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Office of Attorney General, Department of Justice Notice of Proposed Rulemaking

This e-bulletin brings to your attention a Notice published on December 28, 2018 by the Office of the Attorney General, Department of Justice. The following is the description of the proposed amendments to sections of the Regulations and changes to the related forms.

The Office of the Attorney General, Department of Justice (“DOJ”), proposes to amend sections 300, 301, 303, 305, 306, and 308, and related forms incorporated by reference, add sections 300.1, 300.2, and 309 and delete section 307, of Title 11, Division 1, Chapter 4, of the California Code of Regulations, regarding reporting by organizations holding property for charitable purposes, commercial fundraisers for charitable purposes, fundraising counsel for charitable purposes, and commercial coventurers over which the Attorney General has enforcement and supervisory powers. DOJ also proposes to amend sections 411, 415, 416, and 420, and related forms incorporated by reference, of Title 11, Division 1, Chapter 4.6, of the California Code of Regulations, regarding reporting by organizations conducting raffles.

Copies of the Notice, Proposed Text of Regulations, and related documents may be found at the following link:

https://oag.ca.gov/charities/notice-prop-amend-regs

The Notice of Proposed Rulemaking included the following notice of a written Comment Period.

Any interested person, or his or her authorized representative, may submit written comments relevant to the proposed regulatory action to DOJ. The written comment period closes at 5:00 p.m. on February 11, 2019. DOJ will consider only written comments received at the California Department of Justice, Charitable Trusts Section, 300 S. Spring St., Suite 1702, Los Angeles, CA 90013, by that time. Submit comments to:

James Toma, Supervising Deputy Attorney General
California Department of Justice
Charitable Trusts Section
300 S. Spring St., Suite 1702
Los Angeles, CA 90013
Email: James.Toma@doj.ca.gov

Teresa DePaz, Legal Secretary
California Department ofJustice
Charitable Trusts Section
300 S. Spring St., Suite 1702
Los Angeles, CA 90013
Email: Teresa.DePaz@doj.ca.gov

For example, the Initial Statement of Reasons describes proposed amendments to Form CT-1:

  • Insert headers Part A through Part I and other non-substantive, organizational changes to make the form easier to understand and to follow the instructions to the form.
  • Deletes required information for organizations based outside California: “whether monitored in home state, and if so, by whom.” This language is not necessary to the regulation of registrants and is not required by statute or regulation.
  • Allows an authorized agent of the organization, such as an attorney or accountant, to sign the Form CT-1. This will allow the organization to have a knowledgeable person who is not an officer, director, or trustee to sign under penalty of perjury.
  • Add question: “List all DBAs and names the organization uses or has used.” The addition of this question will assist the Registry and donors in tracking organizations that may have registered before under a different name to find relevant information regarding the organization under all its different names.
  • Add question: “List all states in which you solicit charitable donations or have registered to do so, or in which you are exempt from registration but operate.” The addition of this question will assist the Registry, donors and the public in tracking and evaluating organizations that do business in other states. This information will support greater efficiencies in audits and investigations of charitable organizations that have a national presence.
  • Add question: “Does the organization share revenue or governance with any other nonprofit organization (e.g., fiscal sponsorships and affiliations)? If yes, identify by name, address, and telephone.” The addition of this question will assist the Registry and donors obtain information about organizations that share revenue or governance with other nonprofit organizations. While charities may properly share resources, this question allows the Attorney General’s office to probe whether each charity is establishing and exercising control over its fundraising, and whether it is engaging in deceptive acts or practices or any fraudulent conduct that creates a likelihood of confusion or misunderstanding. (Gov. Code, § 12599.6, subd. (b), (f)(1)-(4) (8).) There have been instances in which individuals have incorporated and operated multiple charities simultaneously for the purpose of deceptive solicitation practices and/or to report misrepresentations on their Form 990.
  • Add question: “Has the organization’s IRS tax-exempt status ever been denied, revoked, or modified? If yes, please explain circumstances on a separate sheet.” The amendment will allow the Registry to ensure that the charitable organization is in good standing with the IRS. (Cal. Code Regs., tit. 11, §§999.9 & 999.9.1.).
  • Add question: “Has the organization’s tax-exempt status ever been suspended or revoked by the Franchise Tax Board? If yes, please explain circumstances on a separate sheet.” 7 The amendment will allow the Registry to ensure that the charitable organization is in good standing with the FTB. (Cal. Code Regs., tit. 11, §§999.9 & 999.9.1.).
  • Add question: “Has the organization’s corporate status ever been suspended or revoked by the Secretary of State?” If yes, please explain circumstances on a separate sheet.” The amendment will allow the Registry to ensure that the charitable organization is in good standing with the Secretary of State. (Cal. Code Regs., tit. 11, §§999.9 & 999.9.1.).
  • Add question: “Are any officers, directors, trustees, or employees related by blood, marriage or adoption?” If yes, identify by name, title and relationship.” Charitable organizations are required to comply with the standards of conduct set forth in Section 5230 through 5239 and 7230 through 7238 of the Corporations Code. Section 5227 provides a limitation on interested persons serving on a board of directors. This question will elicit whether there are violations of section 5227. (Corp. Code, § 5227, Cal. Code Regs., tit. 11, §999.9, subd. (d).)
  • Add question: “Has the organization or any of its officers, directors, or trustees been the subject of a court or administrative proceeding in any state regarding any solicitation or registration? If yes, please explain on a separate sheet.” The Attorney General has authority to refuse to register an organization if adverse action has been taken by a governmental entity related to the operation of the charity or the conduct of solicitation, including misuse of charitable assets and unlawful or misleading conduct related to solicitation for charitable purposes. (Cal. Code Regs., tit. 11, §§999.9 & 999.9.1.).
  • Add question: “Have any of the organization’s officers, directors, or trustees been convicted of any crime involving the misuse or misappropriation of funds or any crime involving deception in the operation of a charity? If yes, identify by name and title.” The Attorney General has authority to refuse to register an organization if adverse action has been taken by a governmental entity related to the operation of the charity or the conduct of solicitation, including misuse of charitable assets and unlawful or misleading conduct related to solicitation for charitable purposes. (Cal. Code Regs., tit. 11, §§999.9.) This authority to refuse registration applies to the conduct of officers, directors, or key employees. (Cal. Code Regs., tit. 11, §§999.9, subd. (g)(2).)
  • Insert the language on page 3: “Organizations with less than $50,000 in either gross receipts or total assets are required to file Form CT-TR-1.”
  • Additional minor proposed amendments to Form CT-1, which include a privacy notice pursuant to Civil Code section 1798.17, are made mainly for clarification and readability

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The above is just one example of the changes included in the proposed rulemaking.

This e-bulletin was written by Louis E. Michelson, Chair of the Nonprofit Organizations Committee.

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