, the incorporator or a majority of the incorporators, may sign and verify a certificate of dissolution, as specified, and may file that certificate of dissolution with the SOS within 24 months of filing its articles of incorporation. The SOS must notify the FTB of the dissolution. Once that certificate of dissolution is filed with the SOS, the corporation is deemed dissolved, and its powers, rights, and privileges cease. Notwithstanding the dissolution of a corporation in this manner, the liability of the corporation or its directors or other persons related to the dissolved corporation is not discharged, and the dissolution of a corporation pursuant to this procedure does not diminish or adversely affect the ability of the AG to enforce liabilities as otherwise provided by law.
   
   

4. Requires FTB to abate, upon written request by a qualified nonprofit corporation, as defined, unpaid qualified taxes, interest, and penalties, as defined, for the taxable years in which the qualified nonprofit corporation certifies, under penalty of perjury, that it was not doing business.
   
   

Background

Under existing California law, the SOS, FTB, and AG share jurisdiction over the administration and taxation of nonprofit organizations. The SOS administers the incorporation process and ensures that nonprofit corporations adhere to the missions for which they form. The FTB evaluates, reviews, and monitors the state tax-exempt status of nonprofit corporations. The AG regulates nonprofit organizations that administer or solicit charitable funds or assets and has broad legal and statutory authority to commence enforcement actions for improper activities.

According to this bill’s author, the current process to dissolve a nonprofit corporation is very cumbersome, time consuming, and inefficient. In order to dissolve, a nonprofit corporation must first prepare and file a Certificate of Election to Wind Up and Dissolve. Nonprofit public benefit, mutual benefit, and religious corporations holding charitable assets in trust must then request a waiver of objections from the AG before disposing of any remaining assets. In order to obtain this waiver, the corporation must submit information detailing the persons to whom the remaining assets will be distributed; a signed Certificate of Dissolution; a copy of the corporation’s federal tax returns for the last three accounting periods; and an endorsed filed copy of the corporation’s articles of incorporation, including any amendments. Once it receives a letter from the AG waiving objections to the distribution of assets or confirming that the corporation has no assets, the corporation must mail a final dissolution packet to the SOS, containing the letter from the AG and the executed Certificate of Dissolution.

Once the SOS processes the corporation’s paperwork, the corporation is completely dissolved, and its corporate existence ceases in California. However, the organization must still submit a final notice of dissolution to the AG. This submission must include a copy of the Certificate of Dissolution filed by the SOS or written confirmation that the Certificate of Dissolution has been filed with the SOS and the final financial report for the corporation showing that all assets were distributed properly, resulting in a zero balance. It is only after this final submission that the dissolved corporation ceases to be subject to the minimum franchise tax.

Because of this cumbersome process, it is estimated that close to 60,000 of the 150,000 nonprofit corporations currently “on the books” in California are eligible for the administrative dissolution process that AB 557 seeks to establish.

Comments

AB 557 is virtually identical to AB 1529 (Perez) from 2013, a measure that was vetoed by Governor Brown. In his veto message, the Governor stated, “This bill would make it easier to dissolve a nonprofit corporation. Implementing this bill, however, will require expensive reprogramming of an obsolescent computer system that will soon be replaced. It would be better to make this change when the new computer system is being designed.” Assemblymember Irwin, author of AB 557, believes that the May 28, 2015 amendments to her bill resolve the concerns that led to the Governor’s veto.

FISCAL EFFECT: Appropriation: No Fiscal Com.: Yes Local: Yes

SUPPORT: (Verified 8/14/15)

California Secretary of State Alex Padilla

California Society of Enrolled Agents

California Taxpayers Association

OPPOSITION: (Verified 8/14/15)

None received

ARGUMENTS IN SUPPORT: Secretary of State Alex Padilla acknowledges the author’s willingness to take extensive amendments to reduce the cost of AB 557 relative to last year’s AB 1529. “AB 557 offers a cost-effective solution.”

The California Taxpayers Association (Cal-Tax) not only supports the bill, but urges lawmakers to expand the administrative dissolution and surrender process to all legal entities, not just nonprofit corporations, as other states like Colorado, Georgia, and Missouri have done. In support of the bill, Cal-Tax observes that “there is a significant problem with for-profit and not-for-profit organizations filing incorporation and registration papers with the SOS, and then failing to launch their operations without formally dissolving or surrendering. The result is a massive accounts receivable sitting on the state’s books that will never be collected. To properly unravel, such entities must spend considerable amount of time and expense, and go through a cumbersome reviver process with the state, and then go through the dissolution/surrender process. If an entity does not pay its tax liability, it generally is difficult, if not impossible, for the FTB to hold individual owners personally liable for the unpaid tax. Unlike sales and payroll tax liabilities, the obligation to pay income and franchise tax begins and ends with the entity in most circumstances.

“The new administrative dissolution/surrender process to be created by AB 557 would allow the FTB and SOS to formally dissolve/surrender nonprofit entities that have been determined to be inactive. For many of these entities, their boards of directors disbanded years earlier, but never took the proper steps to dissolve/surrender the entity, thus causing years of taxes, penalties, and interest to accrue. Further, the FTB and SOS spend an inordinate amount of time and resources administering the dissolution/surrender process. By streamlining the process to dissolve/surrender defunct nonprofits, AB 557 would help the FTB and SOS to clear away the backlog of inactive nonprofit corporations, and save precious state resources.”

The California Society of Enrolled Agents writes, “often taxpayers form business entities that never get off the ground, sometimes by attending a seminar. The taxpayers barely remember forming the entities, do not file the right paperwork to keep the entities alive, and definitely do not have the funds to first revive the entity, which must happen in order to properly close the entity. The cost of revivor, which includes paying the annual/minimum tax for each year, including penalties, is too costly for many. Additionally, these ‘phantom receivables’ should not be carried in the state’s Accounts Receivable, as most of the accounts will never prove collectible.”

ASSEMBLY FLOOR: 78-0, 6/2/15

AYES: Achadjian, Alejo, Travis Allen, Baker, Bigelow, Bloom, Bonilla, Bonta, Brough, Brown, Burke, Calderon, Campos, Chang, Chau, Chiu, Chu, Cooley, Cooper, Dababneh, Dahle, Daly, Dodd, Eggman, Frazier, Beth Gaines, Gallagher, Cristina Garcia, Eduardo Garcia, Gatto, Gipson, Gomez, Gonzalez, Gordon, Gray, Hadley, Harper, Roger Hernández, Holden, Irwin, Jones, Jones-Sawyer, Kim, Lackey, Levine, Linder, Lopez, Low, Maienschein, Mathis, Mayes, McCarty, Medina, Melendez, Mullin, Nazarian, Obernolte, O'Donnell, Olsen, Patterson, Perea, Quirk, Rendon, Ridley-Thomas, Rodriguez, Salas, Santiago, Steinorth, Mark Stone, Thurmond, Ting, Wagner, Waldron, Weber, Wilk, Williams, Wood, Atkins

NO VOTE RECORDED: Chávez, Grove

Prepared by: Eileen Newhall / B. & F.I. / (916) 651-4102

8/18/15 12:43:15

**** END ****

SENATE COMMITTEE ON GOVERNANCE AND FINANCE

Senator Robert M. Hertzberg, Chair

2015 - 2016 Regular

Nonprofit corporations: abatement: dissolution: surrender

Enacts an administrative dissolution and surrender process for nonprofit corporations.

Background and Existing Law

California nonprofit corporations organized for religious, charitable, social, educational, recreational or similar purposes are formed pursuant to the Nonprofit Corporation Law. Individuals can form nonprofit corporations in California by filing articles of incorporation with the Secretary of State that contain specified information, and paying a $30 fee. State law requires corporations and limited liability companies to update the California Secretary of State’s records on an annual or biannual basis by filing a statement. Franchise Tax Board (FTB) or the Secretary of State can suspend a corporation for:

• Failure to pay an amount due,

• Failure to file a statement of information with the Secretary of State's office, or

• Failure to file any past due returns.

In California, a nonprofit corporation is not necessarily a tax-exempt one, regardless of its federal tax status. All nonprofits must apply to the Franchise Tax Board (FTB) for tax-exempt status, or provide FTB with a copy of the Internal Revenue Service’s determination that the organization is tax-exempt under the Internal Revenue Code (AB 897, Houston, 2008). FTB then notifies the organization of its determination, or its acknowledgement of the IRS determination, either of which entitles the organization to an exemption from the Corporation Tax. A nonprofit that does not obtain approval from FTB for their tax-exempt application is subject to the Corporation Tax. After FTB determination or acknowledgement, all non-church charities must annually file a simple form with FTB, known as the E-Postcard (Form 199N) with basic information about the organization. Tax-exempt organizations with average gross receipts over $50,000 per year must file a more comprehensive annual return (Form 199). Churches don’t have to complete either form.

Individuals will often form nonprofits, without applying for tax-exempt status. Without an exemption, corporations with taxable nexus in California must pay either the minimum franchise tax of $800, or the measured franchise tax of 8.84% of apportioned net income if the tax exceeds $800. The minimum franchise tax ensures that corporations that do not show a profit in a taxable year bear some of the cost of public services. The Legislature exempted corporations in their first year of business from the minimum tax, but taxes are due for every year after that, including the year in which a corporation dissolves. Additionally, when a nonprofit generates business income that isn’t related to its exempt purpose, it must pay tax on that income.

Corporate dissolution can be cumbersome. A corporation must file a Certificate of Election to Wind Up and Dissolve, before or together with a Certificate of Dissolution with the Secretary of State. If the corporation is a charity, the Attorney General must approve the distribution of the corporation’s assets, or confirm that it has none, and the corporation must attach that letter in its filing to the Secretary. After that, the corporation submits a final notice to the Secretary, then to the Attorney General. Once all these steps are complete, the corporation dissolves, and it no longer owes tax. Requirements can vary whether the corporation is a mutual benefit, public benefit, or religious corporation.

Sometimes, individuals will form nonprofits, not obtain the tax exemption, and then let the nonprofits’ activities lapse without completing dissolution procedures with the Secretary of State, FTB, and sometimes the Attorney General. When FTB discovers nonprofit corporations that are taxable under current law, they send notices of proposed assessment equal to $800 for each year the corporation exists without a tax exemption, plus accrued penalties and interest. The author wants to create an orderly process for nonprofits to dissolve.

Proposed Law

Assembly Bill 557 enacts an FTB-administered dissolution and surrender process for nonprofit entities that FTB has suspended for at least 48 continuous months. Before dissolving or surrendering the entity, FTB must mail a notice to the last known address for the corporation, and the Secretary of State must provide a 60 day warning of the dissolution by posting a notice on his website listing the corporation’s name, the Secretary’s file number, and the California corporation number, as applicable, with instructions of how to submit a written objection to the dissolution.

If FTB receives a notice protesting the dissolution or surrender, the corporation has 90 days to pay back taxes, penalties, and interest, as well as file a current statement of information with the Secretary, a period that FTB can only extend once. FTB must notify the Secretary of any written objections. If the corporation makes the appropriate payments, the administrative dissolution or surrender process ceases. If no notice is received, the bill dissolves or surrenders the corporation.

If the nonprofit corporation is administratively dissolved or surrendered, neither creditor liability nor the liability of the directors is discharged. The measure clarifies that it doesn’t affect the Attorney General’s ability to enforce liabilities as otherwise provided by law.

The bill also amends the Nonprofit Public Benefit, and Nonprofit Mutual Benefit Laws, and the Nonprofit Religious Corporation Law to allow a majority of the board of directors to dissolve the corporation under a streamlined process. A majority of the incorporators can dissolve the corporation under the bill’s terms if the articles of incorporation didn’t name directors.

To dissolve, the majority of the board of directors or incorporators may sign and verify a certificate of dissolution specifying that:

• The certificate is filed within 24 months from the date the articles of incorporation are filed,

• The corporation doesn’t have any liabilities or debts, except for taxes that will be paid on a “taxes paid,” basis, or that a corporation, person, or business entity will assume the liability,

• The final return will be filed with FTB,

• The corporation was created in error,

• The known assets of the corporation remaining after payment of known debts and liabilities have been distributed according to law, or that the corporation has no known assets,

• The majority of the board of directors or incorporators, as applicable, authorized the dissolution and elected to dissolve the corporation,

• The corporation has granted no memberships, and if it has received payment for memberships, it has refunded those payments, and

• The corporation is dissolved.

FTB must abate unpaid taxes, interest, and penalties for taxable years the corporation dissolved when it certifies it was not doing business, upon written request, if the corporation:

• Ceased operations at the time the request is made,

• Dissolves in the next 12 months,

• Had tax-exempt status under state or federal law, but lost its status, or never had taxable nexus in the state.

FTB can abate corporation taxes that can apply to the dissolved nonprofit, but not taxes arising from income unrelated to the entities’ exempt purpose. If the corporation doesn’t dissolve in the next 12 months, the abatement is cancelled, and all taxes, penalties, and interest are due and payable. The bill also allows FTB to issue regulations, exempt from the Administrative Procedures Act, to implement its provisions. The measure also makes legislative findings and declarations supporting its purposes.

State Revenue Impact

FTB states that the measure has no revenue impact.

Comments

1. Purpose of the bill. According to the author, “There is a significant problem with non-profit corporations filing incorporation papers with the Secretary of State (SOS) and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The SOS, Franchise Tax Board (FTB), and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557. AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served. This new process will allow FTB and SOS to dissolved non-profits that have been sitting inactive on the "books".

2. Wait a minute. Last year, Governor Brown vetoed a very similar bill, AB 1529 (J. Perez, 2014), stating:

To the Members of the California State Assembly:

I am returning Assembly Bill 1529 without my signature.

This bill would make it easier to dissolve a nonprofit corporation.

Implementing this bill, however, will require expensive reprogramming of an obsolescent computer system that will soon be replaced. It would be better to make this change when the new computer system is being designed.

Sincerely,

Edmund G. Brown Jr.

However, AB 557 differs markedly from AB 1529 by excluding many provisions that would have increased administrative responsibilities for the Secretary of State. Unlike AB 1529, the Secretary of State supports this bill.

Assembly Actions

Senate Banking and Financial Institutions 7-0
Assembly Floor 78-0
Assembly Appropriations 17-0
Assembly Revenue and Taxation 9-0
Assembly Banking and Finance 11.0

Support and Opposition

(7/9/15)

Support: Secretary of State Alex Padilla, California Taxpayers Association, California Society of Enrolled Agents.

Opposition: None received.

-- END --

SENATE COMMITTEE ON

BANKING AND FINANCIAL INSTITUTIONS

Senator Marty Block, Chair

2015 - 2016 Regular

Bill No: AB 557 Hearing Date: July 1, 2015

Subject: Nonprofit corporations: abatement: dissolution: surrender.

SUMMARY

Creates a streamlined administrative dissolution and surrender process for nonprofit corporations, as specified.

DESCRIPTION

1. Contains legislative findings regarding the cumbersome and protracted process involved in dissolving a nonprofit corporation’s affairs and the importance of ensuring that nonprofits which have been suspended or have forfeited tax-exempt status are no longer able to do business in the state or solicit donations from unsuspecting Californians.
   
   

2. Provides that a nonprofit mutual benefit, nonprofit public benefit, nonprofit religious, or foreign nonprofit organization that has qualified to transact intrastate business is subject to administrative dissolution or administrative surrender if, as of January 1, 2016 or later, the nonprofit corporation’s or foreign corporation’s corporate powers are and have been suspended or forfeited by the Franchise Tax Board (FTB) for at least 48 continuous months. This administrative dissolution/surrender process works as follows:
   
   

   1. Prior to the administrative dissolution or administrative surrender of the nonprofit corporation or foreign corporation, the corporation must be notified of the pending dissolution or surrender, as follows:
      
      

      1. FTB must mail written notice to the last known address of the corporation, as specified.
         
         

      2. FTB must transmit the names of corporations subject to the administrative dissolution or surrender provisions to the Secretary of State (SOS).
         
         

      3. The SOS must provide 60 calendar days’ notice of the pending dissolution or surrender on its web site by listing the corporation name and the SOS’s file number for the corporation. The SOS must also provide instructions on its web site for how a corporation wishing to submit a written objection to the pending dissolution or surrender would do so. A corporation wishing to object must submit a written objection to the FTB; the FTB must then notify the SOS that such an objection has been submitted.
         
         

   2. If no written objection to the dissolution or surrender is received by the FTB during the 60-day period to object, the corporation is administratively dissolved or surrendered.
      
      

   3. Upon administrative dissolution or surrender, the corporation’s liabilities for qualified taxes, interest, and penalties are abated; any actions taken by FTB to collect that liability must be released, withdrawn, or otherwise terminated by the FTB, and no subsequent administrative or civil action may be taken to collect all or part of that amount. Any amounts erroneously received by the FTB may be credited and refunded, as specified.
      
      

   4. If written objection to the dissolution or surrender is received by the FTB during the 60-day period to object, the objecting corporation has 90 days from the date its objection is received by the FTB to pay or otherwise satisfy all accrued taxes, penalties, and interest and file a current Statement of Information with the SOS. If these conditions are satisfied, the dissolution or surrender is cancelled. If these conditions are not satisfied, the dissolution or surrender occurs on the 90^th day following the date of FTB’s receipt of the written objection, unless that date is extended by the FTB.
      
      

   5. If the nonprofit corporation or foreign corporation is administratively dissolved or administratively surrendered, the liability of the corporation and of the directors or other persons related to the corporation to creditors, if any, is not discharged.
      
      

   6. The administrative dissolution or administrative surrender of a nonprofit corporation or foreign corporation does not diminish or adversely affect the ability of the Attorney General (AG) to enforce liabilities as otherwise provided by law.
      
      

3. Provides, under the Nonprofit Public Benefit Corporation Law, Nonprofit Mutual Benefit Corporation Law, and Nonprofit Religious Corporation Law, that, when a corporation has not issued any memberships, a majority of the directors, or, if no directors have been named in the articles of incorporation or elected, the incorporator or a majority of the incorporators, may sign and verify a certificate of dissolution, as specified, and may file that certificate of dissolution with the SOS within 24 months of filing its articles of incorporation. The SOS must notify the FTB of the dissolution. Once that certificate of dissolution is filed with the SOS, the corporation is deemed dissolved, and its powers, rights, and privileges cease. Notwithstanding the dissolution of a corporation in this manner, the liability of the corporation or its directors or other persons related to the dissolved corporation is not discharged, and the dissolution of a corporation pursuant to this procedure does not diminish or adversely affect the ability of the AG to enforce liabilities as otherwise provided by law.
   
   

4. Requires FTB to abate, upon written request by a qualified nonprofit corporation, unpaid qualified taxes, interest, and penalties for the taxable years in which the qualified nonprofit corporation certifies, under penalty of perjury, that it was not doing business.
   
   

   1. Defines a qualified nonprofit corporation as a nonprofit public benefit, nonprofit mutual benefit, or nonprofit religious corporation or a foreign nonprofit corporation that qualified to transact intrastate business in California and that either had its tax-exempt status revoked, as specified, or was never doing business in California at any time after its incorporation in California.
      
      

   2. Defines qualified taxes, interest, and penalties as minimum franchise tax and associated penalties and interest for nonpayment of that tax. Qualified taxes do not include unrelated business income tax (i.e., tax associated with activities unrelated to the nonprofit mission of the corporation) or tax imposed on income sourced in California but not related to business conducted in California or the interest and penalties associated with those taxes.
      
      

   3. Requires the qualified corporation to establish that it has ceased all business operations at the time of filing the request for abatement of taxes, interest, and penalties, and conditions the abatement of taxes, interest, and penalties on the dissolution of the qualified corporation within 12 months from the date the request for abatement is filed.
      
      

   4. Provides that if the qualified corporation is not dissolved within 12 months from the date of filing the request for abatement or restarts business operations at any time after requesting abatement, the abatement is cancelled, and the taxes, interest, and penalties subject to that abatement are treated as if the abatement never occurred.
      
      

EXISTING LAW

1. Establishes the rules for dissolving different types of nonprofit corporations, as follows:
   
   

   1. When a nonprofit public benefit corporation or nonprofit mutual benefit corporation has been wound up without court proceedings, a majority of the directors then in office must sign and verify a certificate of dissolution stating that the corporation has been completely wound up; that its known debts and liabilities have actually been paid or adequately provided for, or that it has incurred no known debts or liabilities; that the corporation is dissolved; that all final returns required under the Revenue and Taxation Code have been or will be filed with FTB. The certificate of dissolution must be accompanied by a written waiver of objections to the distribution of the corporation’s assets issued by the AG or a written confirmation from the AG that the corporation has no assets. The certificate of dissolution and attachment must be filed with the SOS. The corporate existence ceases upon acceptance by the SOS of the filing. The SOS is then required to notify FTB of the dissolution (Corporations Code Sections 6615 and 8615).
      
      

   2. When a nonprofit religious corporation elects to wind up and dissolve, it may do so either by approval of a majority of the members or by approval of the board and approval of the members, as specified. All of the corporation’s assets must be disposed of on dissolution in conformity with its articles or bylaws, subject to complying with the provisions of any trust under which such assets are held. The disposition of assets may be made without decree of the superior court, if the AG makes a written waiver of objections to the disposition of assets. Nonprofit religious corporations are generally subject to the same rules for dissolution as nonprofit public benefit corporations, summarized immediately above (Corporations Code Section 9680).
      
      

   3. When a foreign corporation that has qualified to transact intrastate business wishes to surrender its right to engage in business in California, it must file a certificate of surrender signed by a corporate officer or trustee, stating that it surrenders its authority to transact intrastate business and that a final franchise tax return has been or will be filed with the FTB, as specified. The SOS is then required to notify the FTB of the surrender (Corporations Code Section 2112).

COMMENTS

1. Purpose: AB 557 is intended to create a process to “rid the books” of nonprofit organizations that either never launched or are no longer operational, saving the SOS, FTB, and AG the time and money involved in attempting to register, tax, and audit these organizations.
   
   

2. Background: Under existing California law, the SOS, FTB, and AG share jurisdiction over the administration and taxation of nonprofit organizations. The SOS administers the incorporation process and ensures that nonprofit corporations adhere to the missions for which they form. The FTB evaluates, reviews, and monitors the state tax-exempt status of nonprofit corporations. The AG regulates nonprofit organizations that administer or solicit charitable funds or assets and has broad legal and statutory authority to commence enforcement actions for improper activities.
   
   According to this bill’s author, the current process to dissolve a nonprofit corporation is very cumbersome, time consuming, and inefficient.
   
   In order to dissolve, a nonprofit corporation must first prepare and file a Certificate of Election to Wind Up and Dissolve. Nonprofit public benefit, mutual benefit, and religious corporations holding charitable assets in trust must then request a waiver of objections from the AG before disposing of any remaining assets. In order to obtain this waiver, the corporation must submit information detailing the persons to whom the remaining assets will be distributed; a signed Certificate of Dissolution; a copy of the corporation’s federal tax returns for the last three accounting periods; and an endorsed filed copy of the corporation’s articles of incorporation, including any amendments. Once it receives a letter from the AG waiving objections to the distribution of assets or confirming that the corporation has no assets, the corporation must mail a final dissolution packet to the SOS, containing the letter from the AG and the executed Certificate of Dissolution.
   
   Once the SOS processes the corporation’s paperwork, the corporation is completely dissolved, and its corporate existence ceases in California. However, the organization must still submit a final notice of dissolution to the AG. This submission must include a copy of the Certificate of Dissolution filed by the SOS or written confirmation that the Certificate of Dissolution has been filed with the SOS and the final financial report for the corporation showing that all assets were distributed properly, resulting in a zero balance. It is only after this final submission that the dissolved corporation ceases to be subject to the minimum franchise tax.
   
   Because of this cumbersome process, it is estimated that close to 60,000 of the 150,000 nonprofit corporations currently “on the books” in California are eligible for the administrative dissolution process that AB 557 seeks to establish.
   
   

3. Discussion: AB 557 is virtually identical to AB 1529 (Perez) from 2013, a measure that was vetoed by Governor Brown. In his veto message, the Governor stated, “This bill would make it easier to dissolve a nonprofit corporation. Implementing this bill, however, will require expensive reprogramming of an obsolescent computer system that will soon be replaced. It would be better to make this change when the new computer system is being designed.” Assemblymember Irwin, author of AB 557, believes that the May 28, 2015 amendments to her bill resolve the concerns that led to the Governor’s veto.
   
   

4. Summary of Arguments in Support:
   
   

   1. The California Taxpayers Association (Cal-Tax) not only supports the bill, but urges lawmakers to expand the administrative dissolution and surrender process to all legal entities, not just nonprofit corporations, as other states like Colorado, Georgia, and Missouri have done. In support of the bill, Cal-Tax observes that “there is a significant problem with for-profit and not-for-profit organizations filing incorporation and registration papers with the SOS, and then failing to launch their operations without formally dissolving or surrendering. The result is a massive accounts receivable sitting on the state’s books that will never be collected. To properly unravel, such entities must spend considerable amount of time and expense, and go through a cumbersome reviver process with the state, and then go through the dissolution/surrender process. If an entity does not pay its tax liability, it generally is difficult, if not impossible, for the FTB to hold individual owners personally liable for the unpaid tax. Unlike sales and payroll tax liabilities, the obligation to pay income and franchise tax begins and ends with the entity in most circumstances.
      
      “The new administrative dissolution/surrender process to be created by AB 557 would allow the FTB and SOS to formally dissolve/surrender nonprofit entities that have been determined to be inactive. For many of these entities, their boards of directors disbanded years earlier, but never took the proper steps to dissolve/surrender the entity, thus causing years of taxes, penalties, and interest to accrue. Further, the FTB and SOS spend an inordinate amount of time and resources administering the dissolution/surrender process. By streamlining the process to dissolve/surrender defunct nonprofits, AB 557 would help the FTB and SOS to clear away the backlog of inactive nonprofit corporations, and save precious state resources.”
      
      

   2. The California Society of Enrolled Agents writes, “often taxpayers form business entities that never get off the ground, sometimes by attending a seminar. The taxpayers barely remember forming the entities, do not file the right paperwork to keep the entities alive, and definitely do not have the funds to first revive the entity, which must happen in order to properly close the entity. The cost of revivor, which includes paying the annual/minimum tax for each year, including penalties, is too costly for many. Additionally, these ‘phantom receivables’ should not be carried in the state’s Accounts Receivable, as most of the accounts will never prove collectible.” CSEA joins Cal-Tax in viewing AB 557 as a good first step to expanding the administrative surrender/dissolution process to all entities, not just nonprofits.

5. Summary of Arguments in Opposition: None received.

6. Prior and Related Legislation:
   
   

   1. AB 1529 (Perez), 2013-14 Legislative Session: Virtually identical to AB 557. Vetoed by Governor Brown.
      
      

LIST OF REGISTERED SUPPORT/OPPOSITION

Support

California Taxpayers Association

California Society of Enrolled Agents

Opposition

None received

-- END --

ASSEMBLY THIRD READING

ATR Bill Id:AB 557

Author:(Irwin)

As Amended Ver:May 28, 2015

Majority vote

SUMMARY: Establishes an administrative dissolution process and an administrative surrender process for nonprofit and foreign corporations. Specifically, this bill:

1. Provides that a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, a nonprofit religious corporation or a foreign nonprofit corporation (all further references to nonprofits unless stated otherwise) shall be subject to administrative dissolution or administrative surrender if the nonprofit corporation's corporate powers are suspended or forfeited by the Franchise Tax Board (FTB) and have been suspended or forfeited by the FTB for a period of not less than 48 continuous months; or,

2. Prior to the administrative dissolution or administrative surrender of a nonprofit or foreign corporation the nonprofit corporation shall be notified by:

   1. The FTB by mailing a written notice to the last known address of a nonprofit corporation;

   2. If the nonprofit does not have a valid address in the records of the FTB or the Secretary of State (SOS), the notice required by the SOS on its Internet Web site of the pending administrative dissolution or administrative surrender shall be sufficient.

3. Requires the FTB to transmit to the SOS the names of nonprofit and foreign corporations subject to administrative dissolution or administrative surrender.

4. Allows a nonprofit or foreign nonprofit to provide FTB with a written objection.

5. Provides that if no objection is received by FTB during the 60 day period the nonprofit foreign nonprofit corporation shall be dissolved or surrendered. The SOS will provide a certificate as prima facie evidence.

6. Provides that if a written objection is received by the FTB within the 60 day period then the nonprofit corporation shall have another 90 days from the date of the written objection to satisfy all debt and file a current SOI with the SOS.

7. Allows the FTB or the SOS to extend the 90 day period for an additional 90 days.

8. Requires the corporation's liabilities for qualified taxes, interest and penalties to be abated and refunded if the nonprofit corporation has been dissolved or surrendered.

9. Specifies that if a nonprofit corporation is dissolved or surrendered that the liability to creditors is not discharged as well as clarifies that the measure does not diminish or adversely affect the ability of the Attorney General to enforce liabilities.

10. Allows the following related to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations:

    1. A corporation can dissolve when the corporation has not issued any membership if all of the following are verified on a certificate:

       1. Certificate must be filed within 24 months from the date that the articles of incorporation (AOI) was filed;

       2. The corporation does not have any debts or liabilities;

       3. The tax liability shall be satisfied on a taxes-paid basis;

       4. A final franchise tax return;

       5. The corporation was created in error;

       6. Distribution of assets;

       7. No issuance of membership; and

       8. That the corporation is dissolved.

    2. Provides that once the certificate is filed the corporation shall be dissolved.

    3. Specifies that the dissolution does not relieve liability to creditors.

11. Requires the FTB to abate upon written request by a qualified corporation, unpaid taxes, interest, and penalties for the taxable years the nonprofit corporation certifies under penalty of perjury that it was not doing business.

    1. Defines "qualified corporation" as a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, and a nonprofit religious corporation incorporated in California or a nonprofit foreign corporation that satisfies any of the following:

       1. Was operating and previously obtained tax-exempt status with the FTB but had the tax-exempt status revoked;

       2. Was operating and previously obtained tax-exempt status with the Internal Revenue Service (IRS) but had tax-exempt status revoked; or

       3. Never did business in California at any time after the time of its incorporation.

    2. Defines "qualified taxes, interest, and penalties" as a tax imposed and associated interest and penalties but does not include taxes imposed under Revenue and Taxation Code Section 23731 or associated interest or penalties.

    3. Requires the qualified corporation to show that it has ceased all business operations at the time of the filing request for abatement.

    4. Provides that the abatement of unpaid qualified tax, interest, and penalties is conditioned on the dissolution of the qualified corporation within 12 months from the date of filing the request for abatement.

    5. Specifies that if a qualified corporation is not dissolved with 12 months from the date of filing the request for abatement or restarts business operations, then the abatement of qualified tax, interest, and penalties shall be cancelled and treated as if the abatement never occurred.

    6. Allows the FTB to prescribe rules and regulations as necessary.

EXISTING LAW:

1. Requires foreign corporations to file within 90 days and annually thereafter during the applicable filing period a statement containing specified information. (Corporations Code Section 2117)

2. Requires nonprofit public benefit corporations and nonprofit mutual benefit corporations to file within 90 days and biennially thereafter a statement of information. (Corporations Code Sections 6210 and 8210)

3. Establishes the process for voluntary windup and dissolution for nonprofit corporations which is initiated by an election to dissolve which may be made by the vote or written consent of a majority of all the members of the corporation or, if there are no members, by the board of directors. Following the election the corporation must file documents with the SOS such as a certificate of election to wind up and dissolve prior to or together with a certificate of dissolution. In addition dissolution documents can be filed only if the status of the corporation is active on the records of the SOS. Upon filing of the certificate of dissolution by the SOS, the corporation will be completely dissolved and its corporate existence will cease in California. (Corporation Code, Sections 6611, 6615, 8611, 8615, 9680, 12631 and 12625)

4. Requires that nonprofit public benefit corporations and nonprofit religious corporations provide a letter from the Attorney General's office that either waives objections to the distribution of the corporation's assets or confirms that the corporation has no assets accompanied with the certificate of dissolution. (Corporations Code Sections 6615 and 9680)

5. Requires nonprofit mutual benefit corporations if holding assets in a charitable trust, the distribution of those assets must be approved by the Attorney General or be made by decree of a superior court. (Corporations Code Section 8716)

FISCAL EFFECT: According to the Assembly Appropriations Committee, this bill will have one-time General Fund costs of approximately $150,000 to SOS to update systems and implement new processes; minor costs to FTB, likely absorbable; potential long-term savings from no longer having to track and issue notices to defunct nonprofit businesses. No impact to state income tax revenues.

COMMENTS: The goal of this bill is to streamline the dissolution process for nonprofit and foreign corporations. According to the author's office:

There is a significant problem with non-profit corporations filing incorporation papers with the Secretary of State, and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The Secretary of State (SOS), Franchise Tax Board (FTB), and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557.

AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served. This new process will allow FTB and SOS to dissolved non-profits that have been sitting inactive on the ‘books’.

This bill allows the FTB to waive delinquent taxes, penalties and interest under specified conditions. This bill establishes a process for involuntary administrative dissolution for a nonprofit corporation, if the entity has been suspended or forfeited by the FTB or the SOS for not less than 48 months. In addition, the measure allows SOS to use the corporation address information obtained from the FTB and allows a nonprofit that was incorporated in error to use a short dissolution process that is currently available to for-profit corporations.

As pointed out in the measure's findings, a number of nonprofits have disbanded but do not take the proper steps to dissolve thus incur taxes, penalties and interest unnecessarily. This bill will put together a process that will allow inactive nonprofits to cease to exist in a more streamlined approach.

Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081 FN: 0000793

Date of Hearing: May 6, 2015

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Jimmy Gomez, Chair

ABPCA Bill Id:AB 557

Author:(Irwin) – As Introduced Ver:February 23, 2015

Urgency: No State Mandated Local Program: Yes Reimbursable: No

SUMMARY:

This bill establishes an administrative dissolution process and an administrative surrender process for nonprofit corporations. In summary, this bill:

1) Creates a mechanism for dissolving or surrendering nonprofit corporations that have had their corporate powers suspended or forfeited by the Franchise Tax Board (FTB) or have failed to file a statement of information (SOI) with the Secretary of State (SOS), in each case for a period of not less than 48 continuous months.

2) Establishes procedures for notice of pending dissolution or surrender to nonprofit corporations and allows those nonprofit corporations an opportunity to provide written objections to dissolution or surrender.

3) Allows a nonprofit corporation that has objected to dissolution or surrender a period of 90 days to satisfy any and all outstanding debts and file a current SOI with the SOS, before FTB or SOS may proceed with the dissolution or surrender of the entity. The FTB and SOS are given flexibility to extend this 90 day period for an additional 90 days.

4) Creates a mechanism for voluntary dissolution of a nonprofit corporation upon certification of certain matters by the entity.

5) Specifies that any liability to creditors of the nonprofit corporation is not discharged as a result of dissolution or surrender, and clarifies that dissolution or surrender does not diminish or adversely affect the ability of the Attorney General to enforce liabilities.

6) Requires the FTB to abate, upon written request by nonprofit corporations that had their tax-exempt status revoked or never conducted business in California at any time following its incorporation, unpaid California taxes, interest, and penalties for the taxable years the nonprofit corporation certifies under penalty of perjury that it was not doing business, provided the nonprofit corporation must dissolve within 12 months of requesting abatement.

7) Allows the FTB to disclose contact information for nonprofit corporations to the SOS for purposes of providing notice to the corporations.

8) Allows the FTB to prescribe rules and regulations as necessary.

FISCAL EFFECT:

1) One-time GF costs of approximately $600,000 to SOS to update systems and implement new processes; minor and absorbable costs to FTB; potential long-term savings from no longer having to track and issue notices to defunct nonprofit businesses.

2) No impact to state income tax revenues.

COMMENTS:

1) Purpose. The goal of AB 557 is to streamline the dissolution process for nonprofit corporations. According to the author, the new process allows FTB and SOS to dissolve nonprofits that have been inactive for quite some time. Many of these nonprofit corporations have been disbanded years earlier by their boards of directors but never took the proper steps to dissolve, thus causing years of fees and fines to build up and unnecessary time spent by FTB and SOS staff to proceed through the dissolutions process. AB 557 will help FTB and SOS administratively clear the backlog of inactive nonprofit corporations.

According to the findings and declarations in the bill, every year, hundreds of nonprofit corporations seek administrative changes to expand their mission or alter their tax status, and, in some cases, to even go out of existence. The current dissolution process, which involves the winding down of the nonprofit corporation's affairs, is very cumbersome and protracted.

Not only is it in the public's interest to establish a streamlined process to efficiently dissolve a nonprofit corporation, but doing so will relieve the citizens of California from unknowingly donating to a nonprofit corporation that is not complying with the laws of the state.

2) Background. According to the findings and declarations in the bill, there are more than 150,000 nonprofit corporations in California that provide a variety of programs and services in areas as diverse as education, recreation, health care, legal, job training, and housing to millions of Californians. These organizations, depending on their formation status, are required to register with the office of the SOS, the FTB, and the office of the Attorney General.

3) Prior Legislation. This bill is substantially similar to AB 1529 (J. Perez) of 2014, which was vetoed by the Governor. In his veto message, the Governor stressed implementing the bill would require "expensive reprogramming of an obsolescent computer system that will soon be replaced," and that it was preferable to wait for that system replacement before proceeding with the bill.

While the policy aims of this bill are laudable, and would eventually improve the efficiency of state government, there is currently no indication that the Governor's concerns have been addressed or that he will support AB 557.

Analysis Prepared by: Joel Tashjian / APPR. / (916) 319-2081

Date of Hearing: April 27, 2015

ASSEMBLY COMMITTEE ON REVENUE AND TAXATION

Philip Ting, Chair

ABPCA Bill Id:AB 557

Author:(Irwin) – As Introduced Ver:February 23, 2015

Majority vote. Fiscal committee.

SUBJECT: Nonprofit corporations: abatement: dissolution: surrender

SUMMARY: Establishes an administrative dissolution and administrative surrender process for nonprofit corporations. Specifically, this bill:

1. Allows the Secretary of State (SOS) to obtain address information from the Franchise Tax Board (FTB) to use to provide notice to a foreign nonprofit corporation, a nonprofit public benefit corporation, and a nonprofit mutual benefit corporation.

2. Provides that a nonprofit mutual benefit corporation, nonprofit public benefit corporation, nonprofit religious corporation, or a foreign nonprofit corporation shall be subject to administrative dissolution or administrative surrender if, as of January 1, 2016, at least one of the following shall apply:

   1. The nonprofit corporation's corporate powers are suspended or forfeited by the FTB for a period of not less 48 counties; or,

   2. The nonprofit corporation has not filed a Statement of Information with the SOS for a period of not less than 48 continuous months.

3. Requires, prior to the administrative dissolution or administrative surrender of the nonprofit corporation, a nonprofit corporation to be notified as follows:

   1. The FTB shall mail written notice to the last known address of a nonprofit corporation;

   2. The SOS shall provide a notice to the last known address of a nonprofit corporation; or,

   3. If the nonprofit corporation does not have a valid address in the records of the FTB or the SOS, the 60 day notice on the SOS Internet Web site of the pending dissolution or surrender shall be deemed sufficient.

4. Requires the FTB to transmit to the SOS the names of nonprofit corporations subject to administrative dissolution or administrative surrender.

5. Requires the SOS to provide a 60 day notice of pending administrative dissolutions or administrative surrender on its Internet Web site by listing the corporation's name, the SOS's file number, and the California corporation number.

6. Allows a nonprofit corporation to provide the FTB or SOS with a written objection to the administrative dissolution or administrative surrender, and requires the FTB and SOS to notify each other if a written objection is received.

7. Requires a nonprofit corporation to be administratively dissolved or surrendered if no written objection to the dissolution is received during the 60-day notice period. The SOS's certificate shall serve as prima facie evidence of the administrative dissolution or administrative surrender.

8. Provides that if a written objection is received by the FTB or the SOS before the expiration of the 60-day notice period, the nonprofit corporation shall have an additional 90 days from the date the written objection is received by either the FTB or the SOS to pay all accrued taxes, penalties, and interest and to file a current Statement of Information with the SOS.

9. Requires the administrative dissolution or surrender to be canceled if the nonprofit corporation pays all accrued taxes, penalties, and interest, and files a current Statement of Information.

10. Requires the nonprofit corporation to be administratively dissolved or surrendered 90 days after receipt of the written objection if the nonprofit corporation fails to pay all accrued taxes, penalties, and interest, or fails to file a current Statement of Information.

11. Allows the FTB or SOS to extend the 90 day objection period by an additional 90 days.

12. Requires the nonprofit corporation's liabilities for qualified taxes, interest, and penalties to be abated upon administrative dissolution or administrative surrender.

13. Provides that the liability to creditors is not discharged if the nonprofit corporation is administratively dissolved or surrendered, nor is the ability of the Attorney General to enforce liabilities adversely affected.

14. Provides that a corporation can be dissolved when the corporation has not issued any membership if all of the following are verified on a certificate:

    1. The certificate of dissolution is being filed within 24 months from the date the articles of incorporation were filed;

    2. The corporation does not have any debts or liabilities;

    3. The tax liability shall be paid on a taxes-paid basis;

    4. The final franchise tax return has or will be filed with the FTB;

    5. The corporation was created in error;

    6. The known assets of the corporation remaining after payment of known debts and liabilities have been distributed or that the corporation acquired no known assets;

    7. A majority of the directors, or if no directors were named, the incorporator or a majority of the incorporators authorized the dissolution and elected to dissolve the corporation;

    8. The corporation has not issued membership, and payments for membership, if any have been received, have been returned; and,

    9. The corporation is dissolved.

15. Requires the certificate of dissolution to be filed with the SOS. The SOS shall notify the FTB of dissolution.

16. Provides that a corporation shall be dissolved and its powers, rights, and privileges cease upon filing a certificate of dissolution.

17. Provides that the dissolution of the corporation does not discharge the liabilities to creditors.

18. Requires the FTB to abate upon written request by a qualified corporation, unpaid taxes, interest, and penalties for the taxable years the nonprofit corporation certifies under penalty of perjury that it was not doing business.

19. Defines "qualified corporation" as a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, and a nonprofit religious corporation incorporated in California or a nonprofit foreign corporation that satisfies any of the following:

    1. Was operating and previously obtained tax-exempt status with the FTB but had the tax-exempt status revoked;
       
       

    2. Was operating and previously obtained tax-exempt status with the Internal Revenue Service (IRS) but had tax-exempt status revoked; or
       
       

    3. Never did business in California at any time after the time of its incorporation.

20. Defines "qualified taxes, interest, and penalties" as a tax imposed and associated interest and penalties but does not include taxes imposed under Revenue and Taxation Code (R&TC) Section 23731 or associated interest or penalties.

21. Requires the qualified corporation to show that it has ceased all business operations at the time of the filing request for abatement.

22. Provides that the abatement of unpaid qualified tax, interest, and penalties is conditioned on the dissolution of the qualified corporation within 12 months from the date of filing the request for abatement.

23. Specifies that if a qualified corporation is not dissolved with 12 months from the date of filing the request for abatement or restarts business operations, then the abatement of qualified tax, interest, and penalties shall be cancelled and treated as if the abatement never occurred.

24. Allows the FTB to prescribe rules and regulations as necessary.

25. Makes findings and declarations.

EXISTING LAW:

1. Requires foreign corporations to file within 90 days and annually thereafter during the applicable filing period a statement containing specified information. [Corporations Code Section 2117.]
   
   

2. Requires nonprofit public benefit corporations and nonprofit mutual benefit corporations to file within 90 days and biennially thereafter a statement of information. [Corporations Code Section 6210 and 8210.]
   
   

3. Establishes the process for voluntary windup and dissolution for nonprofit corporations which is initiated by an election to dissolve which may be made by the vote or written consent of a majority of all the members of the corporation or, if there are no members, by the board of directors. Following the election the corporation must file documents with the SOS such as a certificate of election to wind up and dissolve prior to or together with a certificate of dissolution. In addition dissolution documents can be filed only if the status of the corporation is active on the records of the SOS. Upon filing of the certificate of dissolution by the SOS, the corporation will be completely dissolved and its corporate existence will cease in California. [Corporation Code Sections 6611, 6615, 8611, 8615, 9680, 12631 and 12625.]
   
   

4. Requires that nonprofit public benefit corporations and nonprofit religious corporations provide a letter from the Attorney General's office that either waives objections to the distribution of the corporation's assets or confirms that the corporation has no assets accompanied with the certificate of dissolution. [Corporations Code, Sections 6615 and 9680.]
   
   

5. Requires nonprofit mutual benefit corporations if holding assets in a charitable trust, the distribution of those assets must be approved by the Attorney General or be made by decree of a superior court. [Corporations Code, Section 8716.]

6. Imposes franchise tax on all corporations doing business in California equal to 8.84% of the taxable income attributable to California.  A minimum franchise tax (MFT) of $800 is imposed on all corporations that are incorporated under the laws of California, qualified to transact intrastate business in California, or are doing business in California.  Taxpayers must pay the MFT only if it is more than their regular franchise tax liability.¹

7. Provides exceptions with respect to imposition of the MFT.  For instance, credit unions and nonprofit organizations are not subject to MFT and a corporation is not subject to the MFT for its first taxable year.  However, even though a corporation is not subject to the MFT in its first taxable year, it will be subject to the regular franchise tax in its first taxable year based on its taxable income.

8. Provides that a tax-exempt organization that regularly carries on a trade or business not substantially related to its exempt purpose is required to pay tax on the unrelated or business income that results from such activity.

9. Provides that if a nonprofit corporation's tax exempt status is revoked, the corporation becomes subject to the franchise or corporation income tax.

FISCAL EFFECT: This bill would not change the amount of tax owed and would have no revenue impact.

COMMENTS:

1. Author's Statement: The author has provided the following statement in support of this bill:

There is a significant problem with non-profit corporations filing incorporation papers with the [SOS], and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The [SOS], [FTB], and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557.

AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served. This new process will allow FTB and SOS to dissolved non-profits that have been sitting inactive on the "books".

2. Arguments in Support: The California Society of Enrolled Agents states that this bill "addresses a long standing problem – the inability to dissolve or cancel business entities that are formed but not 'launched.' Often taxpayers form business entities that never get [off] the ground, sometimes by attending a seminar. The taxpayers barely remember forming the entities, do not file the right paperwork to keep the entities alive and definitely do not have the funds to first revive the entity, which must happen in order to properly close the entity."

3. Dissolution and Surrender of Nonprofit Corporations: This bill requires the FTB to abate taxes, penalties and interest under specified conditions, and establishes a process for involuntary administrative dissolution for a nonprofit corporation if the entity has been suspended or forfeited by the FTB or the SOS for not less than 48 months. In addition, this bill allows the SOS to use the corporation address information obtained from the FTB and allows a nonprofit that was incorporated in error to use a short dissolution process that is currently available to for-profit corporations.

4. Abatement of Taxes, Interest, and Penalties: As noted above, this bill requires the FTB to abate taxes, penalties and interest under specified conditions. Despite being given the authority to abate taxes, interest, and penalties, FTB's analysis states that "[t]his bill would not change the amount of tax owed and would have no revenue impact." If this bill does not change the amount of tax owed, it is unclear to Committee staff as to why the authority to abate taxes, interest, and penalties is needed.

5. Governor's Veto Message: Last year, Governor Brown vetoed AB 1529 (Perez), of the 2013-14 Legislative Session, which is identical to this bill. In his veto message, the Governor stated:

This bill would make it easier to dissolve a nonprofit corporation.

Implementing this bill, however, will require expensive reprogramming of an obsolescent computer system that will soon be replaced. It would be better to make this change when the new computer system is being designed.

There is no indication that the Governor's concerns regarding the expense of reprogramming the computer system have been addressed.

6. Double Referral: This bill was double-referred with the Committee on Banking and Finance, and passed that Committee by a vote of 11 to 0 on April 13, 2015. As noted above, this bill makes amendments to the Corporations Code beyond the purview of this Committee. For a discussion of these amendments, please refer to the analysis prepared by the Committee on Banking and Finance.

7. Implementation Considerations: According to the FTB, "[t]his bill would allow the FTB to abate MFT imposed, but is silent regarding abatement of measure income tax. The bill should be amended to clarify whether or not measure tax would be abated."

REGISTERED SUPPORT / OPPOSITION:

Support

California Society of Enrolled Agents

Opposition

None on file

Analysis Prepared by: Carlos Anguiano / REV. & TAX. / (916) 319-2098

Date of Hearing: April 13, 2015

ASSEMBLY COMMITTEE ON BANKING AND FINANCE

Matthew Dababneh, Chair

ABPCA Bill Id:AB 557

Author:(Irwin) – As Introduced Ver:February 23, 2015

SUBJECT: Nonprofit corporations: abatement: dissolution: surrender

SUMMARY: Establishes an administrative dissolution process and an administrative surrender process for nonprofit corporations. Specifically, this bill:

1. Allows the Secretary of State (SOS) to obtain address information from the Franchise Tax Board (FTB) to use in providing notices to a foreign corporation, a nonprofit public benefit corporation, and a nonprofit mutual benefit corporation.
   
   

2. Provides that a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, a nonprofit religious corporation or a foreign nonprofit corporation (all further references to nonprofits unless stated otherwise) shall be subject to administrative dissolution or administrative surrender if at least one of the following applies:
   
   

   1. The nonprofit corporation's corporate powers are suspended or forfeited by the FTB and have been suspended or forfeited by the FTB for a period of not less than 48 continuous months; or,
      
      

   2. The nonprofit corporation was incorporated in this state or qualified to transact intrastate business and has not filed a statement of information (SOI) with the SOS for a period of not less than 48 continuous months.
      
      

3. Prior to the administrative dissolution or administrative surrender of a nonprofit corporation the nonprofit corporation shall be notified by:
   
   

   1. The FTB by mailing a written notice to the last known address of a nonprofit corporation;
      
      

   2. The SOS who shall provide a notice to the last known address of the nonprofit corporation; and,
      
      

   3. If the nonprofit does not have a valid address in the records of the FTB or the SOS, the notice required by the SOS on its Internet Web site of the pending administrative dissolution or administrative surrender shall be sufficient.
      
      

4. Requires the FTB to transmit to the SOS the names of nonprofits subject to administrative dissolution or administrative surrender.
   
   

5. Allows a nonprofit to provide the SOS and FTB with a written objection and requires the FTB and SOS to notify each other if a written objection is submitted.
   
   

6. Provides that if no objection is received by the SOS or the FTB during the 60 day period the nonprofit corporation shall be dissolved or surrendered. The SOS will provide a certificate as prima facie evidence.
   
   

7. Provides that if a written objection is received by the FTB or SOS within the 60 day period then the nonprofit corporation shall have another 90 days from the date of the written objection to satisfy all debt and file a current SOI with the SOS.
   
   

8. Provides that if the conditions are satisfied as described in #7, then the dissolution or surrender shall be cancelled.
   
   

9. Provides that if the conditions are not satisfied as described in #7, the nonprofit corporation shall be dissolved or surrendered 90 days after the date of the written objection.
   
   

10. Allows the FTB or the SOS to extend the 90 day period for an additional 90 days.
    
    

11. Requires the corporation's liabilities for qualified taxes, interest and penalties to be abated and refunded if the nonprofit corporation has been dissolved or surrendered.
    
    

12. Specifies that if a nonprofit corporation is dissolved or surrendered that the liability to creditors is not discharged as well as clarifies that the measure does not diminish or adversely affect the ability of the Attorney General to enforce liabilities.
    
    

13. Allows the following related to nonprofit public benefit corporations, nonprofit mutual benefit corporations, and nonprofit religious corporations:
    
    

    1. A corporation can dissolve when the corporation has not issued any membership if all of the following are verified on a certificate:
       
       

       1. Certificate must be filed within 24 months from the date that the articles of incorporation (AOI) was filed;
          
          

       2. The corporation does not have any debts or liabilities;
          
          

       3. The tax liability shall be satisfied on a taxes-paid basis;
          
          

       4. A final franchise tax return;
          
          

       5. The corporation was created in error;
          
          

       6. Distribution of assets;
          
          

       7. No issuance of membership; and
          
          

       8. That the corporation is dissolved.
          
          

    2. Requires the certificate of dissolution signed and verified to be filed with the SOS. Requires the SOS to notify the FTB of the dissolution.
       
       

    3. Provides that once the certificate is filed the corporation shall be dissolved.
       
       

    4. Specifies that the dissolution does not relieve liability to creditors.
       
       

14. Requires the FTB to abate upon written request by a qualified corporation, unpaid taxes, interest, and penalties for the taxable years the nonprofit corporation certifies under penalty of perjury that it was not doing business.
    
    

    1. Defines "qualified corporation" as a nonprofit mutual benefit corporation, a nonprofit public benefit corporation, and a nonprofit religious corporation incorporated in California or a nonprofit foreign corporation that satisfies any of the following:
       
       

       1. Was operating and previously obtained tax-exempt status with the FTB but had the tax-exempt status revoked;
          
          

       2. Was operating and previously obtained tax-exempt status with the Internal Revenue Service (IRS) but had tax-exempt status revoked; or
          
          

       3. Never did business in California at any time after the time of its incorporation.
          
          

    2. Defines "qualified taxes, interest, and penalties" as a tax imposed and associated interest and penalties but does not include taxes imposed under Revenue and Taxation Code Section 23731 or associated interest or penalties.
       
       

    3. Requires the qualified corporation to show that it has ceased all business operations at the time of the filing request for abatement.
       
       

    4. Provides that the abatement of unpaid qualified tax, interest, and penalties is conditioned on the dissolution of the qualified corporation within 12 months from the date of filing the request for abatement.
       
       

    5. Specifies that if a qualified corporation is not dissolved with 12 months from the date of filing the request for abatement or restarts business operations, then the abatement of qualified tax, interest, and penalties shall be cancelled and treated as if the abatement never occurred.
       
       

    6. Allows the FTB to prescribe rules and regulations as necessary.

15. Makes findings and declarations.

EXISTING LAW

1. Requires foreign corporations to file within 90 days and annually thereafter during the applicable filing period a statement containing specified information. [Corporations Code, Section 2117]
   
   

2. Requires nonprofit public benefit corporations and nonprofit mutual benefit corporations to file within 90 days and biennially thereafter a statement of information. [Corporations Code, Section 6210 and 8210]
   
   

3. Establishes the process for voluntary windup and dissolution for nonprofit corporations which is initiated by an election to dissolve which may be made by the vote or written consent of a majority of all the members of the corporation or, if there are no members, by the board of directors. Following the election the corporation must file documents with the SOS such as a certificate of election to wind up and dissolve prior to or together with a certificate of dissolution. In addition dissolution documents can be filed only if the status of the corporation is active on the records of the SOS. Upon filing of the certificate of dissolution by the SOS, the corporation will be completely dissolved and its corporate existence will cease in California. [Corporation Code, Sections 6611, 6615, 8611, 8615, 9680, 12631 and 12625]
   
   

4. Requires that nonprofit public benefit corporations and nonprofit religious corporations provide a letter from the Attorney General's office that either waives objections to the distribution of the corporation's assets or confirms that the corporation has no assets accompanied with the certificate of dissolution. [Corporations Code, Sections 6615 and 9680]
   
   

5. Requires nonprofit mutual benefit corporations if holding assets in a charitable trust, the distribution of those assets must be approved by the Attorney General or be made by decree of a superior court. [Corporations Code, Section 8716]

FISCAL EFFECT: Unknown.

COMMENTS:

The findings and declarations in AB 557 state:

• There are more than 150,000 nonprofit corporations in California that provide a variety of programs and services in areas as diverse as education, recreation, health care, legal, job training, and housing to millions of Californians. These organizations, depending on their formation status, are required to register with the office of the SOS, the FTB, and the office of the Attorney General.
  
  

• Every year, hundreds of nonprofit corporations seek administrative changes to expand their mission or alter their tax status, and, in some cases, to even go out of existence. This dissolution process, which involves the winding down of the nonprofit corporation’s affairs, is very cumbersome and protracted.
  
  

• In order to more effectively analyze and monitor the status, finances, and activities of a nonprofit corporation, it is in the public’s interest to establish a streamlined process to efficiently dissolve a nonprofit corporation. The act of dissolving the nonprofit corporation and abating unpaid taxes, interest, and penalties serves a statewide public purpose by ensuring that nonprofit corporations that have been suspended or forfeited tax exempt status are no longer able to do business in the state, which will relieve the citizens of California from unknowingly donating to a nonprofit corporation that is not complying with the laws of the state, and do not constitute a gift of public funds within the meaning of Section 6 of Article XVI of the California Constitution.
  
  

The goal of AB 557 is to streamline the dissolution process for nonprofit corporations. According to the author's office,

There is a significant problem with non-profit corporations filing incorporation papers with the Secretary of State, and then failing to launch or continue operations and remain up to date and filing and tax requirements. These inactive non-profits never go through the formal dissolution process and become a hindrance to the state. The Secretary of State (SOS), Franchise Tax Board (FTB), and Attorney General are responsible for regulating nonprofit corporations and spend a significant amount of resources and time attempting to register, tax, and audit nonprofits that no longer exist. The SOS and FTB estimate that there are close to 60,000 nonprofits currently in their systems that would be eligible for the administrative dissolution process established under AB 557.

AB 557 creates a streamlined administrative dissolution process for nonprofits that have been suspended for at least 48 continuous months after proper notice has been served. This new process will allow FTB and SOS to dissolved non-profits that have been sitting inactive on the ‘books’.

AB 557 allows the FTB to waive delinquent taxes, penalties and interest under specified conditions. AB 557 establishes a process for involuntary administrative dissolution for a nonprofit corporation, if the entity has been suspended or forfeited by the FTB or the SOS for not less than 48 months. In addition, the measure allows SOS to use the corporation address information obtained from the FTB and allows a nonprofit that was incorporated in error to use a short dissolution process that is currently available to for-profit corporations.

As pointed out in the measure's findings, a number of nonprofits have disbanded but do not take the proper steps to dissolve thus incur taxes, penalties and interest unnecessarily. AB 557 will put together a process that will allow inactive nonprofits to cease to exist in a more streamlined approach.

As noted below an identical bill to AB 557 was vetoed last year. There is no indication that the Governor's concerns regarding AB 1529 (Pérez) have been addressed or that he will sign AB 557.

Previous Legislation

AB 1529 (Pérez) of 2014 was substantially similar to AB 557 and passed Assembly Banking Committee 11-0. It was vetoed by the Governor with the following message:

This bill would make it easier to dissolve a nonprofit corporation.

Implementing this bill, however, will require expensive reprogramming of an obsolescent computer system that will soon be replaced. It would be better to make this change when the new computer system is being designed.

REGISTERED SUPPORT / OPPOSITION:

Support

California Society of Enrolled Agents (CSEA)

Opposition

None on file.

Analysis Prepared by: Mark Farouk / B. & F. / (916) 319-3081