CORPORATE TRANSACTIONS & COMPLIANCE BLOG

California Charitable Registration: Amended Regulations Include Harsh Penalties for Noncompliance

By: Ron Barrett, COGENCY GLOBAL INC. on Thu, Jan 07, 2016

Nonprofit charities registered to solicit charitable donations in California are aware of the ongoing requirement to file an California Charitable RegistrationAnnual Registration Renewal Fee Report (Form RRF-1), which is due 4.5 months after an organization’s fiscal year end, subject to applicable extensions available. However, recently amended regulations, effective January 1, 2016, regarding the enforcement of the California Supervision of Trustees and Fundraisers for Charitable Purposes Act (Government Code §§ 12580-12599.8), are making the accurate and timely filing of these reports more important than ever.

 

Severe Penalties for Filing Inaccurate Renewals or Not Filing on Time
The amended regulations that recently became effective provide harsh consequences to charities that don’t file their California charitable registration renewals on time or file them with inaccurate information. The new penalties include:

  1. Revocation or Suspension: The Attorney General may revoke or automatically suspend a charity’s registration. The grounds for which a registration may be refused, suspended or revoked include, but are not limited to:

(a) Misuse of charitable assets.

(b) False or misleading statements and/or conduct in connection with a solicitation for charitable purposes.

(c) False or misleading statements in a document required by law to be filed with a government agency, including the annual registration and renewal reports filed with the Attorney General and the IRS Form 990 filed with the Internal Revenue Service (IRS) and California Franchise Tax Board (FTB). The omission of material information in response to a question in a document required by law to be filed with a government agency constitutes a false or misleading statement.

(d) Failure to comply with the Standards of Conduct for nonprofit corporations in sections 5230 through 5239 and 7230 through 7238 of the Corporations Code.

(e) Failure to prepare annual financial statements using generally accepted accounting principles that are audited by an independent certified public accountant in conformity with generally accepted auditing standards, as required by Section 12586, subdivision (e), of the Government Code.

(f) Failure to produce records in response to a subpoena or written request from the Attorney General.

(g) An adverse action by a governmental entity related to the operation of a charity or the conduct of a solicitation for charitable purposes, including misuse of charitable assets and unlawful or misleading conduct related to solicitation for charitable purposes.

Also, the new regulations provide that a charitable registration shall be automatically suspended if: the organization’s tax-exempt status is suspended or revoked by the IRS or FTB; the registrant fails to file Form RRF-1 for three consecutive years; or a corporation’s corporate status is suspended or revoked by the California Secretary of State.

  1. Personal Director Liability: A registrant that has been suspended or revoked may not distribute or expend any charitable assets or assets subject to a charitable trust without the written approval of the Attorney General. Members of the board of directors or any person directly involved in distributing or expending charitable assets may be held personally liable in a civil action brought by the Attorney General for any charitable assets or assets subject to a charitable trust that are distributed or expended in violation of this regulation.

  1. Forced Transfer of Assets: The Attorney General may direct a registrant whose registration has been suspended or revoked to distribute some or all of its charitable assets or assets subject to a charitable trust to another charitable organization or into a blocked bank account.

 

These consequences make it more important than ever for California charities to make sure they are in full compliance with charity registration and renewal requirements.

For additional information and insights relating to the requirements and impact of these new regulations, please see the following:

California’s New Regulations: The Start of a New Problematic Trend in State Charity Oversight? by Erin Bradrick, Nonprofit Quarterly, December 18, 2015

Amendments to Regulations Regarding Nonprofit Organizations (Title 11, Chapter 4, Sections 313 through 316; Title 11, Chapter 15, Sections 999.6 through 999.9.5) (Effective 1/1/2016)

 

This article is provided for informational purposes only and should not be considered, or relied upon, as legal advice.

Topics: Nonprofit Registration and Compliance, Charitable Solicitation Registration