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Advising California Nonprofit Corporations

Essential for both attorneys and nonprofits, this is a unique law and practice guide on forming, operating, and maintaining California nonprofit corporations, written and edited by an extraordinary group of well-known experts from across the state. It includes charts on charitable solicitation regulations and license requirements for all cities and counties in California.

Essential for both attorneys and nonprofits, this is a unique law and practice guide on forming, operating, and maintaining California nonprofit corporations, written and edited by an extraordinary group of well-known experts from across the state. It includes charts on charitable solicitation regulations and license requirements for all cities and counties in California.

  • Qualifying as a tax-exempt organization; property tax exemptions
  • Articles of incorporation and bylaws, with sample forms
  • Directors and officers: liabilities, rights, duties
  • Required tax filings, recordkeeping, reporting
  • Charitable giving; tax-exempt financing; managing endowments; donor-advised funds
  • Rules on lobbying, PACs, endorsing political candidates
  • Financial accounting
  • Suspension, forfeiture, restoration
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Essential for both attorneys and nonprofits, this is a unique law and practice guide on forming, operating, and maintaining California nonprofit corporations, written and edited by an extraordinary group of well-known experts from across the state. It includes charts on charitable solicitation regulations and license requirements for all cities and counties in California.

  • Qualifying as a tax-exempt organization; property tax exemptions
  • Articles of incorporation and bylaws, with sample forms
  • Directors and officers: liabilities, rights, duties
  • Required tax filings, recordkeeping, reporting
  • Charitable giving; tax-exempt financing; managing endowments; donor-advised funds
  • Rules on lobbying, PACs, endorsing political candidates
  • Financial accounting
  • Suspension, forfeiture, restoration

1

Attorney's Role During Formation and Operation

Steven J. Chidester

Lani Meanley Collins

  • I. SCOPE OF CHAPTER 1.1
  • II. ROLE OF ATTORNEY DURING FORMATION OF NONPROFIT ORGANIZATION
    • A. Fourteen Basic Questions That Need to Be Answered 1.2
      • 1. Should the Attorney Accept the Matter? 1.3
      • 2. Is a New Organization Necessary? 1.4
      • 3. Is There a Sound Business Plan: Program, Financing, People? 1.5
      • 4. Considering the Goals or Purposes of the Founders, Should the Organization Be a Nonprofit or Another Type of Organization? 1.6
      • 5. Does Special Treatment Available to Certain Nonprofits Dictate the Organization Should Be a Nonprofit? 1.7
      • 6. If Nonprofit, What Type of Entity Should It Be? 1.8
      • 7. In What State or Country Should It Be Organized? 1.9
      • 8. If the Entity Will Be a California Nonprofit Corporation, Should It Be Public Benefit, Mutual Benefit, or Religious? 1.10
      • 9. If the Entity Will Be a California Nonprofit Corporation, Should It Have Voting Members? 1.11
      • 10. Is Income Tax Exemption Appropriate and Desirable? 1.12
      • 11. If Income Tax Exemption Is Desirable, Under What Sections of Internal Revenue Code and Revenue and Taxation Code? 1.13
      • 12. If the Entity Will Be an IRC §501(c)(3) Organization, Can It Qualify as a Public Charity Under IRC §509(a)? 1.14
      • 13. If the Entity Cannot Qualify as a Public Charity, Can It Accept the Restrictions Applicable to Private Foundations? 1.15
      • 14. Is Exemption From Property Tax Appropriate or Desirable? 1.16
    • B. Importance of Attorney Having Sufficient Expertise to Resolve Exempt Organization Classification and Property Tax Issues Before Drafting Documents 1.17
    • C. Feasibility of Commencing Operations Before Obtaining Tax Exemption Determinations 1.18
    • D. Attorney Tasks When Establishing New Nonprofit Organization 1.19
    • E. Operating Manual
      • 1. Components of Operating Manual for Exempt Organization 1.20
      • 2. Form: Table of Contents for Operating Manual 1.21
  • III. ROLE OF ATTORNEY IN REPRESENTING EXISTING TAX-EXEMPT ORGANIZATION
    • A. Checklist: Areas Requiring Review 1.22
    • B. Special Considerations for Clients Incorporated in Another State 1.23
  • IV. ATTORNEY COMPENSATION
    • A. The Pro Bono Issue 1.24
    • B. Estimating Fees 1.25
    • C. Getting Paid 1.26
  • V. CONFLICTS AND ETHICAL ISSUES
    • A. Attorney's Duties Under Rules of Professional Conduct 1.27
    • B. Who Is the Client When New Entity Is Being Formed? 1.28
    • C. Form: Paragraph in Engagement Letter Confirming That Entity to Be Formed Will Be the Client 1.29
    • D. Specific Conflict of Interest Situations
      • 1. Conflict Between Founder and Organization 1.30
      • 2. Form: Paragraph in Engagement Letter Confirming That Entity to Be Formed Will Be Separate Client 1.31
      • 3. Form: Consent to Representation and Conflict Waiver Letter for Foundation Formed for Existing Client 1.32
      • 4. Conflicts With Existing Clients 1.33
    • E. Choices for Attorney in Potential Conflict Situation 1.34
    • F. Duty to Practice Competently Requires Familiarity With Applicable Laws 1.35
      • 1. Nonprofit Corporation Law 1.36
      • 2. Trust Law 1.37
      • 3. Tax Laws 1.38
      • 4. Securities Laws 1.39
      • 5. Miscellaneous Laws 1.40
      • 6. "Charitable Trusts" Under the Jurisdiction of the Attorney General 1.41
  • VI. ADVICE MEMORANDUM TO DIRECTORS AND OFFICERS 1.42
  • VII. INTERACTIONS WITH OTHER PROFESSIONALS
    • A. Accountants 1.43
    • B. Fundraising and Marketing Consultants 1.44
    • C. Compensation Consultants 1.45
  • VIII. OPINION LETTERS, AUDIT STATEMENTS, AND CIRCULAR 230
    • A. Opinion Letters 1.46
    • B. Audit Letters 1.47
    • C. Circular 230
      • 1. What is Circular 230? 1.48
      • 2. What Does "Practice Before the IRS" Entail? 1.49
      • 3. The Attempt to Curb Abusive Tax Shelters/"IRS Circular 230 Notices" 1.50
      • 4. Changes to Circular 230 1.51

2

Choice of Entity Considerations

Cherie L. Evans

Barbara A. Rosen

Patrick B. Sternal

  • I. SCOPE OF CHAPTER 2.1
  • II. DECIDING WHETHER TO START A NONPROFIT ENTERPRISE 2.2
  • III. BASIC FORMS OF NONPROFIT ENTERPRISES 2.3
    • A. Unincorporated Associations 2.4
      • 1. Governing Law 2.5
        • a. Statutory Mandatory and Default Provisions 2.6
          • (1) Member Voting 2.7
          • (2) Termination of Membership 2.8
          • (3) Merger and Dissolution 2.9
        • b. Liability of Members, Directors, Officers, and Agents 2.10
        • c. Registering Name With Secretary of State; Recording Interest in Property 2.11
      • 2. Changing to a Nonprofit Corporation 2.12
      • 3. Drafting Governing Documents 2.13
      • 4. Advantages 2.14
      • 5. Disadvantages 2.15
        • a. Remaining Uncertainty in Governing Law 2.16
        • b. Uncertainty Concerning Liability in SLAPP Suits 2.17
        • c. Possible Attorney General Supervision 2.18
    • B. Nonprofit Limited Liability Companies 2.19
    • C. Charitable Trusts
      • 1. Definition and Governing Law 2.20
      • 2. Standard of Care 2.21
      • 3. Limits on Trusts That Are Private Foundations 2.22
      • 4. Advantages 2.23
      • 5. Disadvantages 2.24
      • 6. Disadvantages of Charitable Trusts or Unincorporated Associations That Will Operate Outside United States 2.25
    • D. Nonprofit Corporations 2.26
      • 1. Advantages 2.27
      • 2. Disadvantages 2.28
  • IV. CHOOSING THE RIGHT TYPE OF NONPROFIT CORPORATION
    • A. Public Benefit, Mutual Benefit, and Religious Corporations
      • 1. Basis for Classification 2.29
      • 2. Table: Comparison of Some Aspects of Public Benefit, Mutual Benefit, and Religious Corporations 2.30
    • B. Other Types of Nonprofit Corporations 2.31
      • 1. Cooperative Corporations 2.32
      • 2. Corporations Sole 2.33
      • 3. Other Special Purpose Corporations 2.34
      • 4. Foreign Nonprofit Corporations 2.35
    • C. Benefit Corporations, Social Purpose Corporations, and Low-Profit Limited Liability Company (L3C) Alternative 2.36
      • 1. Benefit Corporations
        • a. Organizational Requirements 2.37
        • b. Third-Party Standard 2.38
        • c. Director Duties 2.39
        • d. Officer Duties 2.40
        • e. Annual Benefit Report 2.41
        • f. Benefit Enforcement Proceeding 2.42
        • g. Attorney General Supervision 2.43
        • h. Conversion 2.44
      • 2. Social Purpose Corporations 2.45
        • a. Organizational Requirements 2.46
        • b. Director Duties 2.47
        • c. Annual and Current Reports 2.48
        • d. Derivative Actions 2.49
        • e. Corporate Changes 2.50
      • 3. Low-Profit Limited Liability Company (L3C) Alternative 2.51
      • 4. Table: Purpose and Tax-Exempt Status of Four Forms of Corporate Entities 2.52
      • 5. Chart: Attributes of Corporations, Social Purpose Corporations, and Benefit Corporations 2.53

3

Planning for, Obtaining, and Maintaining Tax-Exempt Status

Robert A. Wexler

Stephanie L. Petit

  • I. SCOPE 3.1
  • II. FEDERAL TAX ISSUES
    • A. Tax-Exempt Organizations
      • 1. Advantages and Disadvantages of Tax-Exempt Status 3.2
      • 2. Table: Federal and State Tax Exemptions 3.3
      • 3. State and Political Subdivision Exemption 3.4
    • B. Qualifying for and Maintaining Status as Tax-Exempt Organization Under IRC §501(c)(3) 3.5
      • 1. Organizational Test 3.6
      • 2. Operational Test 3.7
        • a. Operated Exclusively for Exempt Purposes 3.8
        • b. May Private Interests Benefit From Charity? 3.9
        • c. What Activities Further Exempt Purposes? 3.10
        • d. Charitable Activities 3.11
        • e. Educational Purposes 3.12
        • f. Scientific Purposes 3.13
        • g. Religious Purposes 3.14
      • 3. Prohibition on Inurement 3.15
        • a. Excess Benefits Under IRC §4958; Intermediate Sanction Rules 3.16
        • b. Definition of Disqualified Person 3.17
        • c. Definition of Excess Benefit Transaction 3.18
        • d. Presumption of Reasonableness 3.19
          • (1) Interested Directors 3.20
          • (2) Safe Harbor for Small Organizations 3.21
          • (3) Rebutting the Presumption 3.22
          • (4) Reasonable Compensation 3.23
        • e. Adequate Documentation 3.24
        • f. Deadline for Drafting Minutes 3.25
        • g. Questionnaire: Creating Rebuttable Presumption of Reasonableness of Compensation 3.26
        • h. Penalties 3.27
        • i. Special Rules for Donor-Advised Funds and Supporting Organizations 3.28
      • 4. Prohibition on Electioneering 3.29
      • 5. Prohibition on Substantial Lobbying 3.30
    • C. Qualifying as Public Charity
      • 1. Public Charity Status Must Be Proved 3.31
      • 2. Qualification Based on Activities 3.32
        • a. Churches 3.33
        • b. Schools 3.34
        • c. Hospitals and Medical Research Organizations 3.35
      • 3. Qualification Based on Public Support Under IRC §§170(b)(1)(A)(vi) and 509(a)(1) 3.36
        • a. Calculating Public Support Test 3.37
        • b. The One-Third Test 3.38
        • c. The Facts and Circumstances Test 3.39
      • 4. Qualification Under IRC §509(a)(2)
        • a. Qualification Based on Public Support 3.40
        • b. Tables: Ascertaining Numerator of Public Support Fraction 3.41
      • 5. Mathematical Public Support Tests
        • a. Differences Between Tests 3.42
        • b. Table: Comparison of Mathematical Public Support Tests 3.43
      • 6. Qualification Based on Affiliation Under IRC §509(a)(3) 3.44
      • 7. Changing Public Charity Status 3.44A
    • D. Private Foundations
      • 1. Default Classification 3.45
      • 2. General Governing Statutes 3.46
    • E. Other Tax-Exempt Organizations 3.47
      • 1. Social Welfare Organizations and Civic Leagues (IRC §501(c)(4)) 3.48
      • 2. Business Leagues and Trade Associations (IRC §501(c)(6)) 3.49
      • 3. Social Clubs (IRC §501(c)(7)) 3.50
    • F. Unrelated Business Income 3.51
    • G. Federal Tax Deductions 3.52
      • 1. Individual Donors 3.53
      • 2. Corporate Donors 3.54
      • 3. Table: Charitable Contribution Deductions for Individuals 3.55
  • III. CALIFORNIA TAX ISSUES
    • A. Tax Exemptions
      • 1. Franchise Tax 3.56
      • 2. Property Tax 3.57
      • 3. Sales Tax 3.58
    • B. California Tax Deductions 3.59
  • IV. THE APPLICATION PROCESS
    • A. Federal Exemption Under IRC §501(c)(3)" IRS Forms 1023 and 1023-EZ
      • 1. Who Must Apply for Exemption? 3.60
      • 2. Exceptions to Filing Requirement 3.61
      • 3. Eligibility to Use Form 1023-EZ 3.61A
      • 4. Time of Filing 3.62
      • 5. How and Where to File
        • a. IRS Form 1023 3.63
        • b. IRS Form 1023-EZ 3.63A
      • 6. Tips and Considerations for Completing IRS Forms 1023 and 1023-EZ
        • a. IRS Form 1023 3.64
        • b. IRS Form 1023–EZ 3.64A
      • 7. The IRS Determination Letter 3.65
      • 8. Remedies if IRS Denies Exemption 3.66
        • a. Request for Technical Advice 3.67
        • b. After Denial of Request for Exemption 3.68
        • c. After Exhausting IRS Appeals 3.69
      • 9. Applying for Reinstatement After Revocation 3.70
    • B. Federal Exemption Under Other Provisions of IRC §501(c)" IRS Form 1024
      • 1. Requirements for Filing 3.71
      • 2. Additional Notice Requirement for §501(c)(4) Organizations 3.71A
      • 3. Optional Expedited Handling for Certain §501(c)(4) Organizations 3.72
    • C. Exemption From California Income and Franchise Taxes" FTB Forms 3500 and 3500A 3.73
  • V. Fiscal Sponsorship
    • A. Definition of Fiscal Sponsorship 3.74
    • B. Direct Project ("Model A") Fiscal Sponsorship 3.75
      • 1. Mechanics of Model A Sponsorship 3.76
      • 2. Legal Steps and Considerations
        • a. Board Approval 3.77
        • b. Written Agreement 3.78
        • c. Discretion and Control 3.79
        • d. Liability 3.80
        • e. Donor-Advised Fund 3.81
        • f. Termination 3.82
    • C. Regrant or Indirect ("Model C") Fiscal Sponsorship 3.83
      • 1. Mechanics of Model C Sponsorship 3.84
      • 2. Legal Steps and Considerations
        • a. Board Approval 3.85
        • b. Written Agreement 3.86
        • c. Discretion and Control 3.87
        • d. Liability 3.88
        • e. Termination 3.89

4

Donor Funds, Private Foundations, and Supporting Organizations

Reynolds T. Cafferata

Shannon M. Paresa

  • I. SCOPE OF CHAPTER 4.1
  • II. CHOOSING A PRIVATE CHARITABLE ORGANIZATION 4.2
  • III. DONOR FUNDS 4.3
    • A. Types of Donor Funds
      • 1. Donor-Advised Funds 4.4
      • 2. Field-of-Interest Funds 4.5
      • 3. Scholarship Funds 4.6
      • 4. Designated and Restricted Funds 4.7
    • B. Administrative Costs of Donor Funds 4.8
    • C. Definition and Characteristics of Donor-Advised Funds 4.9
      • 1. Taxable Distributions 4.10
      • 2. Prohibited Benefits 4.11
      • 3. Excess Benefit Transactions 4.12
      • 4. Excess Business Holdings 4.13
      • 5. Grants to Supporting Organizations 4.14
      • 6. Grants From Donors Seeking Charitable Contribution Deduction
        • a. Income Tax Deductions 4.15
        • b. Gift and Estate Tax Deductions 4.16
    • D. Creating a Donor Fund 4.17
    • E. Pooling Assets of Donor-Advised Funds 4.18
      • 1. Agency Funds 4.19
      • 2. Quasi-Endowment Funds 4.20
    • F. Uses of Donor Funds 4.21
    • G. Control Over Donor Funds 4.22
  • IV. PRIVATE FOUNDATIONS 4.23
    • A. Limitations on Private Foundations 4.24
      • 1. Self-Dealing Transactions With Disqualified Persons 4.25
      • 2. Types of Self-Dealing Transactions 4.26
        • a. Sale, Exchange, or Lease of Property 4.27
        • b. Extension of Credit 4.28
        • c. Furnishing Goods, Services, or Facilities 4.29
        • d. Payment of Compensation or Expenses 4.30
        • e. Transfer or Use of Foundation Income and Assets 4.31
        • f. Payments to Government Officials 4.32
        • g. Exception for Certain Corporate Transactions 4.33
        • h. Indirect Self-Dealing 4.34
      • 3. Penalties for Violating Rules Against Self-Dealing 4.35
      • 4. Minimum Annual Distributions 4.36
        • a. Computing Minimum Distribution Requirements 4.37
        • b. Qualifying Distributions 4.38
        • c. Penalties 4.39
      • 5. Net Investment Income 4.40
      • 6. Interests in Business Enterprises 4.41
      • 7. Jeopardy Investments 4.42
      • 8. Compensating Family Members 4.43
      • 9. Taxable Expenditures 4.44
      • 10. Independent Audit Committee Requirement 4.45
      • 11. Grants to Supporting Organizations 4.46
    • B. Private Operating Foundations 4.47
      • 1. Income Test 4.48
      • 2. Alternative Test 4.49
      • 3. Exempt Operating Foundations 4.50
    • C. Donor-Directed Funds 4.51
    • D. Private Pass-Through Foundations
      • 1. Requirements for Pass-Through Treatment 4.52
      • 2. Planning Strategies 4.53
    • E. Private Common Fund Foundations 4.54
    • F. Termination of Private Foundation Status 4.55
  • V. SUPPORTING ORGANIZATIONS
    • A. Definition 4.56
    • B. Directors 4.57
    • C. Types of Supporting Organizations 4.58
      • 1. Type I Supporting Organizations 4.59
      • 2. Type II Supporting Organizations 4.60
      • 3. Type III Supporting Organizations 4.61
        • a. Responsiveness Test 4.62
        • b. Integral Part Test 4.63
          • (1) Functionally Integrated Type III Supporting Organizations 4.63A
          • (2) Nonfunctionally Integrated Type III Supporting Organizations 4.63B
            • (a) Distribution Requirement 4.63C
              • (i) Fair Market Value 4.63D
              • (ii) Attentiveness Requirement 4.63E
        • c. Advantages of Type III Supporting Organizations 4.64
        • d. Disadvantages of Type III Supporting Organizations 4.65
    • D. Limitations on Supporting Organizations 4.66
      • 1. Rules Applicable to Type III Supporting Organizations
        • a. Responsiveness Information 4.67
        • b. Foreign Supported Organizations 4.68
        • c. No Control by Donor 4.68A
        • d. Charitable Trusts 4.69
        • e. Payout Requirements 4.70
          • (1) "Functionally Integrated" Requirements [Deleted] 4.71
          • (2) Proposed Payout Requirements [Deleted] 4.72
        • f. Limitation on Number of Supported Organizations 4.73
      • 2. Contributions to Type I and III Supporting Organizations 4.74
      • 3. Excess Business Holdings of Type II and III Supporting Organizations 4.75
      • 4. Rules Applicable to All Supporting Organizations
        • a. Excess Benefit Transactions 4.76
        • b. Distributions to Supporting Organizations
          • (1) From Private Foundations 4.77
          • (2) From Donor-Advised Funds 4.78
          • (3) From a Retirement Plan 4.79
    • E. Reclassification as Public Charity 4.80
  • VI. ESTABLISHING AND MAINTAINING PRIVATE CHARITABLE ORGANIZATIONS
    • A. Pledge Agreements and Self-Dealing 4.81
    • B. Maintaining Multiple Private Charities 4.82
  • VII. TABLE: COMPARISON OF PRIVATE CHARITABLE ORGANIZATIONS 4.83

5

Forming the Corporation and Beginning Operations

Cynthia R. Rowland

  • I. SCOPE OF CHAPTER 5.1
  • II. TYPES OF NONPROFIT CORPORATIONS 5.2
  • III. PRELIMINARY CONSIDERATIONS
    • A. Checklist: Formation of Nonprofit Corporation 5.3
    • B. Choosing and Reserving Name
      • 1. Restrictions and Procedures 5.4
      • 2. Reserving a Name
        • a. Reserving by Mail 5.5
        • b. Prepaid Accounts 5.6
        • c. Intellectual Property Issues 5.7
      • 3. Form: Consent to Use of Name 5.8
    • C. Selecting Initial Agent for Service of Process 5.9
  • IV. COMPLETING CORPORATE ORGANIZATION
    • A. Necessary Steps 5.10
    • B. Form: Appointment of Initial Directors and Adoption of Bylaws 5.11
    • C. Form: Waiver of Notice and Consent to Holding First Meeting of Board of Directors 5.12
    • D. Minutes of First Meeting of Board of Directors
      • 1. Form: Heading and Participants 5.13
      • 2. Form: Adoption of Waiver of Notice and Consent to Meeting 5.14
      • 3. Form: Articles Filed 5.15
      • 4. Form: Ratification of Actions by Incorporator 5.16
      • 5. Form: Adoption of Bylaws 5.17
      • 6. Form: Number of Directors 5.18
      • 7. Form: Election of Chair 5.18A
      • 8. Form: Election of Officers 5.19
      • 9. Form: Corporate Seal 5.20
      • 10. Form: Accounting Year 5.21
      • 11. Form: Principal Office Location 5.22
      • 12. Form: Accounting Method 5.22A
      • 13. Form: Bank Account 5.23
      • 14. Form: Membership Certificate 5.24
      • 15. Form: Incorporation Expenses 5.25
      • 16. Form: Exemptions From Federal and State Taxes 5.26
      • 17. Form: Registration With Attorney General 5.26A
      • 18. Form: Statement by Domestic Corporation 5.27
      • 19. Form: Compliance With Local Solicitation Ordinances 5.28
      • 20. Form: Compliance With Political Reform Act 5.29
      • 21. Form: Issuance of Memberships and Establishment of Dues 5.30
      • 22. Form: Application for Qualification or Registration of Offer and Sale of Membership Securities 5.31
      • 23. Form: Employer Identification Number 5.32
      • 24. Form: Nonprofit Mailing Permit 5.33
      • 25. Form: Adoption of Conflict of Interest Policy 5.34
      • 26. Form: Adoption of Policy for the Detection and Reporting of Fraudulent Activity (Whistleblower Policy) 5.35
      • 27. Form: Approval of Consent to Use of Electronic Transmissions by Director or Officer 5.36
      • 28. Other Resolutions 5.37
      • 29. Form: Adjournment 5.38
    • E. Action by Unanimous Written Consent of Board
      • 1. Form: Heading; Participants 5.39
      • 2. Form: Articles of Incorporation 5.40
      • 3. Form: Ratification of Actions by Incorporator 5.41
      • 4. Form: Bylaws 5.42
      • 5. Form: Number of Directors 5.43
      • 6. Form: Election of Chair 5.43A
      • 7. Form: Election of Officers 5.44
      • 8. Form: Accounting Year 5.44A
      • 9. Form: Principal Office Location 5.45
      • 10. Form: Incorporation Expenses 5.46
      • 11. Form: Authorization to File Applications for Tax Exemptions 5.47
      • 12. Form: Registration With Attorney General 5.47A
      • 13. Form: Authorization to Enter Into Contracts 5.48
      • 14. Form: Authorization to Retain Counsel and Waive Conflicts 5.49
      • 15. Form: Accounting Method 5.50
      • 16. Form: Bank Account 5.51
      • 17. Form: Admission of Members 5.52
      • 18. Form: Compliance With Local Solicitation Ordinances 5.53
      • 19. Form: Compliance With Political Reform Act 5.54
      • 20. Form: Issuance of Memberships and Establishment of Dues 5.55
      • 21. Form: Application for Qualification or Registration of Offer and Sale of Membership Securities 5.56
      • 22. Form: Employer Identification Number 5.57
      • 23. Form: Nonprofit Mailing Permit 5.58
      • 24. Form: Adoption of Conflict of Interest Policy 5.59
      • 25. Form: Approval of Policy for the Detection and Reporting of Fraudulent Activity (Whistleblower Policy) 5.60
      • 26. Form: Approval of Consent to Use of Electronic Transmissions by Director or Officer 5.61
      • 27. Form: Execution of Consent 5.62
    • F. Exhibits for Attachment to Minutes of First Meeting or Action by Unanimous Consent of Board
      • 1. Form: Corporation's Policy on the Detection and Reporting of Fraudulent Activity (Whistleblower Policy) 5.63
      • 2. Form: Consent to Use of Electronic Transmissions by Director or Officer 5.64
    • G. Filing Statement by Domestic Nonprofit Corporation 5.65
    • H. Registration With Attorney General's Registrar of Charitable Trusts 5.66
    • I. Registration With Secretary of State (Political Reform Division) 5.67
    • J. Compliance With Securities Laws
      • 1. California Requirements 5.68
      • 2. Federal Requirements 5.69
    • K. Compliance With Franchise Laws 5.70

6

Articles of Incorporation

Cynthia R. Rowland

  • I. SCOPE 6.1
  • II. GENERAL REQUIREMENTS
    • A. Mandatory Provisions 6.2
    • B. Checklist: Articles of Incorporation 6.3
    • C. Provisions That Are Effective Only When Included in Articles 6.4
    • D. Provisions Required to Secure Tax-Exempt Status 6.5
    • E. Optional Provisions 6.6
    • F. Execution of Articles of Incorporation 6.7
  • III. ARTICLES OF INCORPORATION
    • A. Public Benefit Corporation
      • 1. Form: Heading 6.8
      • 2. Form: Name 6.9
      • 3. Form: Purpose 6.10
      • 4. Form: Optional Supporting Organization Provision 6.11
      • 5. Form: Agent for Service of Process 6.12
      • 6. Form: Principal Office 6.12A
      • 7. Form: Tax-Exempt Status 6.13
      • 8. Form: Signature Block 6.14
      • 9. Form: Declaration; Incorporation of Existing Unincorporated Association 6.15
    • B. Mutual Benefit Corporation
      • 1. Form: Heading 6.16
      • 2. Form: Name 6.17
      • 3. Form: Purpose 6.18
      • 4. Form: Agent for Service of Process 6.19
      • 5. Form: Principal Office 6.19A
      • 6. Form: Tax-Exempt Status 6.20
      • 7. Form: Signature Block 6.21
      • 8. Form: Declaration; Incorporation of Existing Unincorporated Association 6.22
    • C. Religious Corporation
      • 1. Form: Heading 6.23
      • 2. Form: Name 6.24
      • 3. Form: Purpose 6.25
      • 4. Form: Agent for Service of Process 6.26
      • 5. Form: Principal Office 6.26A
      • 6. Form: Tax-Exempt Status 6.27
      • 7. Form: Signature Block 6.28
      • 8. Form: Declaration; Incorporation of Existing Unincorporated Association 6.29
    • D. Other Forms 6.30
  • IV. FILING ARTICLES OF INCORPORATION
    • A. Timing Considerations 6.31
    • B. Filing Procedure 6.32
    • C. Form: Transmittal Letter 6.33
  • V. AMENDMENTS TO ARTICLES
    • A. Limitations on Amendments 6.34
    • B. Required Authorizations or Approvals
      • 1. Incorporators 6.35
      • 2. Board of Directors 6.36
      • 3. Members and Other Specified Persons 6.37
      • 4. Classes of Members 6.38
      • 5. Amendment to Change Status 6.39
      • 6. Attorney General
        • a. Property Held in Charitable Trust 6.40
        • b. Checklist: Contents of Request for Approval 6.41
    • C. Certificate of Amendment
      • 1. Requirements 6.42
      • 2. Certificate of Amendment
        • a. Form: Incorporators' Certificate of Amendment 6.43
        • b. Form: Officers' Certificate of Amendment 6.44
      • 3. Filing Certificate of Amendment 6.45
      • 4. Restated Articles of Incorporation 6.46

7

Bylaws

Cynthia R. Rowland

  • I. SCOPE OF CHAPTER 7.1
  • II. PURPOSE OF BYLAWS 7.2
  • III. TABLE: CORPORATIONS CODE DEFAULT PROVISIONS THAT MAY BE ALTERED IN BYLAWS OR ARTICLES OF INCORPORATION 7.2A
  • IV. BYLAWS FOR PUBLIC BENEFIT, MUTUAL BENEFIT, AND RELIGIOUS CORPORATIONS
    • A. Form: Heading 7.3
    • B. Form: Name 7.4
    • C. Form: Principal Office of the Corporation 7.5
    • D. Form: General and Specific Purposes; Limitations 7.6
    • E. Form: Construction and Definitions 7.7
    • F. Form: Subordinate Corporation to Religious Entity 7.8
    • G. Form: Supporting Organization Under IRC §509(a)(3) 7.9
    • H. Form: Irrevocable Dedication of Assets 7.10
    • I. Form: Nonvoting Members 7.11
    • J. Corporations With Members 7.12
      • 1. Form: Qualifications and Classes of Membership 7.13
      • 2. Form: Rights of Membership 7.14
      • 3. Form: Other Persons Associated With Corporation 7.15
      • 4. Form: Members' Dues, Fees, and Assessments 7.16
      • 5. Form: Members in Good Standing 7.17
      • 6. Form: Termination of Membership 7.18
      • 7. Form: Suspension of Membership 7.19
      • 8. Form: Termination or Suspension of Membership 7.20
      • 9. Form: Transfer of Memberships 7.21
      • 10. Meetings
        • a. General Meetings
          • (1) Form: Annual Meeting 7.22
          • (2) Form: Place of Meeting 7.23
        • b. Special Meetings
          • (1) Form: Authority to Call Special Meetings 7.24
          • (2) Form: Calling Special Meetings 7.25
          • (3) Form: Proper Business of Special Meeting 7.26
      • 11. Notice
        • a. Form: General Notice Requirements 7.27
        • b. Form: Notice of Certain Agenda Items 7.28
        • c. Form: Manner of Giving Notice 7.29
        • d. Form: Affidavit of Mailing Notice 7.30
      • 12. Form: Quorum 7.31
      • 13. Voting
        • a. Form: Eligibility to Vote 7.32
        • b. Form: Manner of Voting 7.33
        • c. Form: Number of Votes 7.34
        • d. Form: Approval by Majority Vote 7.35
        • e. Form: Waiver of Notice or Consent 7.36
      • 14. Actions Without Meetings
        • a. Form: Action by Unanimous Written Consent 7.37
        • b. Form: Action by Written Ballot 7.38
        • c. Form: Solicitation of Written Ballots 7.39
        • d. Form: Number of Votes and Approvals Required 7.40
        • e. Form: Revoking Ballots 7.41
        • f. Form: Filing Ballots 7.42
      • 15. Record Date
        • a. Form: Record Date for Notice, Voting, Written Ballots, and Other Board Actions 7.43
        • b. Form: Record Date for Actions Not Set by Board 7.44
      • 16. Proxies
        • a. Form: Members' Proxy Rights 7.45
        • b. Form: Solicited Proxies 7.46
        • c. Form: Subject Matter of Proxy to Be Stated 7.47
        • d. Form: Revocability of Proxies 7.48
      • 17. Form: Adjournment and Notice of Adjourned Meetings 7.49
    • K. Board of Directors 7.50
      • 1. General and Specific Powers of Board
        • a. Form: General Powers 7.51
        • b. Form: Specific Powers 7.52
      • 2. Form: Number of and Qualifications for Directors 7.53
      • 3. Form: Restriction on Interested Persons as Directors (Public Benefit Corporations) 7.54
      • 4. Form: Designated Directors 7.55
      • 5. Nominations and Elections of Directors 7.56
        • a. Form: Nominations by Committee 7.57
        • b. Form: Nominations by Members of Corporations With 500 to 4999 Members 7.58
        • c. Form: Nominations by Members of Corporations With 5000 or More Members 7.59
        • d. Form: Floor Nominations 7.60
        • e. Form: Nominee's Right to Solicit Votes 7.61
        • f. Form: Use of Corporate Funds to Support Nominee 7.62
        • g. Form: Election of Directors (Religious Corporation) 7.63
      • 6. Vacancies on Board of Directors
        • a. Form: Events Causing Vacancies on Board 7.64
        • b. Form: Resignation of Directors 7.65
        • c. Form: Removal of Directors 7.66
        • d. Filling Vacancies on Board of Directors
          • (1) Form: Vacancies Filled by Board 7.67
          • (2) Form: Vacancies Filled by Members 7.68
        • e. Form: No Vacancy on Reduction of Number of Directors 7.69
      • 7. Meetings of Board of Directors
        • a. Form: Place of Board Meetings 7.70
        • b. Form: Meetings by Telephone or Other Telecommunications Equipment 7.71
        • c. Form: Annual and Other Meetings 7.72
        • d. Special Meetings
          • (1) Form: Authority to Call Special Meetings 7.73
          • (2) Form: Notice of Special Meetings 7.74
        • e. Form: Quorum 7.75
        • f. Form: Waiver of Notice 7.76
        • g. Form: Adjournment 7.77
        • h. Form: Notice of Adjourned Meeting 7.78
      • 8. Form: Action Without a Meeting 7.79
      • 9. Form: Compensation and Reimbursement 7.80
      • 10. Form: Director Voting 7.80A
      • 11. Committees of Board of Directors
        • a. Form: Creation and Powers of Committees 7.81
        • b. Form: Audit Committee 7.82
        • c. Form: Compensation Committee 7.83
        • d. Form: Executive Committee 7.84
        • e. Form: Investment Committee 7.85
        • f. Form: Meetings and Action of Committees 7.86
    • L. Officers of the Corporation
      • 1. Form: Offices Held 7.87
      • 2. Form: Election of Officers 7.88
      • 3. Form: Appointment of Other Officers 7.89
      • 4. Form: Removal of Officers 7.90
      • 5. Form: Resignation of Officers 7.91
      • 6. Form: Vacancies in Office 7.92
      • 7. Responsibilities of Officers
        • a. Form: Chair of the Board 7.93
        • b. Form: President 7.94
        • c. Form: Vice Presidents 7.95
        • d. Form: Secretary 7.96
        • e. Form: Chief Financial Officer 7.97
    • M. Form: Contracts With Directors 7.98
    • N. Form: Loans to Directors and Officers 7.99
    • O. Form: Indemnification 7.100
    • P. Form: Insurance 7.101
    • Q. Form: Maintenance of Corporate Records 7.102
    • R. Inspection Rights
      • 1. Members' Right to Inspect
        • a. Form: Membership Records 7.103
        • b. Form: Accounting Records and Minutes 7.104
        • c. Form: Maintenance and Inspection of Articles and Bylaws 7.105
      • 2. Form: Directors' Right to Inspect 7.106
    • S. Required Reports
      • 1. Form: Annual Report 7.107
      • 2. Form: Annual Statement of Certain Transactions and Indemnifications 7.108
    • T. Form: Emergency Powers 7.108A
    • U. Form: Private Foundation Restrictions 7.109
    • V. Form: Supporting Organization Restrictions 7.109A
  • V. BYLAW AMENDMENTS
    • A. Prohibited Amendments 7.110
    • B. Required Approvals to Amendment
      • 1. Board of Directors' Approval 7.111
      • 2. Members' Approval 7.112
      • 3. Class Approval: Public Benefit and Mutual Benefit Corporations 7.113
      • 4. Other Approvals 7.114
    • C. Records of Bylaws and Amendments 7.115
    • D. Amendments to Bylaws
      • 1. Form: Amendment by Board Subject to Limitation by Members 7.116
        • a. Form: Changes to Number of Directors 7.117
        • b. Form: Greater Vote Requirement 7.118
        • c. Form: Members' Approval Required 7.119
      • 2. Form: Amendment by Members 7.120
      • 3. Form: Amendments to Religious Corporation's Bylaws 7.121
  • VI. BYLAWS FOR PUBLIC BENEFIT CORPORATION WITHOUT MEMBERS
    • A. Form: Heading; Principal Office 7.122
    • B. Form: Objectives and Purposes 7.123
    • C. Form: Dedication of Assets 7.124
    • D. Directors
      • 1. Form: General and Specific Powers of Directors 7.125
      • 2. Form: Number of Directors 7.126
      • 3. Form: Appointment and Term of Office of Directors 7.127
      • 4. Form: Qualifications of Board Members 7.128
      • 5. Form: Vacancies 7.129
      • 6. Form: Place of Meeting; Meeting by Telephone or Other Telecommunications Equipment 7.130
      • 7. Form: Annual Meeting 7.131
      • 8. Form: Special Meetings 7.132
      • 9. Form: Notice of Meetings 7.133
      • 10. Form: Waiver of Notice 7.134
      • 11. Form: Quorum 7.135
      • 12. Form: Adjournment 7.136
      • 13. Form: Notice of Adjournment 7.137
      • 14. Form: Action Without Meeting 7.138
      • 15. Form: Compensation of Directors 7.139
      • 16. Form: Restriction on Interested Directors 7.140
    • E. Committees
      • 1. Form: Creation and Powers of Committees 7.141
      • 2. Form: Executive Committee 7.142
      • 3. Form: Compensation Committee 7.143
      • 4. Form: Advisory Committees 7.144
      • 5. Form: Audit Committee 7.145
      • 6. Form: Meeting and Action of Committees 7.146
    • F. Officers of the Corporation
      • 1. Form: Offices Held 7.147
      • 2. Form: Election of Officers 7.148
      • 3. Form: Subordinate Officers 7.149
      • 4. Form: Removal of Officers 7.150
      • 5. Form: Resignation of Officers 7.151
      • 6. Form: Vacancies in Office 7.152
      • 7. Form: Responsibilities of Officers 7.153
    • G. Records and Reports
      • 1. Form: Maintenance of Articles and Bylaws 7.154
      • 2. Form: Maintenance of Other Corporate Records 7.155
      • 3. Form: Inspection by Directors 7.156
      • 4. Form: Annual Report 7.157
      • 5. Form: Financial Audit 7.158
    • H. Indemnification of Directors and Officers
      • 1. Form: Right to Indemnification 7.159
      • 2. Form: Insurance 7.160
    • I. Contracts and Loans With Directors and Officers
      • 1. Form: Contracts With Directors and Officers 7.161
      • 2. Form: Loans to Directors and Officers 7.162
    • J. Form: Fiscal Year 7.163
    • K. Form: Amendments 7.164
    • L. Form: Members 7.165
    • M. Form: Private Foundation Restrictions 7.166
    • N. Form: Supporting Organization Restrictions 7.167
    • O. Form: Emergency Provisions 7.167A
    • P. Form: Construction and Definitions 7.168
    • Q. Form: Certificate of Secretary 7.169
    • R. Form: Exhibit A, Members of Board 7.170

8

Sales and Use Taxes

J. Patrick Whaley

Carley A. Roberts

  • I. SCOPE OF CHAPTER 8.1
  • II. INTRODUCTION TO SALES AND USE TAX 8.2
  • III. THE SALES TAX
    • A. Imposition of Sales Tax 8.3
      • 1. Definition of "Sale"
        • a. Transfer of Title for Consideration 8.4
        • b. Distinction Between Sales and Services 8.5
        • c. Fabrication Taxable as Sale 8.6
      • 2. "Retail Sale" Versus Resale 8.7
      • 3. Definition of "Tangible Personal Property" 8.8
      • 4. Definition of "Person" 8.9
      • 5. Definition of "Retailer" 8.10
        • a. "Sellers" as Retailers 8.11
        • b. Auctioneers 8.12
        • c. Persons Making More Than Two Retail Sales 8.13
      • 6. Place of Sale 8.14
      • 7. Gross Receipts 8.15
        • a. Allocation of Purchase Price 8.16
        • b. Services as Part of Sale 8.17
        • c. General Exclusions From Gross Receipts; Technology Transfer Agreements; Worthless Accounts 8.18
    • B. Responsibility for Tax Payments
      • 1. Retailer's Responsibility 8.19
      • 2. Reimbursement of Retailers by Purchaser 8.20
  • IV. THE USE TAX
    • A. Imposition of Use Tax 8.21
    • B. What Is Taxed? 8.22
      • 1. Storage, Use, or Other Consumption 8.23
      • 2. Property Purchased for Use in California 8.24
        • a. First Functional Use in California 8.25
        • b. First Functional Use Outside California 8.26
    • C. Who Is Taxed? 8.27
    • D. Collection of Tax
      • 1. Retailer Engaged in Business in California 8.28
      • 2. Leases 8.29
    • E. Measure of Tax 8.30
  • V. EXEMPTIONS FROM TAX 8.31
    • A. Occasional Sale Exemption 8.32
    • B. Sales to Government Agencies 8.33
    • C. Partial Exemption for Property Purchased for Use in Manufacturing or Research and Development 8.33A
    • D. Nonprofit Organizations 8.34
      • 1. Donated Property 8.35
      • 2. Children's Clothing 8.36
      • 3. Meals Served by Religious Organizations 8.37
      • 4. Meals Served to Patients and Inmates of Health Facilities 8.38
      • 5. Flags Sold by Nonprofit Veterans' Organizations 8.39
      • 6. Art Work 8.40
      • 7. Prisoner of War Bracelets and Veterans' Memorial Pins 8.41
      • 8. Medical Alert Tags 8.42
      • 9. Friends of the Library, PTAs, and Museum Auxiliaries 8.43
      • 10. Sales by Youth Organizations 8.44
      • 11. Sales by Charitable Organizations Engaged in Relief of Poverty or Distress 8.45
      • 12. Auctions to Raise Funds to Shelter the Homeless 8.46
      • 13. Property Loaned to Educational Institutions; School Yearbooks 8.47
      • 14. Organizations Serving Developmentally Disabled Individuals or Emotionally Handicapped Children 8.48
      • 15. Newspapers Published or Distributed by Nonprofit Organizations 8.49
      • 16. School Meals 8.50
      • 17. Meals Delivered to Homebound Elderly and Disabled 8.51
      • 18. Meals for Low-Income Elderly 8.52
      • 19. Animals and Plant Species 8.53
      • 20. Meals Served by Veterans' Organizations 8.54
      • 21. Thrift Stores 8.55
      • 22. Medical Health Information Literature 8.56
      • 23. Food, Food Products, and Prescription Medicines 8.57
  • VI. DOING BUSINESS AS RETAILER
    • A. Obtaining Permit
      • 1. Seller's Permit 8.58
      • 2. Use Tax Registration 8.59
      • 3. Security 8.60
    • B. Resale and Other Exemption Certificates
      • 1. Resale Certificate 8.61
      • 2. Exemption Certificate 8.62
    • C. Tax Returns and Payment 8.63
    • D. Records 8.64

9

Directors and Officers

Gary L. Wollberg

  • I. SCOPE OF CHAPTER 9.1
  • II. ROLE OF BOARD OF DIRECTORS
    • A. Authority of Board 9.2
      • 1. Significant Matters Typically Requiring Board Action or Approval 9.3
      • 2. Delegation by Board 9.4
    • B. Executive Committee and Other Board Committees
      • 1. Committees Possessing Board's Authority 9.5
      • 2. Other Committees Appointed by Board
        • a. Advisory Committees 9.6
        • b. Audit Committees 9.7
      • 3. Powers Not Delegable to Board Committees 9.8
      • 4. Term of Office, Committee Appointments, and Recordkeeping Requirements 9.9
      • 5. Appointing Staff as Ex Officio Committee Members 9.10
    • C. Corporate Officers
      • 1. Required and Discretionary Officers 9.11
      • 2. Selection and Resignation of Officers 9.12
      • 3. Statutory Authority of Officers 9.13
      • 4. Compensation of Officers 9.14
  • III. COMPOSITION OF BOARD
    • A. Size and Qualifications
      • 1. Number of Directors 9.15
      • 2. Optimum Board Size 9.16
      • 3. Becoming a Board Member 9.17
      • 4. Qualifications and Composition of Board 9.18
        • a. Board Composition 9.19
        • b. Chief Executive Officer as Ex Officio Director 9.20
      • 5. Compensation of Directors 9.21
        • a. Private Inurement Issues 9.22
        • b. Potential Adverse Effect of Compensation on Statutory Liability Protections 9.23
        • c. Potential Adverse Impact on Funding Opportunities 9.24
      • 6. "Interested Person" Rule" Public Benefit Corporations 9.25
    • B. Method of Selecting Directors
      • 1. Election by Members or Delegates 9.26
      • 2. Cumulative Voting 9.27
      • 3. Designation of Directors by Specified Persons 9.28
      • 4. Election by Directors 9.29
      • 5. Appointment by the Court 9.29A
      • 6. Appointment Via Emergency Bylaws 9.29B
      • 7. Court Appointment of Provisional Director 9.30
    • C. Statutory Nomination and Election Procedures" Public Benefit and Mutual Benefit Corporations
      • 1. Reasonable Nomination and Election Procedures" Safe Harbor Rule 9.31
        • a. Mailing Election Materials 9.32
        • b. Publication of Materials Soliciting Votes; Nominee's Rights 9.33
        • c. Nomination Procedures 9.34
        • d. Close of Nominations; When Election Not Required 9.35
        • e. Protecting Corporation and Corporate Agents From Liability for Content of Nominee-Generated Election Materials 9.36
      • 2. Typical Nomination and Election Procedures 9.37
      • 3. Judicially Imposed Procedural Fairness 9.38
      • 4. Election Inspectors" Public Benefit and Mutual Benefit Corporations 9.39
      • 5. Request for Election Results 9.40
      • 6. Judicial Challenge of Director Elections 9.41
    • D. Term of Office
      • 1. Term of Office Generally 9.42
      • 2. Public Benefit and Mutual Benefit Corporations 9.43
      • 3. Consecutive Terms of Office 9.44
    • E. Vacancies 9.45
    • F. Resignation 9.46
    • G. Removal of Directors 9.47
      • 1. Authority to Remove Directors
        • a. Removal of Board-Elected Directors 9.48
        • b. Removal of Member-Elected Directors 9.49
        • c. Removal of Designated Directors 9.50
        • d. Removal by Court Action 9.51
          • (1) Grounds for Initiating Court Action" Removal for Cause 9.52
          • (2) Persons Empowered to Initiate Action 9.53
      • 2. Ballot Procedure for Removal of Directors" Corporations With Members
        • a. Inspectors of Election in Director Recall Elections 9.54
        • b. Procedural Issues Not Addressed in Code 9.55
          • (1) Form and Content of Recall Petitions 9.56
          • (2) Communications to Members 9.57
          • (3) Statements by Directors 9.58
          • (4) Targeted Directors Participating in Fashioning Board Responses 9.59
          • (5) Right to Terminate Recall Once Called 9.60
          • (6) Role of Legal Counsel 9.61
          • (7) Separate or Combined Recall Vote If More Than One Director Targeted 9.62
          • (8) Combining Vote to Elect New Candidates to Office With Recall 9.63
      • 3. Effect of Reduction in Number of Directors 9.64
  • IV. EXECUTION OF BOARD ACTIONS
    • A. Board Meetings
      • 1. Types and Frequency of Meetings 9.65
        • a. Annual Organizational Meeting 9.66
        • b. Other Regular Meetings 9.67
        • c. Special Meetings 9.68
        • d. Conduct of Board Meetings" Community Associations 9.69
      • 2. Notice Requirements Applicable to Board Meetings 9.70
        • a. Form: Notice of Meeting 9.71
        • b. Form: Call of Meeting 9.72
        • c. Form: Agenda of Meeting 9.73
        • d. Waiver of Notice 9.74
          • (1) Form: Waiver of Notice 9.75
          • (2) Form: Waiver and Consent in Lieu of Notice 9.76
          • (3) Form: Approval of Minutes of Meeting 9.77
      • 3. Meeting Procedure
        • a. Manner of Attending Meetings 9.78
        • b. Quorum Requirements 9.79
        • c. Conducting Board Meetings 9.80
        • d. Voting by Directors at Meetings 9.81
        • e. Adjournment of Meetings 9.82
      • 4. Minutes of Meetings
        • a. Use and Preparation 9.83
        • b. Checklist: Preparation of Minutes 9.84
        • c. Minutes of Board or Committee Meeting
          • (1) Form: Introductory Statement 9.85
          • (2) Form: Attendance and Quorum 9.86
          • (3) Form: Chair and Secretary 9.87
          • (4) Form: Notice 9.88
          • (5) Form: Minutes of Last Meeting 9.89
          • (6) Form: Election of Officers 9.90
          • (7) Form: Adoption of Resolution 9.91
          • (8) Form: Establishment of Executive Committee 9.92
          • (9) Form: Establishment of Special Committees 9.93
          • (10) Form: Amendment of Articles or Bylaws 9.94
          • (11) Form: Adjournment or Recess to Another Time or Place 9.95
          • (12) Form: Final Adjournment 9.96
          • (13) Form: Submission and Approval 9.97
    • B. Board Action by Written Consent
      • 1. General Considerations 9.98
      • 2. Board's Consent to Action Without Meeting
        • a. Form: Unanimous Written Consent 9.99
        • b. Form: Directors' Signing of Document 9.100
        • c. Form: Action Taken by Board 9.101
        • d. Form: Signature Block 9.102
  • V. STANDARDS OF CONDUCT FOR DIRECTORS; DIRECTOR LIABILITY
    • A. Fiduciary Responsibilities Generally
      • 1. Fiduciary Duties Owed by Directors 9.103
      • 2. General Scope of Fiduciary Duty 9.104
      • 3. Standard of Care for Officers 9.105
      • 4. To Whom Directors Owe Fiduciary Duty 9.106
      • 5. Business Judgment Rule
        • a. Definition and Application 9.107
        • b. Business Judgment Rule and Interested Directors 9.108
    • B. Standards of Conduct for Directors
      • 1. Directors' Duty of Care 9.109
      • 2. Director's Duty of Inquiry; Right to Rely on Advice of Others 9.110
      • 3. Duty of Loyalty
        • a. Definition 9.111
        • b. Corporate Opportunity Doctrine 9.112
      • 4. Investment Standards 9.113
      • 5. Special Duties" Directors of Community Associations 9.114
    • C. Effect of Compliance With Standard of Care
      • 1. No Personal Liability for Directors 9.115
      • 2. Liability for Tortious Conduct 9.116
      • 3. Liability to Third Parties for Falsehood or Fraud 9.117
      • 4. Liability Under Alter-Ego Doctrine 9.118
      • 5. Liability for Certain Employment Matters 9.119
      • 6. Liability for Taxes Imposed on Private Foundation's Self-Dealing Transactions 9.120
    • D. Persons With Standing to Bring Actions for Breach of Fiduciary Duty or Charitable Trust Obligations
      • 1. Attorney General 9.121
      • 2. Statutory Members of Corporation 9.122
      • 3. Directors and Officers 9.123
      • 4. Commissioner of Business Oversight 9.124
      • 5. Persons Granted Relator Status 9.125
      • 6. Commissioner of Department of Real Estate" Community Associations 9.126
    • E. Actions Relating to Abuse of Authority or Breach of Trust
      • 1. Ultra Vires Acts 9.127
      • 2. Actions for Breach of Trust 9.128
      • 3. Actions to Enjoin Breach of Express Terms of Gift" Religious Corporations 9.129
      • 4. Actions to Compel Compliance With Corporate Filing and Membership Rights" Public Benefit and Mutual Benefit Corporations 9.130
  • VI. TRANSACTIONS BETWEEN NONPROFIT CORPORATIONS AND DIRECTORS
    • A. Self-Dealing Transactions" Public Benefit Corporations and Religious Corporations 9.131
      • 1. Transactions Excluded From Definition of Self-Dealing Transactions 9.132
      • 2. Approving Self-Dealing Transactions 9.133
        • a. Attorney General's Approval 9.134
        • b. Court Approval 9.135
        • c. Board Validation 9.136
        • d. Approval by Other Authorized Persons 9.137
        • e. Approval by Members of Religious Corporations 9.138
      • 3. Defenses; Statutes of Limitation for Actions to Challenge Self-Dealing Transactions 9.139
      • 4. Remedies for Self-Dealing Transactions; Liability of Interested Directors 9.140
      • 5. Checklist: Board Approval of Transactions With Interested Directors 9.141
      • 6. Form: Minutes Reflecting Approval of Transaction" Public Benefit and Religious Corporations 9.142
    • B. Self-Dealing Prohibitions" Mutual Benefit Corporations Holding Assets in Charitable Trust 9.143
    • C. Statutory Regulation of Transactions With Interested Directors" Mutual Benefit Corporations 9.144
    • D. Transactions Between Nonprofit Corporations and Other Corporations With Interlocking Directorships 9.145
    • E. Loans and Guaranties
      • 1. Public Benefit Corporations 9.146
      • 2. Mutual Benefit Corporations 9.147
      • 3. Religious Corporations 9.148
      • 4. Liability for Distributions, Loans, and Guaranties 9.149
    • F. Additional Conflict of Interest Regulations 9.150
  • VII. STATUTORY LIABILITY PROTECTIONS
    • A. Evolution of Statutory Liability Protection 9.151
    • B. Charities and Trade Associations" Protection Under Corp C §5047.5 9.152
    • C. Public Benefit and Religious Corporations" Protection Under Corp C §§5239, 9247; CCP §425.15 9.153
    • D. Community Associations" Protection Under CC §5800 9.154
    • E. Volunteer Protection Act of 1997 9.155
    • F. Emergency Actions in Good Faith 9.155A
  • VIII. INDEMNIFICATION OF DIRECTORS, OFFICERS, AND AGENTS; INSURANCE
    • A. Statutory Scheme of Indemnification 9.156
    • B. Minimum Standard of Care Required for Indemnification Eligibility 9.157
    • C. Agents' Right to Demand Indemnification 9.158
    • D. Amount of Indemnification 9.159
    • E. Litigation Expense Advances 9.160
    • F. Expansion of Indemnification Rights Prohibited 9.161
    • G. Insurance 9.162
  • IX. DIRECTORS' INSPECTION RIGHTS
    • A. Scope of Directors' Rights 9.163
    • B. Alternative Methods of Responding to Directors' Requests for Inspection 9.164

10

Members and Other Interested Persons

Gary L. Wollberg

  • I. SCOPE OF CHAPTER 10.1
  • II. PRELIMINARY DECISIONS REGARDING MEMBERS
    • A. Roles of Individuals in Nonprofit Corporations
      • 1. Definitions of "Member" and "Membership" 10.2
      • 2. Corporations Without Members; Exercise of Membership Rights by Directors 10.3
      • 3. The Decision to Issue or Dispense With Memberships 10.4
      • 4. Delegates 10.5
      • 5. Associated Persons 10.6
    • B. Types of Memberships
      • 1. General Rule: Same Rights for All Members 10.7
      • 2. Different Rights for Different Members 10.8
        • a. Classes of Members 10.9
        • b. Class Voting 10.10
        • c. One-Person-One-Membership Rule; Exceptions 10.11
    • C. Application of California Corporate Securities Law to Nonprofit Memberships
      • 1. Qualification or Exemption From Qualification Required 10.12
      • 2. Memberships Generally Included in Definition of "Security" 10.13
        • a. Howey Test 10.14
        • b. Risk Capital Test 10.15
      • 3. General Exemption for Nonprofit Corporation Memberships 10.16
      • 4. Interpretive Regulations and Commissioner's Releases 10.17
        • a. Commissioner Release No. 15-C 10.18
        • b. Commissioner Rule 260.105.20 10.19
      • 5. Other Possible Corporate Securities Law Exemptions 10.20
    • D. Application of Federal Securities Laws
      • 1. Registration, or Exemption from Registration, Required 10.21
      • 2. Definition of "Security" 10.22
      • 3. Application of Howey Test to Nonprofit Membership Interests 10.23
      • 4. General Exemption for Eleemosynary Organizations 10.24
  • III. ADMITTING MEMBERS
    • A. Establishing Criteria for Membership 10.25
    • B. Discriminatory Membership Criteria
      • 1. Nonprofit Corporation Law Does Not Address Discrimination 10.26
      • 2. Privacy and First Amendment Rights Versus Barring Discrimination 10.27
      • 3. The Unruh Civil Rights Act 10.28
    • C. Eligible Person's Right to Membership 10.29
      • 1. Professional or Trade Organization 10.30
      • 2. Membership Based on Contract Rights or Property Ownership 10.31
    • D. Consideration of Memberships 10.32
    • E. Membership Certificates or Other Documents Identifying Members 10.33
  • IV. MEMBERS' VOTING RIGHTS
    • A. Role of Voting Members in Corporate Governance 10.34
    • B. Actions Requiring Members' Approval 10.35
    • C. Statutory Members' Other (Nonvoting) Rights 10.36
    • D. Statutory Terms Pertaining to Member Voting Rights
      • 1. Authorized Number of Members 10.37
      • 2. Voting Power 10.38
      • 3. Approval by Majority of All Members 10.39
      • 4. Approval by Members 10.40
      • 5. Comparison of Statutory Member Approval Requirements 10.41
      • 6. Electronic Transmission by or to the Corporation 10.42
    • E. Right to Vote
      • 1. Voter Eligibility Requirements 10.43
      • 2. Voting Rights of Co-Members 10.44
      • 3. Record Date for Notice, Voting, and Other Rights 10.45
        • a. Notice 10.46
        • b. Voting 10.47
        • c. Other Rights 10.48
    • F. Member Voting Structures; Modification of Statutory Voting Rules
      • 1. One-Member-One-Vote Rule and Its Modifications 10.49
      • 2. Supermajority or Unanimous Vote Requirements 10.50
      • 3. Class Voting 10.51
      • 4. Cumulative Voting 10.52
      • 5. Voting Considerations in Absence of Cumulative Voting 10.53
      • 6. Voting Trusts and Voting Trust Agreements 10.54
    • G. Permitted Methods of Voting or Consenting to Action
      • 1. Voting in Person at Membership Meetings" Public Benefit and Mutual Benefit Corporations 10.55
      • 2. Voting by Proxy at Membership Meetings
        • a. Proxy Voting Generally 10.56
        • b. Advantages and Disadvantages of Full Proxy Voting 10.57
        • c. Elimination of Proxy Rights 10.58
        • d. Limited Proxies 10.59
        • e. Proxies Permitted Only for Quorum Purposes 10.60
        • f. Irrevocable Proxies" Mutual Benefit Corporations 10.61
        • g. Matters That Must Be Described in Proxy 10.62
        • h. Additional Proxy Requirements" Public Benefit and Mutual Benefit Corporations With 100 or More Members 10.63
        • i. Form: Proxy Distributed to Ten or More Members of Public Benefit or Mutual Benefit Corporation With 100 or More Members 10.64
        • j. Form: Proxy Distributed to Fewer Than Ten Members or to Members of Nonprofit Corporation With Fewer Than 100 Members 10.65
      • 3. Member Voting by Written Ballot
        • a. Authority to Vote by Written Ballot" Public Benefit and Mutual Benefit Corporations 10.66
        • b. Authority to Vote by Written Ballot" Religious Corporations 10.67
        • c. Form: Written Ballot to Amend Bylaws 10.68
        • d. Confidentiality of Written Ballots 10.69
        • e. Combining Written Ballot Solicitations With Membership Meetings 10.70
        • f. Members' Lack of Right to Demand Written Ballot Solicitations 10.71
      • 4. Provisions Restricting Manner of Voting Enforceable 10.72
      • 5. Action by Unanimous Written Consent of Members 10.73
      • 6. Authority of Corporation to Accept or Reject Proxies, Ballots, Consents, and Waivers 10.74
  • V. MEMBERSHIP MEETINGS
    • A. Regular Meetings
      • 1. Public Benefit and Mutual Benefit Corporations 10.75
      • 2. Religious Corporations 10.76
      • 3. Homeowners' Associations 10.77
    • B. Special Meetings 10.78
    • C. Notice Requirements for Membership Meetings 10.79
      • 1. Members Entitled to Receive Notice 10.80
      • 2. Time for Furnishing Notice
        • a. For Regular Member Meetings and Special Meetings Called by the Board 10.81
        • b. For Special Meetings Called by 5 Percent of Members 10.82
        • c. For Adjourned Meetings 10.83
      • 3. Contents of Notice
        • a. General Rule 10.84
        • b. Matters That Must Be Specified in Notice 10.85
        • c. Form: Notice of Meeting 10.86
      • 4. Service of Notice 10.87
      • 5. Defective Call or Notice 10.88
      • 6. Court Approval of Defective Notice 10.89
      • 7. Waiver of Notice
        • a. Methods of Waiving Notice 10.90
        • b. Form: Waiver of Notice and Consent 10.91
    • D. Quorum Requirements
      • 1. General Rule 10.92
      • 2. Public Benefit and Mutual Benefit Corporations 10.93
      • 3. Religious Corporations 10.94
      • 4. Homeowners' Associations 10.95
      • 5. Quorum of Less Than One-Third" Public Benefit and Mutual Benefit Corporations 10.96
      • 6. Descending Quorum Requirements 10.97
      • 7. Required Vote for Valid Action When Quorum Present 10.98
      • 8. Withdrawal of Members Leaving Less Than a Quorum 10.99
      • 9. Adjournment When Quorum Not Obtained 10.100
    • E. Adjournment" Public Benefit and Mutual Benefit Corporations 10.101
    • F. Who Can Attend Membership Meetings 10.102
  • VI. MEETINGS OR BALLOTS ORDERED BY COURT
    • A. Corporation Fails to Hold Meeting
      • 1. Regular Meetings" Public Benefit and Mutual Benefit Corporations 10.103
      • 2. Special Meetings 10.104
    • B. Corporation Unable to Hold Meeting or Obtain Member Approvals 10.105
    • C. Initiation of Court Proceedings
      • 1. Contents of Petition for Initiation of Court Proceedings 10.106
      • 2. Hearing and Notice of Hearing 10.107
  • VII. MEMBERS' INSPECTION RIGHTS
    • A. Inspection Rights Generally 10.108
    • B. Required Records Subject to Member Inspection 10.109
    • C. Timing for Inspection 10.110
    • D. What Constitutes Permitted Purpose 10.111
    • E. Statutory Protections Against Abuse of Inspection Rights 10.112
      • 1. Protection Against Improper Access by Authorized Number of Members" Public Benefit and Mutual Benefit Corporations 10.113
      • 2. Limitations on Access to Membership List to Protect Constitutional Rights" Public Benefit and Mutual Benefit Corporations 10.114
      • 3. Damages From Improper Use 10.115
      • 4. Corporation's Right to Seek Damages and Injunctive Relief 10.116
    • F. Enforcement of Inspection Rights
      • 1. Enforcement of Demand for Membership List" Public Benefit and Mutual Benefit Corporations 10.117
      • 2. Enforcement Remedies Available to All Members 10.118
      • 3. Criminal and Civil Sanctions for Improper Recordkeeping 10.119
      • 4. Attorney Fees" Public Benefit and Mutual Benefit Corporations 10.120
  • VIII. MEMBERS' OBLIGATIONS
    • A. Payments to Corporation
      • 1. Fees for Joining, Dues, Assessments 10.121
      • 2. Enforcing Members' Payment Obligations 10.122
    • B. Liability for Corporate Obligations 10.123
    • C. Ability of Corporate Creditors to Reach Amounts Owed by Members to Corporation 10.124
  • IX. TERMINATING MEMBERSHIPS
    • A. Resignation 10.125
    • B. Expiration of Membership 10.126
    • C. Expulsion, Suspension, or Termination
      • 1. Public Benefit and Mutual Benefit Corporations 10.127
        • a. Grounds for Expulsion, Suspension, or Termination 10.128
        • b. Procedure: Reasonable Requirements 10.129
        • c. Members' Remedies 10.130
      • 2. Terminating Membership" Religious Corporations 10.131
      • 3. Terminating Class of Memberships or All Memberships" Public Benefit Corporations 10.132
    • D. Redemption of Memberships" Mutual Benefit Corporations 10.133
  • X. TRANSFERRING MEMBERSHIPS
    • A. Public Benefit and Religious Corporations 10.134
    • B. Mutual Benefit Corporations 10.135
  • XI. MEMBERS' DERIVATIVE SUITS 10.136
  • XII. DISTRIBUTIONS TO MEMBERS
    • A. Definitions 10.137
    • B. Distributions on Dissolution 10.138
    • C. Restrictions on Distributions; Persons Liable for Violations
      • 1. Public Benefit Corporations Prohibited From Making Distributions 10.139
      • 2. Mutual Benefit Corporations May Make Distributions in Certain Situations 10.140
      • 3. Religious Corporations Prohibited From Making Distributions 10.141
      • 4. Suit Against Directors Who Approved Unlawful Distribution 10.142

11

Property Tax Exemption for Nonprofit Organizations

William C. Choi

Shannon M. Paresa

  • I. SCOPE OF CHAPTER 11.1
  • II. OVERVIEW 11.2
  • III. WELFARE EXEMPTION
    • A. Background 11.3
    • B. Requirements for Exemption 11.4
      • 1. Qualifying Organization 11.5
        • a. Religious, Hospital, Scientific, or Charitable Purpose 11.6
        • b. Not Organized or Operated for Profit; Safe Harbor for Hospitals 11.7
        • c. No Benefit to Private Individual 11.8
        • d. Acceptable Dissolution Clause and Statement of Irrevocable Dedication 11.9
          • (1) BOE Irrevocable Dedication Clauses 11.10
          • (2) Sample BOE Dissolution Clauses 11.11
        • e. Must Be Exempt Organization 11.12
        • f. Limited Liability Companies May Qualify 11.13
        • g. Limited Partnerships for Lower Income Housing May Qualify 11.13A
      • 2. Property Owned and Operated by Qualifying Organization 11.14
        • a. Property Operated by Nonqualifying Organization 11.15
        • b. Property Owned by Nonqualifying Organization 11.16
        • c. Long-Term Leases 11.17
        • d. Possessory Interests 11.18
      • 3. Exclusive Use for Qualifying Purposes 11.19
        • a. Qualifying Purposes 11.20
          • (1) Religious 11.21
          • (2) Hospital 11.22
            • (a) Outpatient Clinics 11.23
            • (b) Hospital Support Organizations 11.24
          • (3) Scientific 11.25
          • (4) Charitable 11.26
            • (a) Community Benefit Test 11.27
            • (b) Qualifying Educational Activities 11.28
            • (c) Property Used for Educational Broadcasting 11.29
            • (d) Nonqualifying Educational Activities 11.30
            • (e) Homes for the Aged 11.31
            • (f) Preservation of Nature 11.32
            • (g) Other Qualifying Activities 11.33
        • b. Property Used Exclusively for Qualifying Purposes 11.34
          • (1) "Exclusive Use" Defined: Incidental and Reasonably Necessary Standard 11.35
            • (a) Cases Finding Property to Be Exempt Under Incidental and Reasonably Necessary Standard 11.36
            • (b) Cases Finding Property to be Nonexempt Under Incidental and Reasonably Necessary Standard 11.37
          • (2) "Occasional Use" for Nonqualifying Purposes 11.38
          • (3) Housing 11.38A
        • c. Property in Use on January 1 Lien Date 11.39
          • (1) Unused Property 11.40
          • (2) Property Under Construction 11.41
        • d. Property Used for Actual Operation of Exempt Activity and Reasonably Necessary to Accomplishment of Exempt Purpose 11.42
          • (1) In General 11.43
          • (2) Fundraising Activities 11.44
            • (a) Occasional Fundraising Activities 11.45
            • (b) Examples of Occasional Fundraising Activities 11.46
              • (i) Examples of Nonqualifying Fundraising Activities 11.47
            • (c) Fundraising (and Other Income-Generating) Activities With Proceeds Taxable as Unrelated Business Taxable Income (UBTI) 11.48
            • (d) Partial Exemption Allowed 11.49
              • (i) Information Required 11.50
          • (3) Use of Property for Meetings Conducted by Other Exempt Organizations 11.51
        • e. Prohibition on Property Used to Benefit Private Person 11.52
        • f. Prohibition on Property Used for Fraternal, Lodge, or Social Club Purposes 11.53
    • C. Welfare Exemption Claim Process 11.54
      • 1. Organizational Clearance Certificate Filed With BOE 11.55
      • 2. Filing of Claim With County Assessor 11.56
        • a. Filing Date 11.57
        • b. Effect of Late Filing 11.58
      • 3. Review of Claim 11.59
      • 4. Challenging Denial of Claim 11.60
  • IV. CHURCH AND RELIGIOUS EXEMPTIONS
    • A. Welfare, Church, and Religious Exemptions Compared 11.61
    • B. Church Exemption 11.62
      • 1. Requirements for Exemption 11.63
        • a. Religious Worship 11.64
        • b. Exclusive Use Requirement 11.65
      • 2. Administrative Issues 11.66
    • C. Religious Exemption 11.67
  • V. MUSEUMS, LIBRARIES, AND EDUCATIONAL INSTITUTIONS
    • A. Museum/Library Exemption 11.68
      • 1. "Museum" and "Library" Defined 11.69
      • 2. Exemption for Leased Property 11.70
      • 3. Administrative Issues 11.71
    • B. Educational Institution Exemption 11.72
      • 1. Exclusive Use Requirement 11.73
        • a. Incidental Use for Noneducational Purposes 11.74
        • b. Residential Use of Property 11.75
      • 2. Exemption for Leased Property 11.76
      • 3. Administrative Issues 11.77

12

Required Tax Filings, Recordkeeping, Reporting, and Rights of Inspection

M. Carr Ferguson

Kenneth G. Coveney

Paul J. Dostart

  • I. SCOPE OF CHAPTER 12.1
  • II. REQUIRED TAX FILINGS
    • A. Reports and Returns to Internal Revenue Service
      • 1. Information That Must Be Furnished to IRS 12.2
      • 2. The IRS Form 990: Variations and Exceptions From Filing 12.3
        • a. IRS Form 990" Core Form 12.4
        • b. Glossary and Appendix 12.5
        • c. Schedule A (Form 990 or 990-EZ) 12.6
        • d. Schedule B (Form 990, 990-EZ, or 990-PF) 12.7
        • e. Schedule C (Form 990 or 990-EZ) 12.8
        • f. Schedule D (Form 990) 12.9
        • g. Schedule E (Form 990 or 990-EZ) 12.10
        • h. Schedule F (Form 990) 12.11
        • i. Schedule G (Form 990 or 990-EZ) 12.12
        • j. Schedule H (Form 990) 12.13
        • k. Schedule I (Form 990) 12.14
        • l. Schedule J (Form 990) 12.15
        • m. Schedule K (Form 990) 12.16
        • n. Schedule L (Form 990 or 990-EZ) 12.17
        • o. Schedule M (Form 990) 12.18
        • p. Schedule N (Form 990 or 990-EZ) 12.19
        • q. Schedule O (Form 990 or 990-EZ) 12.20
        • r. Schedule R (Form 990) 12.21
      • 3. IRS Form 990-EZ, Short Form Return of Organization Exempt From Income Tax 12.22
      • 4. IRS Form 990-T, Exempt Organization Business Income Tax Return 12.23
      • 5. IRS Form 990-PF, Private Foundation Annual Return 12.24
      • 6. IRS Form 990-W, Estimated Tax on Unrelated Business Income for Tax-Exempt Organizations 12.25
      • 7. IRS Form 8282, Donee Information Return 12.26
      • 8. Time for Filing Form 990 12.27
      • 9. IRS Form 8868, Application for Extension of Time to File Form 990 12.28
      • 10. IRS Form 990-N, Electronic Notice (e-Postcard) 12.29
      • 11. Penalties 12.30
    • B. Reports and Returns to Franchise Tax Board
      • 1. Required Filings 12.31
      • 2. Penalties for Failure to File 12.32
    • C. Reports to State Board of Equalization and County Assessor 12.33
    • D. Other Sanctions for False Information and Failing to Report 12.34
  • III. RECORDKEEPING
    • A. Records That Must Be Maintained
      • 1. Copies of Articles and Bylaws 12.35
      • 2. Books of Account, Minutes of Proceedings, and Membership Lists 12.36
      • 3. Waivers of Notice, Consents to Holding, and Approvals of Board Meetings 12.37
      • 4. Consents to Board Action Without Meeting 12.38
      • 5. Waivers of Notice, Consents to Holding, and Approvals of Membership Meetings 12.39
      • 6. Consents to Membership Action Without Meeting 12.40
      • 7. Tax Records: Returns by Tax-Exempt Organizations and Certain Nonexempt Organizations 12.41
    • B. Sanctions for Failing to Keep Records 12.42
  • IV. REPORTING
    • A. Summary of Reporting Requirements 12.43
    • B. Reports to Members and Directors
      • 1. Annual Report" Public Benefit Corporations 12.44
      • 2. Annual Report" Mutual Benefit Corporations 12.45
      • 3. Annual Report" Religious Corporations 12.46
      • 4. Accountant's Certification of Annual Reports" Public Benefit and Mutual Benefit Corporations 12.47
      • 5. Exemptions From and Alternatives to Annual Reports" Public Benefit and Mutual Benefit Corporations 12.48
      • 6. Annual Statement of Loans, Indemnifications, and Self-Dealing Transactions" Public Benefit and Mutual Benefit Corporations 12.49
      • 7. Special Rules for Certain Loans and Guaranties 12.50
      • 8. Methods of Reporting to Members" Public Benefit and Mutual Benefit Corporations 12.51
      • 9. Reports to Directors of Religious Corporations 12.52
      • 10. Reports by Entities Receiving $2 Million or More in Revenue 12.53
    • C. Reports to Secretary of State
      • 1. Biennial Statement 12.54
      • 2. Statement Designating New Agent for Service of Process 12.55
      • 3. Amendments to Articles and Restated Articles 12.56
    • D. Reports to Attorney General
      • 1. Through Registrar of Charitable Trusts 12.57
        • a. Corporations Required to Report 12.58
        • b. Entities Exempt From Filing Form RRF-1 12.59
        • c. Filing and Fee 12.60
        • d. Registration Requirements 12.61
        • e. Annual Reports 12.62
        • f. Mixed and Split-Interest Trusts 12.63
        • g. Reports Provide Accountability 12.64
        • h. Sanctions for Failing to File Report
          • (1) Revocation of Tax Exemption 12.65
          • (2) Other Sanctions 12.66
        • i. Reports Under Uniform Prudent Management of Institutional Funds Act 12.67
        • j. Filings With Registrar of Charitable Trusts Required on Basis of Fundraising Revenues and Expenditures 12.68
      • 2. Other Reporting Requirements: Articles of Incorporation, Certificates of Amendment, Mergers, and Disposition of Assets 12.69
    • E. Best Voluntary Reporting Practices
      • 1. Anti-Terrorist Financing Guidelines 12.70
      • 2. Voluntary Best Practices Under the Guidelines 12.71
      • 3. Crisis Management
        • a. Preparation Required 12.72
        • b. Best Voluntary Reporting Practices 12.73
  • V. RIGHTS OF INSPECTION
    • A. Inspection by General Public
      • 1. Inspection of IRS Form 990, Form 990-PF, and Form 990-T 12.74
        • a. Organizations to Which IRS Form 990, Form 990-PF, and Form 990-T Inspection Rights Apply 12.75
        • b. Nondisclosure of Contributors 12.76
        • c. Nondisclosure of Information Previously Withheld by Secretary of the Treasury 12.77
      • 2. Application for Tax-Exempt Status and Related Documents
        • a. Public Inspection at IRS Office 12.78
        • b. Public Inspection at Organization's Office
          • (1) Exemption Application and Supporting Papers 12.79
          • (2) Determination Letter
            • (a) Protected Information 12.80
            • (b) Other Matters Not Completely Open to Public Inspection 12.81
      • 3. Organization's Rights and Obligations Concerning Inspections and Requester's Right to Complain 12.82
      • 4. Harassment Limitation 12.83
      • 5. Making Documents Widely Available 12.84
      • 6. Obtaining Information Returns 12.85
    • B. Inspection by Members 12.86
    • C. Inspection by Directors 12.87
    • D. Inspection by Attorney General
      • 1. Through Registrar of Charitable Trusts 12.88
      • 2. Under Corporations Code 12.89
  • VI. BROWN ACT APPLICABILITY TO CALIFORNIA NONPROFITS
    • A. Overview of Ralph M. Brown Act 12.90
    • B. Nonprofit Corporation Activity Potentially Subject to Brown Act 12.91
    • C. "Meeting" Defined 12.92
    • D. Notice and Agenda Requirements
      • 1. Regular Meetings 12.93
      • 2. Special Meetings 12.94
      • 3. Emergency Meetings 12.95
      • 4. Closed-Session Meetings 12.96
    • E. Penalties and Remedies for Violation of Act
      • 1. Criminal Penalties 12.97
      • 2. Civil Remedies 12.98

13

Nonprofit Operations

Pamela S. Kaufmann

  • I. SCOPE OF CHAPTER: BEYOND SECURING NONPROFIT STATUS 13.1
  • II. EMPLOYMENT ISSUES
    • A. Employer Identification Number 13.2
    • B. Employer Taxes and Withholding
      • 1. Federal Taxes 13.3
        • a. IRS Form W-4 (Employee's Withholding Allowance Certificate) 13.4
        • b. IRS Form W-2 (Wage and Tax Statement) 13.5
        • c. Social Security Taxes (FICA) 13.6
        • d. Medicare Taxes 13.6A
        • e. Federal Unemployment Taxes (FUTA) 13.7
        • f. Deposit of Taxes
          • (1) Requirements 13.8
          • (2) Frequency of Deposits 13.9
        • g. Earned Income Credit Payments
          • (1) Advance Payments 13.10
          • (2) After-the-Fact Payments [Deleted] 13.11
        • h. Independent Contractors 13.12
      • 2. California Taxes 13.13
        • a. Registration With EDD; Report of New Employees and Independent Contractors 13.14
        • b. Wage Withholdings 13.15
        • c. Personal Income Taxes 13.16
        • d. State Unemployment Insurance Taxes 13.17
        • e. Section 501(c)(3) Organizations: Options for Financing Unemployment Insurance Costs 13.18
        • f. Employment Training Tax 13.19
        • g. State Disability Insurance (SDI) and Family Temporary Disability Insurance (FTDI) 13.20
        • h. Special Exemption for Certain Employees of Nonprofit Corporations 13.21
        • i. Single Rate Notice for UI, ETT, and SDI 13.22
        • j. Mandatory Electronic Filing and Payment 13.22A
        • k. Workers' Compensation Insurance 13.23
          • (1) Choosing an Insurer 13.24
          • (2) Using a Broker 13.25
          • (3) Self-Insurance and Other Alternatives to Commercial Insurance 13.26
          • (4) Covering Volunteers 13.27
        • l. Independent Contractors 13.28
        • m. Employer Tax Credits 13.29
      • 3. Local Payroll Taxes 13.30
    • C. Immigration and Naturalization 13.31
    • D. New Employee Registry 13.32
    • E. Access to Employment Records 13.33
    • F. Personnel Practices
      • 1. Survey of Applicable Laws 13.34
      • 2. Wage and Hour Laws
        • a. Federal Fair Labor Standards Act; California Wage Orders 13.35
        • b. Overtime 13.36
        • c. Bonuses and Severance Payments 13.36A
      • 3. Occupational Safety Requirements 13.37
      • 4. Nondiscrimination Laws 13.38
      • 5. Notices to Employees 13.39
      • 6. Employee Benefit Plans 13.40
        • a. Deferred Compensation and Retirement Plans 13.41
        • b. Health Plans 13.42
        • c. ERISA Requirements 13.43
        • d. Transportation Benefits 13.44
        • e. Health Reimbursement Arrangements and Health Savings Accounts 13.45
      • 7. Personnel Policies 13.46
      • 8. Family Medical Leave 13.47
  • III. OTHER TAXES 13.48
  • IV. LICENSES AND PERMITS
    • A. Federal Licenses and Consents 13.49
    • B. State and Local Licenses and Permits 13.50
      • 1. Seller's Permit 13.51
      • 2. Nonprofit Mailing Permit 13.52
      • 3. Local Licenses 13.53
    • C. Solicitation Permits 13.54
    • D. Commercial Driver's Licenses 13.55
  • V. INSURANCE 13.56
    • A. Officers' and Directors' Liability
      • 1. No Personal Negligence Liability If Nonprofit Is Insured 13.57
      • 2. Public Benefit Corporations That Attempt to Purchase Insurance 13.58
    • B. Types of Insurance
      • 1. Commercial General Liability 13.59
      • 2. Directors' and Officers' Liability Insurance 13.60
        • a. Coverage 13.61
        • b. Exclusions 13.62
      • 3. Workers' Compensation 13.63
      • 4. Professional Liability 13.64
      • 5. Cyber Insurance 13.64A
    • C. "Occurrence" Versus "Claims Made" Coverage 13.65
    • D. Exclusions and Endorsements 13.66
    • E. "Duty-to-Defend" Coverage 13.67
    • F. Obtaining Affordable Insurance 13.68
    • G. Establishing Relationship With Broker or Agent 13.69
    • H. Insurance Scarcity 13.70
    • I. Importance of Risk Management 13.71
  • VI. BANKING
    • A. Establishing Bank Account
      • 1. Selecting Bank 13.72
      • 2. Comparing Rates 13.73
      • 3. Selecting Signatories 13.74
    • B. Borrowing Funds 13.75
    • C. Report of Foreign Bank and Financial Account (FBAR) 13.75A
    • D. Due Diligence and Diversification 13.75B
  • VII. LEASES 13.76
    • A. Fair Market Considerations 13.77
    • B. Nonprofit Corporation as Lessor; Property Tax Issues 13.78
  • VIII. INTELLECTUAL PROPERTY RIGHTS 13.79
    • A. Trademarks and Service Marks 13.80
      • 1. Reasons for Seeking Trademark or Service Mark Protection 13.81
      • 2. Federal Marks 13.82
      • 3. California Marks 13.83
    • B. Corporate Names 13.84
    • C. Fictitious Business Names 13.85
    • D. Copyrights
      • 1. Definition; Eligible Works 13.86
      • 2. Registration; Copyright Notice 13.87
      • 3. Application Process; Duration 13.88
      • 4. No State Copyright Law 13.89
      • 5. Value of Copyright to Nonprofits 13.90
    • E. Patents
      • 1. Definition; Criteria 13.91
      • 2. America Invents Act 13.91A
      • 3. Registration; Duration 13.92
    • F. Trade Secrets 13.93
    • G. Special Restrictions on Certain Tax-Exempt Entities 13.94
    • H. E-Mail Policies 13.95
    • I. The Internet 13.96
    • J. Anti-Spam Law 13.97
    • K. Identity Theft 13.98
    • L. Social Media 13.98A
    • M. Corporate Governance 13.99
  • IX. CONTINUING COMPLIANCE 13.100

14

Regulation of Fundraising

Frederick R. Vandeveer

Carol K. Kao

Arthur M. Rieman

  • I. SCOPE OF CHAPTER 14.1
  • II. FEDERAL REGULATIONS
    • A. Solicitation of Deductible Contributions 14.2
      • 1. Substantiation Requirements" Disclosure and Information to Contributors 14.3
        • a. Form and Content of Substantiation Receipt 14.4
        • b. Timing of Disclosure 14.5
        • c. Exceptions for Low-Cost Articles and Membership Benefits 14.6
        • d. Special Substantiation Rules for Certain Types of Donations 14.7
        • e. Special Substantiation Rules for Vehicle Donations 14.8
          • (1) Substantiation Receipt Contents 14.9
          • (2) Delivering Substantiation Receipt and Filing IRS Form 1098-C 14.10
          • (3) Penalties 14.11
        • f. Form: Acknowledgment and Receipt for Charitable Contribution of More Than $250 14.12
      • 2. Quid Pro Quo Contributions" Disclosure and Information to Contributors 14.13
        • a. Form and Content 14.14
        • b. Safe Harbor" Low-Cost Articles 14.15
        • c. Safe Harbor" Membership Benefits 14.16
        • d. Timing of Disclosure 14.17
        • e. Form: Disclosure Statement for Quid Pro Quo Charitable Contributions 14.18
      • 3. Telemarketing Disclosures 14.19
      • 4. Appraisal and Sale Disclosure for Property Worth More Than $5000 14.20
      • 5. Violations and Penalties 14.21
    • B. Solicitation of Nondeductible Contributions 14.22
      • 1. Organizations Subject to Disclosure Requirements 14.23
      • 2. Fundraising Activities Subject to Disclosure Requirements 14.24
      • 3. Disclosure Requirements 14.25
        • a. Safe-Harbor Procedures for Mail and Other Print Media Solicitations 14.26
        • b. Safe-Harbor Procedures for Telephone Solicitations 14.27
        • c. Safe-Harbor Procedures for Television Solicitations 14.28
        • d. Safe-Harbor Procedures for Radio Solicitations 14.29
        • e. Safe-Harbor Procedures for Labor or Agricultural Organizations and Business Leagues 14.30
      • 4. Violations and Penalties 14.31
    • C. Sale of Information or Services Otherwise Available From Federal Agency 14.32
      • 1. Organizations Subject to Disclosure Requirements 14.33
      • 2. Activities Subject to Disclosure Requirements 14.34
      • 3. Disclosure Requirements 14.35
      • 4. Violations and Penalties 14.36
  • III. STATE AND LOCAL REGULATIONS
    • A. Solicitation of Gifts and Sales 14.37
      • 1. Disclosure and Licensing Requirements
        • a. Timing and Contents of Disclosure 14.38
        • b. Constitutional Challenges to Disclosure and Licensing Requirements 14.39
      • 2. Organizations and Activities Subject to Disclosure Requirements 14.40
      • 3. Timing and Form of Disclosure 14.41
      • 4. Exceptions to Disclosure Requirements
        • a. Nonsale Solicitations by Volunteers 14.42
        • b. Solicitations by Minor Volunteers 14.43
        • c. Solicitation of Members or on Organization's Premises; Bingo Games 14.44
      • 5. Solicitation or Sale for Charitable Purposes Card for Solicitations by Volunteer
        • a. Form: Title and Nature of Solicitation 14.45
        • b. Form: Deductibility of Contribution 14.46
        • c. Form: Solicitation for Law Enforcement, Firefighting, or Veterans Organizations 14.47
        • d. Form: Whether Soliciting Organization Will Benefit From Contribution 14.48
        • e. Form: Signature Block 14.49
      • 6. Local Ordinances 14.50
      • 7. Additional Financial Disclosures by Certain Charities 14.51
      • 8. Prohibited Acts and Practices 14.52
      • 9. Violations and Penalties 14.53
        • a. Monetary Penalty 14.54
        • b. Injunction or Other Civil Remedies 14.55
        • c. Criminal Enforcement 14.56
        • d. Penalty for False Representations 14.57
    • B. Commercial Fundraisers
      • 1. Required Disclosures 14.58
      • 2. Limit on Commercial Fundraiser's Fees 14.59
    • C. Commercial Coventurer Arrangements 14.59A
    • D. Solicitations of Salvageable Personal Property
      • 1. Organizations and Activities Subject to Regulation 14.60
      • 2. Receipts and Accounting 14.61
        • a. Motor Vehicle, Aircraft, and Vessel Donations 14.62
        • b. When Property Is Sold 14.63
      • 3. Required Identification Card 14.64
      • 4. Violations 14.65
    • E. Bingo and Similar Games 14.66
      • 1. Organizations Authorized to Conduct Bingo Games 14.67
      • 2. Location and Conduct of Bingo Games 14.68
      • 3. License and Other Fees 14.69
      • 4. Accounting and Use of Proceeds 14.70
      • 5. Lotteries, Casino Games, and Raffles
        • a. Lotteries 14.71
        • b. Casino Games 14.72
          • (1) Operating Limitations 14.73
          • (2) Revenue Restrictions 14.74
          • (3) Registration and Recordkeeping 14.75
        • c. Raffles 14.76
          • (1) Operating Limitations 14.77
          • (2) Registration and Recordkeeping 14.78
          • (3) Raffles Exempt From Governing Statute 14.79
        • d. Other Relevant Law
          • (1) Avoiding Illegal Lotteries 14.80
          • (2) Charitable Deduction for Raffle Tickets or Casino Chips 14.81
          • (3) Mailing Lottery Information or Lottery Tickets 14.82
      • 6. Violations and Penalties 14.83
    • F. Text Message Solicitations 14.84
    • G. City and County Regulations 14.85
  • IV. FOREIGN STATE FUNDRAISING SOLICITATION
    • A. Introduction 14.86
    • B. Jurisdiction 14.87
      • 1. General Rule 14.88
      • 2. Internet Solicitation and the Charleston Principles 14.89
    • C. Uniform Registration Statement 14.90

14A

Charitable Solicitation Permit and Licensing Information for California Cities and Counties

Elizabeth S. Bluestein

  • I. INTRODUCTION 14A.1
  • II. CHARITABLE SOLICITATION PERMIT AND LICENSING REQUIREMENTS FOR CALIFORNIA CITIES 14A.2
  • III. CHARITABLE SOLICITATION CONTACT INFORMATION FOR CALIFORNIA COUNTIES 14A.3

15

Charitable Giving

Jeffrey D. Davine

  • I. SCOPE OF CHAPTER 15.1
  • II. INCOME, ESTATE, AND GIFT TAX DEDUCTIONS
    • A. Income Tax Incentives
      • 1. Charitable Contribution Income Tax Deduction 15.2
      • 2. Gifts of Appreciated Property 15.3
      • 3. Contributions by Estates and Trusts 15.4
    • B. Gift and Estate Tax Deductions 15.5
  • III. TIMING OF DEDUCTIONS 15.6
    • A. No Deduction Until Payment Made 15.7
    • B. Conditional Gifts 15.8
    • C. Gifts by Check 15.9
    • D. Gifts by Credit Card 15.10
    • E. Gifts of Securities 15.11
    • F. Gifts of Real Property 15.12
    • G. Pledges and Other Promises 15.13
  • IV. LIMITATIONS ON DEDUCTIONS 15.14
    • A. Reduction Rules
      • 1. Ordinary Income Property 15.15
        • a. Special Rule for Qualified Contributions of Inventory 15.16
        • b. Scientific Property Used for Research 15.17
        • c. Contributions of Food Inventory 15.17A
        • d. Contributions of Book Inventories to Public Schools 15.17B
        • e. Contributions of Computer Inventory for Educational Purposes 15.17C
      • 2. Tangible Personal Property 15.18
      • 3. Capital Gain Property Donated to Private Foundations; Qualified Appreciated Stock 15.19
    • B. Quid Pro Quo Gifts 15.20
      • 1. Token Benefits 15.21
      • 2. Charity Auctions 15.22
      • 3. Raffle Tickets 15.23
      • 4. Bargain Sales 15.24
    • C. Percentage Limitations 15.25
      • 1. Contributions by Individuals of Property That Is Not Capital Gain Property
        • a. Gifts to Public Charities 15.26
        • b. Gifts to Private Foundations 15.27
      • 2. Contributions by Individuals of Property That Is Capital Gain Property
        • a. Gifts to Public Charities 15.28
        • b. Gifts to Private Foundations 15.29
      • 3. Ordering Rules 15.30
      • 4. Carryover of Excess Contributions 15.31
      • 5. Corporation Donors 15.32
      • 6. Estates and Trusts Donors 15.33
  • V. APPRAISAL REQUIREMENTS 15.34
    • A. Contributions Subject to Appraisal Requirements
      • 1. Property Valued at Over $5000 15.35
      • 2. Certain Securities 15.36
    • B. Qualified Appraisal 15.37
    • C. Appraisal Summary 15.38
    • D. Qualified Appraiser 15.39
  • VI. PRIVATE FOUNDATIONS 15.40
  • VII. GIFTS OF PARTIAL INTERESTS 15.41
    • A. Exception If Donor's Entire Interest Is Partial Interest 15.42
    • B. Exception for Undivided Portion of Donor's Entire Interest 15.43
    • C. Remainder in Residence or Farm 15.44
    • D. Qualified Conservation Contribution 15.45
    • E. Gift Annuities 15.46
  • VIII. SPLIT-INTEREST TRUSTS 15.47
    • A. Charitable Remainder Trusts 15.48
      • 1. Charitable Remainder Trust Spousal Waivers 15.49
      • 2. Tax Aspects 15.50
      • 3. Term 15.51
      • 4. Formulas for Distribution of Charitable Remainder Trusts
        • a. Annuity Trust 15.52
        • b. Unitrust 15.53
        • c. Net Income Unitrust 15.54
    • B. Pooled Income Funds 15.55
    • C. Charitable Lead Trusts 15.56
      • 1. Distributions 15.57
      • 2. Tax Consequences 15.58
    • D. Possible Liability in Connection With Split-Interest Gifts 15.59
      • 1. Fiduciary Duties to Donors 15.60
        • a. Overstatement of Expertise 15.61
        • b. Charities Serving as Trustees of Charitable Split-Interest Trusts 15.62
      • 2. Other Bases of Liability 15.63
      • 3. Damages 15.64
      • 4. Invalidity of Gift to Person Who Drafts Transfer Instrument 15.65
  • IX. DISASTER RELIEF 15.66
  • X. CALIFORNIA CONFORMITY 15.67

16

Management of Charitable Funds

M. Carr Ferguson

Kenneth G. Coveney

Paul J. Dostart

  • I. SCOPE OF CHAPTER 16.1
  • II. CHARACTERIZING INSTITUTIONAL FUNDS
    • A. Terminology 16.2
    • B. Types of Endowments
      • 1. True Endowment 16.3
      • 2. Term Endowment 16.4
      • 3. Quasi-Endowment 16.5
    • C. Nonendowed Funds 16.6
  • III. APPLICABLE LAW 16.7
    • A. Legal Basis for Charitable Trust Principle 16.8
      • 1. Coordination of Nonprofit Corporation Law and Trust Law 16.9
      • 2. Laws Relating to Religious Nonprofits 16.10
    • B. The Uniform Prudent Management of Institutional Funds Act (UPMIFA)
      • 1. Application of UPMIFA 16.11
      • 2. Contrast to Former Spending Rule for Endowments 16.12
      • 3. Definitions 16.13
      • 4. Standard of Care 16.14
      • 5. Release or Modification of Restrictions in Gift Instrument 16.15
        • a. Modification by Court Order 16.16
        • b. Release or Modification Without Court Order 16.17
    • C. Investment of Charitable Assets 16.18
    • D. Uniform Prudent Investor Act (UPIA) 16.19
  • IV. SPENDING AND INVESTMENT OF ENDOWMENT FUNDS 16.20
    • A. Spending Provisions
      • 1. UPMIFA Spending Provisions Generally 16.21
      • 2. Prudence Requirement 16.22
      • 3. Other Spending Requirements 16.23
      • 4. Spending Net Appreciation 16.24
    • B. Investment Provisions
      • 1. Basic Powers of Governing Board 16.25
      • 2. Standard of Care 16.26
        • a. Statutory Requirements 16.27
        • b. Policies and Practices 16.28
      • 3. Delegation of Investment Management 16.29
    • C. Endowment Gifts
      • 1. Accepting an Endowment Gift 16.29A
      • 2. Form: Model Corporate Resolution for Accepting a Gift With Donor-Imposed Time Restrictions and Use Restrictions 16.29B
  • V. SPENDING AND INVESTMENT OF NONENDOWMENT FUNDS
    • A. Spending Provisions 16.30
    • B. Investment Provisions 16.31
      • 1. Statutory Harmonization When an Institution Fund Is Held by a Public Benefit Corporation 16.32
      • 2. Investment Criteria 16.33
      • 3. Investment Criteria Safe Harbor 16.34
      • 4. Standard of Care 16.35
        • a. Standard of Care for Nonprofit Mutual Benefit Corporations 16.36
        • b. Standard of Care for Religious Corporations 16.37
  • VI. LITIGATION ISSUES
    • A. Standing in General 16.38
    • B. Persons With Clearly Established Standing
      • 1. Governor 16.39
      • 2. Attorney General 16.40
        • a. Statutory Authority Under Probate and Corporations Codes 16.41
        • b. Common Law Obligation to Enforce Trust 16.42
      • 3. Private Citizens [Deleted] 16.43
      • 4. Nonprofit Corporation or Officer or Director of Nonprofit Corporation 16.44
      • 5. Member of Nonprofit Corporation in the Name of the Corporation 16.45
      • 6. Settlor and Heirs of Settlor 16.46
      • 7. Persons With a Special Interest 16.47
      • 8. Person Granted Relator Status by Attorney General 16.48
    • C. Standards for Deciding When Use Restrictions Are Violated 16.49
    • D. Available Remedies
      • 1. Enjoin, Correct, Obtain Damages for Breach 16.50
      • 2. Apply Cy Pres Doctrine 16.51
      • 3. Petition for Writ of Mandamus 16.52
      • 4. Return Property to Donor's Estate or Heirs 16.53
  • VII. EFFECT OF BANKRUPTCY AND RECEIVERSHIP LAW ON INSTITUTIONAL FUNDS
    • A. Overview of Bankruptcy Law
      • 1. Eligibility 16.54
      • 2. Commencement of a Case 16.55
        • a. Voluntary Bankruptcy 16.56
        • b. Involuntary Bankruptcy 16.57
      • 3. The Bankruptcy Estate 16.58
      • 4. The Automatic Stay (11 USC §362) 16.59
      • 5. Executory Contracts (11 USC §365) 16.60
      • 6. Financial Accommodations 16.61
    • B. Overview of Receivership Law 16.62
      • 1. Federal Receivership 16.63
      • 2. California State Receivership 16.64
      • 3. Involuntary Proceedings Against Charity Permitted Under California Law 16.65
      • 4. Voluntary Dissolution Proceedings Under California Law 16.65A
    • C. Choosing Between Bankruptcy and Receivership 16.66
  • VIII. ASSETS REACHABLE BY CREDITORS
    • A. General Assets (Unrestricted Funds) 16.67
    • B. Quasi-Endowments 16.68
    • C. Assets Held by Nonprofit Corporation (Endowed Funds) 16.69
    • D. Assets Held by Independent Third Party Trustee 16.70

17

Taxation of Investment and Business Activities of Tax-Exempt Corporations

J. Patrick Whaley

Ofer Lion

  • I. SCOPE OF CHAPTER 17.1
  • II. SOURCES OF FUNDS 17.2
  • III. TAXATION OF INVESTMENT INCOME OF PRIVATE FOUNDATIONS
    • A. Taxation and Exemption From Taxation 17.3
    • B. Normal Tax Rates 17.4
    • C. Reduction in Tax 17.5
    • D. Net Investment Income 17.6
      • 1. Gross Investment Income 17.7
      • 2. Capital Gain Net Income 17.8
      • 3. Allowable Deductions 17.9
    • E. Reporting of Taxes 17.10
  • IV. RECAPTURE INCOME 17.11
  • V. UNRELATED BUSINESS INCOME TAX (UBIT)
    • A. Imposition of Tax 17.12
    • B. Organizations Subject to Tax 17.13
    • C. Definition of "Unrelated Trade or Business"
      • 1. Basic Test 17.14
      • 2. Elements of Basic Test
        • a. Trade or Business 17.15
          • (1) Comparison With Nonexempt Enterprises 17.16
          • (2) Profit Intent 17.17
          • (3) Operation as Part of Larger Enterprise 17.18
          • (4) Providing "Commercial Type" Insurance 17.19
        • b. Regularly Carried On 17.20
          • (1) Advertising Sales 17.21
          • (2) Single Occurrences 17.22
        • c. Relationship to Exempt Purpose 17.23
      • 3. Qualified Sponsorship Income 17.24
      • 4. Statutory Exceptions and Modifications 17.25
        • a. Use of Premiums in Soliciting Contributions 17.26
        • b. Activities Performed by Volunteers 17.27
        • c. Sale of Donated Merchandise 17.28
        • d. Income From Investment Transactions" Dividends, Interest, Annuities, Royalties, and Capital Gains 17.29
        • e. Mailing List Sales 17.30
        • f. Royalty Income From Mailing List Rentals, Logos, Affinity Cards, and Other Intangibles 17.31
        • g. Rental Income 17.32
          • (1) Personal Property Included 17.33
          • (2) Rental for Business Operations 17.34
        • h. Trade Shows, State Fairs, and Similar Activities 17.35
        • i. Bingo Games and Gambling 17.36
        • j. Income From Research 17.37
        • k. Activities for Convenience of Persons Related to Certain Organizations 17.38
        • l. Services Rendered Between Unrelated Hospitals 17.39
        • m. Insurance Income of Controlled Foreign Corporation 17.40
        • n. Dues Paid to Agricultural and Horticultural Organizations 17.41
        • o. Sales of Inventory Acquired From Certain Financial Institutions 17.42
        • p. Disposition of Brownfield Properties 17.43
      • 5. Internet Activities 17.44
    • D. Unrelated Debt-Financed Income 17.45
      • 1. Debt-Financed Property Defined 17.46
        • a. Property Used in Connection With Exempt Purposes 17.47
        • b. Property Used in Unrelated Trade or Business 17.48
        • c. Property Near Existing Facility 17.49
      • 2. Determining Debt-Financed Income Subject to Tax
        • a. Basic Formula 17.50
          • (1) What Is Acquisition Indebtedness?
            • (a) General Test 17.51
            • (b) Property Acquired Subject to Indebtedness 17.52
            • (c) Effect of Terminating Exempt Purpose of Property 17.53
            • (d) Exclusions 17.54
            • (e) Burden of Debt Not on Exempt Organization 17.55
          • (2) Determining Average Acquisition Indebtedness 17.56
          • (3) Determining Average Adjusted Basis 17.57
        • b. Offsetting Direct Expenses of Debt-Financed Property 17.58
    • E. Computing Tax on Unrelated Business Income 17.59
      • 1. Expenses and Deductions
        • a. Expenses Attributable to Unrelated Business 17.60
        • b. Charitable Deduction 17.61
        • c. Specific Deduction 17.62
        • d. Net Operating Loss 17.63
      • 2. Rate of Tax
        • a. Basic Rate 17.64
        • b. Alternative Minimum Tax 17.65
        • c. Returns and Estimated Taxes 17.66
    • F. Effect of Unrelated Business Income on Exempt Status 17.67
  • VI. OPERATING BUSINESS THROUGH ANOTHER ENTITY" CONTROLLED ENTITIES 17.68
    • A. Operating Through Corporations 17.69
      • 1. S Corporations 17.70
      • 2. Liquidation and Reorganization of Taxable Subsidiary Corporation 17.71
      • 3. Attributing Activities of Taxable Corporation to Exempt Organization 17.72
    • B. Operating Through Partnerships 17.73
    • C. Limited Liability Companies 17.74
  • VII. INVESTMENTS IN TAX SHELTERS 17.75
    • A. Disclosure Under IRC §6011 17.76
    • B. IRC §4965 Excise Taxes 17.77
    • C. Disclosure Under IRC §6033(a)(2) 17.78

18

Tax-Exempt Financing for Nonprofit Corporations

Jill S. Dodd

Jeff C. Nguyen

Megan A. Christensen

  • I. SCOPE OF CHAPTER 18.1
  • II. CORPORATE POWER TO BORROW 18.2
    • A. Terminology 18.3
    • B. Other Sources of Information 18.4
  • III. PARTIES TO A TAX-EXEMPT FINANCING 18.5
    • A. Issuer 18.6
    • B. Purchaser or Underwriter 18.7
    • C. Bond Counsel 18.8
    • D. Trustee 18.9
    • E. Credit Enhancement Provider and Swap Provider 18.10
  • IV. ELIGIBILITY FOR TAX-EXEMPT FINANCING
    • A. Need for Government Entity 18.11
    • B. Eligible Nonprofit Corporations 18.12
    • C. Eligible Costs 18.13
  • V. RESTRICTIONS ON TAX-EXEMPT FINANCING 18.14
    • A. Internal Revenue Code Requirements 18.15
      • 1. Private Business Use 18.16
        • a. Short-Term Contracts 18.17
        • b. Safe Harbor for Management and Service Contracts 18.18
        • c. Sponsored Research 18.19
        • d. Naming Privileges 18.20
        • e. Private Business Use Distinguished From Unrelated Business Taxable Income 18.21
      • 2. Arbitrage Bonds
        • a. Definition; Prohibition On 18.22
        • b. Rebate Rule 18.23
        • c. Exceptions to Rebate Rule 18.24
      • 3. Useful Life 18.25
      • 4. Reimbursement 18.26
      • 5. Spending Proceeds 18.27
      • 6. Change in Use 18.28
      • 7. Limitation on Amount of Outstanding Bonds 18.29
      • 8. Federal Guaranty Prohibition 18.30
      • 9. Qualified Bank Bonds and the American Recovery and Reinvestment Act of 2009 [Deleted] 18.30A
    • B. Securities Law Requirements
      • 1. Federal 18.31
      • 2. State 18.32
    • C. State Laws Governing Bond Issuance 18.33
  • VI. FINANCING STRUCTURES 18.34
    • A. Revenue Bonds 18.35
    • B. Certificates of Participation 18.36
    • C. Security Interests 18.37
      • 1. Revenue Pledge 18.38
      • 2. Deeds of Trust and Security Interests 18.39
      • 3. Endowment Funds and Other Cash Collateral 18.40
      • 4. Reserve Fund 18.41
    • D. Restrictive Covenants 18.42
  • VII. FINANCING PROCESS
    • A. Timing Considerations 18.43
    • B. Disclosure 18.44
    • C. Approvals 18.45
      • 1. Issuer 18.46
      • 2. TEFRA Approval 18.47
      • 3. Governing Body Approval
        • a. Reimbursement Resolution 18.48
        • b. Form: Reimbursement Resolution 18.49
        • c. Approving Resolution 18.50
        • d. Form: Approving Resolution 18.51
        • e. Form: Committee Approval 18.52
    • D. Pricing and Closing 18.53
  • VIII. TASKS FOR CORPORATE COUNSEL
    • A. In General 18.54
    • B. Disclosure and Due Diligence Investigation 18.55
    • C. Overall Transaction Advice 18.56
    • D. Liens 18.57
    • E. Opinion 18.58
    • F. Table: Time and Responsibility Schedule 18.59

19

Legislative and Political Activities

Gregory L. Colvin

Rosemary E. Fei

Eric K. Gorovitz

Lacey E. Keys

Lance H. Olson

  • I. SCOPE OF CHAPTER
    • A. Introduction 19.1
    • B. Lobbying and Candidate Electioneering 19.2
    • C. Chapter Organization 19.3
    • D. Table of Organizations and Activities 19.4
  • II. LOBBYING
    • A. Federal Tax Law: IRC §501(c)(3) Charities 19.5
      • 1. "Substantial Part" Test 19.6
        • a. What Constitutes Lobbying 19.7
        • b. How Much Lobbying Is "Substantial" 19.8
        • c. Reporting Lobbying Activities to IRS 19.9
      • 2. IRC §501(h) Election 19.10
        • a. Charities Eligible to Make Election 19.11
        • b. Procedure for Making or Revoking Election 19.12
        • c. Spending Limits 19.13
        • d. Penalties for Exceeding Limits 19.14
        • e. Activities Defined as Lobbying 19.15
          • (1) Direct and Grassroots Lobbying 19.16
          • (2) Excluded Activities 19.17
          • (3) Meaning of "Specific Legislation" 19.18
        • f. Exceptions to Definitions 19.19
        • g. Special Rules 19.20
          • (1) Ballot Measures 19.21
          • (2) Communicating With Members 19.22
          • (3) Affiliated Charities 19.23
          • (4) Mass Media Rule 19.24
          • (5) Subsequent Use Rule 19.25
        • h. Tracking Lobbying Expenditures 19.26
          • (1) Donations to Other Entities 19.27
          • (2) Mixed Purpose Communications 19.28
        • i. Reporting Lobbying Expenditures to IRS 19.29
        • j. Pros and Cons of Making §501(h) Election 19.30
      • 3. Lobbying Prohibition on Private Foundations 19.31
      • 4. Deductibility of Contributions 19.32
    • B. Federal Tax Law: Noncharitable Organizations
      • 1. Comparison With Charitable Organizations 19.33
      • 2. Scope of Lobbying 19.34
      • 3. Deductions: Disclosure and Tax
        • a. No Charitable Deduction; Required Statement in Solicitations 19.35
        • b. Business Deduction and Proxy Tax 19.36
    • C. California Tax Law 19.37
    • D. Nontax Laws Affecting Lobbying 19.38
      • 1. Federal
        • a. Lobbying Disclosure Act (LDA) 19.39
        • b. Rules Applicable to Federal Grantees 19.40
        • c. Executive Order 19.40A
      • 2. California
        • a. Ballot Measures 19.41
          • (1) Financial Disclosure Reports 19.42
          • (2) Recipient Committee Reports 19.43
            • (a) Triggering Recipient Report Requirement 19.43A
            • (b) Reporting Donors 19.43B
            • (c) No History of Contributions in California; Disclosure Requirement as Independent Expenditure Committee 19.43C
          • (3) Reporting Staff Time 19.44
          • (4) Reporting Member Communications 19.44A
          • (5) Electronic Filing Requirements 19.45
        • b. Other Lobbying 19.46
  • III. CANDIDATE ELECTIONEERING 19.47
    • A. Federal Tax Law: IRC §501(c)(3) Charities 19.48
      • 1. Scope of Prohibition: Speech and Attribution 19.49
      • 2. Permissible Election-Oriented Activities [Deleted] 19.49A
        • a. Voter Education 19.50
        • b. Issue Advocacy 19.51
          • (1) "Nonpartisan" Defined 19.52
          • (2) "Candidate" and "Public Office" Defined 19.53
          • (3) Acts of Others Attributed to the Charity 19.54
      • 3. Specific Activities 19.55
        • a. Voter Registration and Get-Out-the-Vote Efforts 19.56
        • b. Publishing Voting Records and Voter Guides 19.57
        • c. Candidate Forums and Debates 19.58
        • d. Efforts to Influence Candidates or Parties 19.59
        • e. Organizer or Candidate Training 19.60
        • f. Fundraising 19.61
        • g. Relationship to Candidates and Political Organizations 19.62
        • h. Internet Activities 19.63
      • 4. Comparing Candidate Electioneering With Issue Advocacy 19.64
      • 5. Consequences of Violating Prohibition 19.65
      • 6. Particular Organizations
        • a. Special Rules for Private Foundations 19.66
        • b. Special Rules for Churches 19.67
      • 7. Reporting to the IRS 19.68
    • B. Federal Tax Law: Noncharitable Organizations
      • 1. Comparison With Charitable Organizations 19.69
      • 2. Deductions: Disclosure and Tax 19.70
        • a. No Charitable Deduction; Required Statement in Solicitations 19.71
        • b. Business Deduction and Proxy Tax 19.72
      • 3. Limits on Candidate Electioneering 19.73
      • 4. Political Organizations, Funds, and PACs 19.74
        • a. Taxation of Political Organizations; Exempt Function Income 19.75
        • b. Educational and Lobbying Activities as Exempt Functions 19.76
        • c. Incorporating a Political Organization 19.77
        • d. Public Disclosure Rules
          • (1) Reporting Requirements 19.78
          • (2) Forms to Be Filed 19.79
        • e. Table: Filing Requirements for Political Entities 19.80
      • 5. Political Spending Tax on IRC §501(c) Groups 19.81
      • 6. Reporting to the IRS 19.82
    • C. California Tax Law 19.83
    • D. Nontax Laws on Candidate Electioneering
      • 1. Federal Law
        • a. Federal Election Law 19.84
          • (1) Prohibition on Expenditures to Influence Campaigns 19.85
          • (2) Electioneering Communications 19.86
          • (3) Independent Expenditures for Election of Federal Candidates 19.87
          • (4) Prohibition on Soliciting Funds for Organizations That Make Expenditures for Federal Election Activity 19.88
          • (5) Prohibition on Soliciting Funds for IRC §527 Organizations 19.89
          • (6) Restrictions on Fundraising by Federal Candidates 19.90
          • (7) Complying With Federal Election Law 19.91
        • b. Rules Applicable to Federal Grantees 19.92
      • 2. California Law 19.93
  • IV. USE OF AFFILIATED ORGANIZATIONS 19.94

20

Corporate Changes

Lisa A. Runquist

  • I. SCOPE OF CHAPTER 20.1
  • II. MAKING CORPORATE CHANGES 20.2
    • A. Statutory Scheme 20.3
    • B. Choosing Method of Restructuring or Dissolution 20.4
    • C. Attorney General Intervention 20.5
  • III. SALE OR DISPOSITION OF ASSETS 20.6
    • A. Required Approvals 20.7
    • B. Consideration 20.8
    • C. Notice to Attorney General
      • 1. When Required 20.9
      • 2. Contents of Notice 20.10
    • D. Certification of Instrument of Transfer
      • 1. Use and Effect 20.11
      • 2. Certificate of Approval of Sale of Assets
        • a. Form: Title; Identification of Parties 20.12
        • b. Form: Conveyance Approved 20.13
        • c. Form: Notice to Attorney General 20.14
        • d. Form: Members' Approvals 20.15
        • e. Form: Other Approvals 20.16
        • f. Form: Signature Block 20.17
    • E. Filing With the IRS 20.18
    • F. Abandonment of Sale of Assets 20.19
    • G. Special Rule for Health Facilities: Attorney General's Consent for Certain Transactions
      • 1. When Attorney General's Consent Required 20.20
      • 2. Substitution of Members 20.21
      • 3. Request for Waiver 20.22
      • 4. Notice to Attorney General
        • a. Filing Requirements 20.23
        • b. Contents of Notice 20.23A
      • 5. Attorney General's Duties on Receipt of Notice 20.24
  • IV. CONVERSIONS
    • A. General Rules 20.25
    • B. Changing For-Profit Corporation to Nonprofit Corporation
      • 1. Amendments to Articles 20.26
      • 2. Requirement to Apply for Exempt Status 20.27
    • C. Changing Nonprofit Corporation to Another Type of Corporation 20.28
    • D. Required Approvals 20.29
    • E. Property Held in Charitable Trust 20.30
    • F. Checklist: Contents of Request for Approval From Attorney General 20.31
    • G. Charitable Trust Requirements of Health Care Service Plans 20.32
    • H. Certificate of Amendment Changing Status
      • 1. Form: Title and Introduction 20.33
      • 2. Form: Member or Shareholder Approval 20.34
      • 3. Form: Public Benefit Corporation to Mutual Benefit, Business, or Social Purpose Corporation 20.35
      • 4. Form: Mutual Benefit Corporation to Public Benefit Corporation 20.36
      • 5. Form: Other Approvals 20.37
      • 6. Form: Declaration and Signatures 20.38
      • 7. Filing Requirements 20.39
    • I. Franchise Tax Payment 20.40
  • V. MERGERS
    • A. General Requirements
      • 1. Terminology 20.41
      • 2. Mergers Permitted 20.42
      • 3. Table: Role of Attorney General: Prior Consent or Notice 20.43
      • 4. Form: Letter to Attorney General With Copy of Merger Agreement 20.43A
      • 5. Contents of Notice 20.44
      • 6. Approval by Corporation or Business Entity 20.45
    • B. Merger Requirements
      • 1. Chart: Surviving Public Benefit Corporation 20.46
      • 2. Chart: Surviving Mutual Benefit Corporation 20.47
      • 3. Chart: Surviving Religious Corporation 20.48
    • C. Merger Agreements
      • 1. Required Contents 20.49
      • 2. Simple Merger Agreement 20.50
        • a. Form: Introduction and Parties 20.51
        • b. Form: Merger Terms 20.52
        • c. Form: Attestation and Signatures 20.53
      • 3. More Detailed Agreement of Merger 20.54
        • a. Form: Introduction 20.55
        • b. Form: Parties' Intent 20.56
        • c. Participating Corporations
          • (1) Form: Surviving Corporation 20.57
          • (2) Form: Disappearing Corporation 20.58
        • d. Form: Effective Date 20.59
        • e. Form: Approvals and Consents 20.60
        • f. Form: Statement of Merger 20.61
        • g. Form: Articles and Bylaws 20.62
        • h. Form: Directors and Officers 20.63
        • i. Form: Effect of Merger on Memberships 20.64
        • j. Form: Interim Provisions 20.65
        • k. Form: Termination or Abandonment 20.66
        • l. Form: Amendments to Agreement 20.67
        • m. Form: Governing Law 20.68
        • n. Form: Entire Agreement 20.69
        • o. Form: Counterparts 20.70
        • p. Form: Further Assurances 20.71
        • q. Form: Attestation and Signatures 20.72
      • 4. Certificate of Approval of Agreement of Merger
        • a. Form: Title; Identification of Parties 20.73
        • b. Form: Board Approval of Merger 20.74
        • c. Form: Member Approval of Merger 20.75
        • d. Form: Additional Required Approvals 20.76
        • e. Form: Attorney General Notice or Consent 20.77
        • f. Form: Approval of Commissioner of Business Oversight 20.78
        • g. Form: Declaration and Signatures 20.79
      • 5. Filing Requirements 20.80
      • 6. Effect of Merger 20.81
      • 7. Filing of Final Informational Returns by Disappearing Corporation 20.82
  • VI. PLANNING DISSOLUTIONS 20.83
  • VII. VOLUNTARY DISSOLUTIONS
    • A. Checklist: Procedures 20.84
    • B. Table: Dissolution Procedure Summary 20.85
    • C. Commencing Dissolution 20.86
      • 1. Initial Resolutions
        • a. Board of Director's Resolution to Wind Up and Dissolve
          • (1) Form: Intention to Wind Up and Dissolve Corporation 20.87
          • (2) Form: Corporation Without Members 20.88
          • (3) Form: Resolution to Wind Up and Dissolve 20.89
          • (4) Form: Members' Consent 20.90
          • (5) Form: Resolution for Certificate of Election to Wind Up and Dissolve 20.91
          • (6) Form: Resolution Authorizing Filing of Final Tax Returns 20.92
          • (7) Form: Resolution Permitting Other Necessary Actions 20.93
          • (8) Form: Introduction to Plan of Liquidation and Distribution of Assets 20.94
          • (9) Form: Resolution to Provide for Debts 20.95
          • (10) Form: Resolution to Set Aside Reserve 20.96
          • (11) Form: Resolution to Distribute Assets 20.97
          • (12) Form: Resolution Authorizing Necessary Instruments 20.98
        • b. Form: Resolution by Members Approving Dissolution 20.99
      • 2. Certificate of Election to Wind Up and Dissolve
        • a. Filing Requirements 20.100
        • b. Form: Certificate of Election to Wind Up and Dissolve (Optional Secretary of State Form ELEC NP) 20.101
        • c. Certificate of Election to Wind Up and Dissolve (Attorney-Drafted Form)
          • (1) Form: Title, Parties, and Election 20.102
          • (2) Form: Declaration and Signatures 20.103
      • 3. Notice to Attorney General
        • a. Attorney General's Role 20.104
        • b. Letter to Attorney General 20.105
          • (1) Form: Address and Salutation 20.106
          • (2) Form: Request for Waiver of Objections 20.107
          • (3) Form: Documents Enclosed 20.108
          • (4) Form: Nature of Corporate Assets 20.109
          • (5) Form: Assets Are Not Proceeds of Restricted Funds 20.110
          • (6) Form: Distribution of Assets 20.111
          • (7) Form: Distributees' Status 20.112
          • (8) Form: Closing and Signatures 20.113
      • 4. Tax Return Filing Obligation 20.114
    • D. Revoking Election 20.115
    • E. Procedure During Winding Up and Dissolution
      • 1. Board's Powers and Duties 20.116
      • 2. Form: Notice to Members and Creditors 20.117
      • 3. Payment of Liabilities and Distribution of Assets
        • a. Payment of Liabilities
          • (1) General Requirement 20.118
          • (2) Exceptions to Requirement 20.119
          • (3) Notice to Creditors
            • (a) Creditors' Responsibilities 20.120
            • (b) Form: Notice to Creditors 20.121
        • b. Distribution of Assets 20.122
      • 4. Court-Aided Dissolution 20.123
      • 5. Certificate of Dissolution
        • a. Procedure 20.124
        • b. Form: Certificate of Dissolution (Optional Secretary of State Form DISS NP) 20.125
        • c. Certificate of Dissolution (Attorney-Drafted Form)
          • (1) Form: Title; Identification of Parties 20.126
          • (2) Form: All Final Franchise Returns 20.127
          • (3) Form: Corporate Affairs Wound Up 20.128
          • (4) Form: Debts and Liabilities 20.129
          • (5) Form: Election to Dissolve 20.130
          • (6) Form: Distribution of Assets; Public Benefit or Religious Corporations 20.131
          • (7) Form: Distribution of Assets; Mutual Benefit Corporations 20.132
          • (8) Form: Statement of Dissolution 20.133
          • (9) Form: Declaration and Signatures 20.134
      • 6. Short Form Certificate of Dissolution
        • a. When Procedure Is Available 20.134A
        • b. Form: Short Form Certificate of Dissolution (Secretary of State Form DSF NP) 20.134B
      • 7. Court Order in Lieu of Filing Certificate of Dissolution 20.135
      • 8. Filing of Final Informational Returns 20.136
  • VIII. INVOLUNTARY DISSOLUTIONS 20.137
    • A. Grounds for Involuntary Dissolution
      • 1. General Grounds 20.138
      • 2. Additional Grounds for Dissolution Action by Attorney General 20.139
    • B. Who May File Complaint or Convert Proceedings 20.140
    • C. Parties to Action 20.141
    • D. Curative Steps Before Suit 20.142
    • E. Procedural Matters
      • 1. Jurisdiction of Court 20.143
      • 2. Notice to Creditors and Settlement of Claims 20.144
      • 3. Appointment of Receiver 20.145
      • 4. Decree of Dissolution and Other Orders 20.146
      • 5. Winding Up 20.147
      • 6. Order of Dissolution 20.148
  • IX. ADMINISTRATIVE DISSOLUTION 20.148A
  • X. POSTDISSOLUTION ACTIVITIES 20.149

21

Financial Accounting for Not-for-Profit Organizations

Nancy E. Shelmon

Joan M. Murphy

  • I. SCOPE OF CHAPTER 21.1
  • II. ACCOUNTING GUIDANCE
    • A. Terminology 21.2
    • B. The Hierarchy of Generally Accepted Accounting Principles (GAAP)
      • 1. FASB Accounting Standards Codification 21.3
      • 2. Fund Accounting 21.4
  • III. TRIAD OF RESPONSIBILITY FOR FINANCIAL ACCOUNTING AND REPORTING 21.5
    • A. Management 21.6
      • 1. Internal Controls 21.7
      • 2. Internal Reporting 21.8
      • 3. External Reporting 21.9
    • B. Board of Directors 21.10
      • 1. Audit Committee 21.11
      • 2. Investment Committee 21.12
      • 3. Internal Audit 21.13
    • C. External Auditors 21.14
  • IV. FINANCIAL ACCOUNTING AND REPORTING STARTS WITH INTERNAL CONTROLS 21.15
    • A. Definition of Internal Controls 21.16
    • B. Internal Control Components 21.17
      • 1. Control Environment 21.18
      • 2. Risk Assessment 21.19
      • 3. Control Activities 21.20
      • 4. Information and Communication 21.21
      • 5. Monitoring Activities 21.22
    • C. Communicating Internal Control Related Matters Identified in an Audit (AU-C 265) 21.23
    • D. Auditor's Communication With Those Charged With Governance (AU-C 260) 21.24
    • E. Internal Control Characteristics Unique to NPOs 21.25
    • F. Internal Controls in Anti-Fraud Programs 21.26
  • V. REPORTING AND DISCLOSURES IN FINANCIAL STATEMENTS
    • A. Combination Versus Consolidation 21.27
      • 1. ASC Topic 958–810" Not-for-Profit Entities: Consolidation 21.28
      • 2. Combined Financial Statements 21.29
      • 3. ASC Topic 958–805; Pushdown Accounting; Discontinued Operations 21.30
    • B. Financial Statement Requirements Under ASC Topic 958 21.31
      • 1. Statement of Financial Position 21.32
        • a. Sequence of Assets and Liabilities 21.33
        • b. Net Assets 21.34
      • 2. Statement of Activities 21.35
        • a. Results of Operations 21.36
        • b. Program Services and Supporting Activities 21.37
        • c. Release From Restrictions 21.38
      • 3. Statement of Cash Flows 21.39
        • a. Operating Activities 21.40
        • b. Investing Activities 21.41
        • c. Financing Activities 21.42
      • 4. Reporting Methodologies 21.43
      • 5. Issues Unique to NPOs
        • a. Contributions of Permanently Restricted Cash 21.44
        • b. Contributions of Securities 21.45
        • c. Contribution of Long-Lived Assets 21.46
        • d. Collections 21.47
          • (1) If Collections Are Not Capitalized 21.48
          • (2) If Collections Are Capitalized 21.49
      • 6. Statement of Functional Expenses 21.50
      • 7. Disclosures 21.51
        • a. Tax-Exempt Status 21.52
        • b. Net Asset Components 21.53
        • c. Pledges 21.54
        • d. Investment Unitization 21.55
        • e. Fundraising Expenses 21.56
        • f. Contributed Services 21.57
        • g. Split-Interest Agreements 21.58
      • 8. Information Used by Outside Parties 21.59
      • 9. External Versus Internal Reporting 21.60
  • VI. CONTRIBUTIONS, PLEDGES, AND NONCASH TRANSACTIONS 21.61
    • A. Contribution or Exchange Transaction? 21.62
    • B. Is Transaction Restricted, Unrestricted, Conditional, or Unconditional? 21.63
      • 1. Contributed Services 21.64
      • 2. Contributed Goods, Including Gifts in Kind 21.65
      • 3. Collections 21.66
      • 4. Split-Interest Agreements 21.67
  • VII. ACCOUNTING FOR INVESTMENTS, ENDOWMENTS, AND BOARD-DESIGNATED FUNDS (INCLUDING QUASI-ENDOWMENTS)
    • A. Valuation Guidance 21.68
      • 1. Investment Income 21.69
      • 2. Unrealized and Realized Gains and Losses 21.70
      • 3. Donor-Restricted Endowment Funds 21.71
      • 4. Disclosures 21.72
      • 5. Pooled Investments 21.73
      • 6. Spending Rate 21.74
    • B. Valuation Under ASC Topic 820 21.75
      • 1. "Fair Value" Under ASC Topic 820 21.76
      • 2. Key Definitions and Concepts 21.77
      • 3. Valuation Techniques 21.78
      • 4. Fair Value Disclosures 21.79
    • C. Fair Value Option Under ASC Topic 825 21.80
    • D. Other Valuations 21.81
  • VIII. AGENCY TRANSACTIONS AND INTERRELATED ORGANIZATIONS 21.82
  • IX. OTHER ACCOUNTING ISSUES FOR NONPROFIT ORGANIZATIONS
    • A. Federal and Government Funding 21.83
    • B. Federal Funding 21.84
    • C. Nonfederal Government Funding 21.85
      • 1. Tax-Exempt Financing 21.86
      • 2. Functional Expenses 21.87
      • 3. Fundraising Expenses and Joint Costs 21.88
      • 4. Special Events 21.89
      • 5. Allocation of Overhead Costs 21.90
  • X. ACCOUNTING FOR CERTAIN SPECIFIC NONPROFIT ORGANIZATIONS 21.91
    • A. Health Care Providers 21.92
    • B. Colleges and Universities 21.93
    • C. Governmental Colleges, Universities, and NPOs 21.94
    • D. Voluntary Health and Welfare Organizations 21.95
    • E. Private Foundations 21.96
  • XI. RECENT DEVELOPMENTS IN FINANCIAL ACCOUNTING AND REPORTING FOR NOT-FOR-PROFIT ORGANIZATIONS; IMPORTANT WEBSITES 21.97
  • XII. TABLES AND DIAGRAMS
    • A. Table: Indicators Useful in Distinguishing Contributions From Exchange Transactions 21.98
    • B. Table: Indicators Useful for Determining the Contribution and Exchange Portions of Membership Dues 21.99
    • C. Chart: Relationship With Another Not-for-Profit Organization 21.100
    • D. Table: Factors to Be Considered in Assessing Whether a Donor Has Made a Bona Fide Pledge to a Donee 21.101

22

Suspension, Forfeiture, and Revocation of Tax-Exempt Status

William C. Staley

  • I. SCOPE OF CHAPTER 22.1
  • II. BASIC CONCEPTS
    • A. Corporate Powers, Rights, and Privileges 22.2
    • B. Foreign Nonprofit Corporations Doing Business in California 22.3
    • C. Suspension, Restoration, and Revivor of Domestic Nonprofit Corporation 22.4
      • 1. Suspension by Secretary of State for Failure to File Statement of Information 22.5
      • 2. Suspension by FTB for Failure to File Return or Pay Taxes 22.6
      • 3. Revivor 22.7
      • 4. Restoration 22.8
    • D. Forfeiture of Foreign Nonprofit Corporation 22.9
    • E. Good Standing With the Secretary of State and Franchise Tax Board 22.10
    • F. Good Standing With the Registry of Charitable Trusts 22.10A
    • G. Suspension of Registration With the Registry of Charitable Trusts 22.10B
  • III. EFFECTS OF SUSPENSION OR FORFEITURE 22.11
    • A. Tax Returns and Exemption Applications 22.12
    • B. Corporate Name 22.13
    • C. Participation in Litigation 22.14
    • D. No Real Property Transfers 22.15
    • E. Contract Voidability and Relief From Contract Voidability 22.16
    • F. Summary of Actions Allowed and Prohibited to Suspended or Forfeited Nonprofit Corporation 22.17
  • IV. CONSEQUENCES FOR CALIFORNIA NONPROFIT CORPORATIONS
    • A. Consequences of Failure to File Statement of Information With Secretary of State 22.18
    • B. Consequences of Failure to File Form RRF-1 With California Attorney General 22.19
    • C. Consequences of Revocation of Registration With California Attorney General 22.19A
    • D. Reinstatement of Registration With California Attorney General 22.19B
    • E. Consequences of Failure to File Return With or Pay FTB 22.20
    • F. Revivor 22.21
    • G. Relief From Contract Voidability (RCV) 22.22
  • V. CONSEQUENCES FOR NON-CALIFORNIA NONPROFIT CORPORATIONS DOING BUSINESS IN CALIFORNIA
    • A. Consequences of Failure to Register with Secretary of State 22.23
    • B. Consequences of Failure to File Statement of Information With Secretary of State, After Registering 22.24
    • C. Consequences of Failure to File Form RRF-1 or Revocation of Registration With the Attorney General 22.25
    • D. Consequences of Failure to File Return With or Pay FTB 22.26
  • VI. MAINTAINING TAX-EXEMPT STATUS OF NONPROFIT CORPORATION 22.27
    • A. Effectiveness of Determination Letter 22.28
    • B. Revocation of Exempt Status 22.29
    • C. Reestablishment of Exempt Status
      • 1. Reestablishment of Federal Exemption 22.30
      • 2. Reestablishment of California Exemption 22.31

 

ADVISING CALIFORNIA NONPROFIT CORPORATIONS

(3d Edition)

June 2017

TABLE OF CONTENTS

 

File Name

Book Section

Title

CH01

Chapter 1

Attorney’s Role During Formation and Operation

01-003

§1.3

Should the Attorney Accept the Matter?

01-004

§1.4

Is a New Organization Necessary?

01-005

§1.5

Is There a Sound Business Plan: Program, Financing, People?

01-006

§1.6

Considering the Goals or Purposes of the Founders, Should the Organization Be a Nonprofit or Another Type of Organization?

01-008

§1.8

If Nonprofit, What Type of Entity Should It Be?

01-009

§1.9

In What State or Country Should It Be Organized?

01-012

§1.12

Is Income Tax Exemption Appropriate and Desirable?

01-014

§1.14

If the Entity Will Be an IRC §501(c)(3) Organization, Can It Qualify as a Public Charity Under IRC §509(a)?

01-021

§1.21

Table of Contents for Operating Manual

01-022

§1.22

Checklist: Areas Requiring Review

01-029

§1.29

Paragraph in Engagement Letter Confirming That Entity to Be Formed Will Be the Client

01-031

§1.31

Paragraph in Engagement Letter Confirming That Entity to Be Formed Will Be Separate Client

01-032

§1.32

Consent to Representation and Conflict Waiver Letter for Foundation Formed for Existing Client

CH03

Chapter 3

Planning for, Obtaining, and Maintaining Tax-Exempt Status

03-026

§3.26

Questionnaire: Creating Rebuttable Presumption of Reasonableness of Compensation

CH05

Chapter 5

Forming the Corporation and Beginning Operations

05-003

§5.3

Checklist: Formation of Nonprofit Corporation

05-008

§5.8

Consent to Use of Name

05-011

§5.11

Appointment of Initial Directors and Adoption of Bylaws

05-012

§5.12

Waiver of Notice and Consent to Holding First Meeting of Board of Directors

05-013

§§5.13-5.38

Heading and Participants

 

§5.14

Adoption of Waiver of Notice and Consent to Meeting

 

§5.15

Articles Filed

 

§5.16

Ratification of Actions by Incorporator

 

§5.17

Adoption of Bylaws

 

§5.18

Number of Directors

 

§5.18A

Election of Chair

 

§5.19

Election of Officers

 

§5.20

Corporate Seal

 

§5.21

Accounting Year

 

§5.22

Principal Office Location

 

§5.22A

Accounting Method

 

§5.23

Bank Account

 

§5.24

Membership Certificate

 

§5.25

Incorporation Expenses

 

§5.26

Exemptions From Federal and State Taxes

 

§5.26A

Registration With Attorney General

 

§5.27

Statement by Domestic Corporation

 

§5.28

Compliance With Local Solicitation Ordinances

 

§5.29

Compliance With Political Reform Act

 

§5.30

Issuance of Memberships and Establishment of Dues

 

§5.31

Application for Qualification or Registration of Offer and Sale of Membership Securities

 

§5.32

Employer Identification Number

 

§5.33

Nonprofit Mailing Permit

 

§5.34

Adoption of Conflict of Interest Policy

 

§5.35

Adoption of Policy for the Detection and Reporting of Fraudulent Activity (Whistleblower Policy)

 

§5.36

Approval of Consent to Use of Electronic Transmissions by Director or Officer

 

§5.38

Adjournment

05-039

§§5.39-5.64

Heading; Participants

 

§5.40

Articles of Incorporation

 

§5.41

Ratification of Actions by Incorporator

 

§5.42

Bylaws

 

§5.43

Number of Directors

 

§5.43A

Election of Chair

 

§5.44

Election of Officers

 

§5.44A

Accounting Year

 

§5.45

Principal Office Location

 

§5.46

Incorporation Expenses

 

§5.47

Authorization to File Applications for Tax Exemptions

 

§5.47A

Registration With Attorney General

 

§5.48

Authorization to Enter Into Contracts

 

§5.49

Authorization to Retain Counsel and Waive Conflicts

 

§5.50

Accounting Method

 

§5.51

Bank Account

 

§5.52

Admission of Members

 

§5.53

Compliance With Local Solicitation Ordinances

 

§5.54

Compliance With Political Reform Act

 

§5.55

Issuance of Memberships and Establishment of Dues

 

§5.56

Application for Qualification or Registration of Offer and Sale of Membership Securities

 

§5.57

Employer Identification Number

 

§5.58

Nonprofit Mailing Permit

 

§5.59

Adoption of Conflict of Interest Policy

 

§5.60

Approval of Policy for the Detection and Reporting of Fraudulent Activity (Whistleblower Policy)

 

§5.61

Approval of Consent to Use of Electronic Transmissions by Director or Officer

 

§5.62

Execution of Consent

 

§5.63

Corporation’s Policy on the Detection and Reporting of Fraudulent Activity (Whistleblower Policy)

 

§5.64

Consent to Use of Electronic Transmissions by Director or Officer

CH06

Chapter 6

Articles of Incorporation

06-003

§6.3

Checklist: Articles of Incorporation

06-008

§§6.8-6.15

Heading

 

§6.9

Name

 

§6.10

Purpose

 

§6.11

Optional Supporting Organization Provision

 

§6.12

Agent for Service of Process

 

§6.12A

Principal Office

 

§6.13

Tax-Exempt Status

 

§6.14

Signature Block

 

§6.15

Declaration; Incorporation of Existing Unincorporated Association

06-016

§§6.16-6.22

Heading

 

§6.17

Name

 

§6.18

Purpose

 

§6.19

Agent for Service of Process

 

§6.19A

Principal Office

 

§6.20

Tax-Exempt Status

 

§6.21

Signature Block

 

§6.22

Declaration; Incorporation of Existing Unincorporated Association

06-023

§§6.23-6.28

Heading

 

§6.24

Name

 

§6.25

Purpose

 

§6.26

Agent for Service of Process

 

§6.26A

Principal Office

 

§6.27

Tax-Exempt Status

 

§6.28

Signature Block

06-029

§6.29

Declaration; Incorporation of Existing Unincorporated Association

06-033

§6.33

Transmittal Letter

06-041

§6.41

Checklist: Contents of Request for Approval

06-043

§6.43

Incorporators’ Certificate of Amendment

06-044

§6.44

Officers’ Certificate of Amendment

CH07

Chapter 7

Bylaws

07-003

§§7.3-7.109A

Heading

 

§7.4

Name

 

§7.5

Principal Office of the Corporation

 

§7.6

General and Specific Purposes; Limitations

 

§7.7

Construction and Definitions

 

§7.8

Subordinate Corporation to Religious Entity

 

§7.9

Supporting Organization Under IRC §509(a)(3)

 

§7.10

Irrevocable Dedication of Assets

 

§7.11

Nonvoting Members

 

§7.13

Qualifications and Classes of Membership

 

§7.14

Rights of Membership

 

§7.15

Other Persons Associated With Corporation

 

§7.16

Members’ Dues, Fees, and Assessments

 

§7.17

Members in Good Standing

 

§7.18

Termination of Membership

 

§7.19

Suspension of Membership

 

§7.20

Termination or Suspension of Membership

 

§7.21

Transfer of Memberships

 

§7.22

Annual Meeting

 

§7.23

Place of Meeting

 

§7.24

Authority to Call Special Meetings

 

§7.25

Calling Special Meetings

 

§7.26

Proper Business of Special Meeting

 

§7.27

General Notice Requirements

 

§7.28

Notice of Certain Agenda Items

 

§7.29

Manner of Giving Notice

 

§7.30

Affidavit of Mailing Notice

 

§7.31

Quorum

 

§7.32

Eligibility to Vote

 

§7.33

Manner of Voting

 

§7.34

Number of Votes

 

§7.35

Approval by Majority Vote

 

§7.36

Waiver of Notice or Consent

 

§7.37

Action by Unanimous Written Consent

 

§7.38

Action by Written Ballot

 

§7.39

Solicitation of Written Ballots

 

§7.40

Number of Votes and Approvals Required

 

§7.41

Revoking Ballots

 

§7.42

Filing Ballots

 

§7.43

Record Date for Notice, Voting, Written Ballots, and Other Board Actions

 

§7.44

Record Date for Actions Not Set by Board

 

§7.45

Members’ Proxy Rights

 

§7.46

Solicited Proxies

 

§7.47

Subject Matter of Proxy to Be Stated

 

§7.48

Revocability of Proxies

 

§7.49

Adjournment and Notice of Adjourned Meetings

 

§7.51

General Powers

 

§7.52

Specific Powers

 

§7.53

Number of and Qualifications for Directors

 

§7.54

Restriction on Interested Persons as Directors (Public Benefit Corporations)

 

§7.55

Designated Directors

 

§7.57

Nominations by Committee

 

§7.58

Nominations by Members of Corporations With 500 to 4999 Members

 

§7.59

Nominations by Members of Corporations With 5000 or More Members

 

§7.60

Floor Nominations

 

§7.61

Nominee’s Right to Solicit Votes

 

§7.62

Use of Corporate Funds to Support Nominee

 

§7.63

Election of Directors (Religious Corporation)

 

§7.64

Events Causing Vacancies on Board

 

§7.65

Resignation of Directors

 

§7.66

Removal of Directors

 

§7.67

Vacancies Filled by Board

 

§7.68

Vacancies Filled by Members

 

§7.69

No Vacancy on Reduction of Number of Directors

 

§7.70

Place of Board Meetings

 

§7.71

Meetings by Telephone or Other Telecommunications Equipment

 

§7.72

Annual and Other Meetings

 

§7.73

Authority to Call Special Meetings

 

§7.74

Notice of Special Meetings

 

§7.75

Quorum

 

§7.76

Waiver of Notice

 

§7.77

Adjournment

 

§7.78

Notice of Adjourned Meeting

 

§7.79

Action Without a Meeting

 

§7.80

Compensation and Reimbursement

 

§7.80A

Director Voting

 

§7.81

Creation and Powers of Committees

 

§7.82

Audit Committee

 

§7.83

Compensation Committee

 

§7.84

Executive Committee

 

§7.85

Investment Committee

 

§7.86

Meetings and Action of Committees

 

§7.87

Offices Held

 

§7.88

Election of Officers

 

§7.89

Appointment of Other Officers

 

§7.90

Removal of Officers

 

§7.91

Resignation of Officers

 

§7.92

Vacancies in Office

 

§7.93

Chair of the Board

 

§7.94

President

 

§7.95

Vice Presidents

 

§7.96

Secretary

 

§7.97

Chief Financial Officer

 

§7.98

Contracts With Directors

 

§7.99

Loans to Directors and Officers

 

§7.100

Indemnification

 

§7.101

Insurance

 

§7.102

Maintenance of Corporate Records

 

§7.103

Membership Records

 

§7.104

Accounting Records and Minutes

 

§7.105

Maintenance and Inspection of Articles and Bylaws

 

§7.106

Directors’ Right to Inspect

 

§7.107

Annual Report

 

§7.108

Annual Statement of Certain Transactions and Indemnifications

 

§7.108A

Emergency Powers

 

§7.109

Private Foundation Restrictions

 

§7.109A

Supporting Organization Restrictions

07-116

§§7.116-7.121

Amendment by Board Subject to Limitation by Members

 

§7.117

Changes to Number of Directors

 

§7.118

Greater Vote Requirement

 

§7.119

Members’ Approval Required

 

§7.120

Amendment by Members

 

§7.121

Amendments to Religious Corporation’s Bylaws

07-122

§§7.122-7.169

Heading; Principal Office

 

§7.123

Objectives and Purposes

 

§7.124

Dedication of Assets

 

§7.125

General and Specific Powers of Directors

 

§7.126

Number of Directors

 

§7.127

Appointment and Term of Office of Directors

 

§7.128

Qualifications of Board Members

 

§7.129

Vacancies

 

§7.130

Place of Meeting; Meeting by Telephone or Other Telecommunications Equipment

 

§7.131

Annual Meeting

 

§7.132

Special Meetings

 

§7.133

Notice of Meetings

 

§7.134

Waiver of Notice

 

§7.135

Quorum

 

§7.136

Adjournment

 

§7.137

Notice of Adjournment

 

§7.138

Action Without Meeting

 

§7.139

Compensation of Directors

 

§7.140

Restriction on Interested Directors

 

§7.141

Creation and Powers of Committees

 

§7.142

Executive Committee

 

§7.143

Compensation Committee

 

§7.144

Advisory Committees

 

§7.145

Audit Committee

 

§7.146

Meeting and Action of Committees

 

§7.147

Offices Held

 

§7.148

Election of Officers

 

§7.149

Subordinate Officers

 

§7.150

Removal of Officers

 

§7.151

Resignation of Officers

 

§7.152

Vacancies in Office

 

§7.153

Responsibilities of Officers

 

§7.154

Maintenance of Articles and Bylaws

 

§7.155

Maintenance of Other Corporate Records

 

§7.156

Inspection by Directors

 

§7.157

Annual Report

 

§7.158

Financial Audit

 

§7.159

Right to Indemnification

 

§7.160

Insurance

 

§7.161

Contracts With Directors and Officers

 

§7.162

Loans to Directors and Officers

 

§7.163

Fiscal Year

 

§7.164

Amendments

 

§7.165

Members

 

§7.166

Private Foundation Restrictions

 

§7.167

Supporting Organization Restrictions

 

§7.167A

Emergency Provisions

 

§7.168

Construction and Definitions

 

§7.169

Certificate of Secretary

CH09

Chapter 9

Directors and Officers

09-071

§9.71

Notice of Meeting

09-072

§9.72

Call of Meeting

09-073

§9.73

Agenda of Meeting

09-075

§§9.75-9.84

Waiver of Notice

 

§9.76

Waiver and Consent in Lieu of Notice

 

§9.77

Approval of Minutes of Meeting

 

§9.84

Checklist: Preparation of Minutes

09-085

§§9.85-9.97

Introductory Statement

 

§9.86

Attendance and Quorum

 

§9.87

Chair and Secretary

 

§9.88

Notice

 

§9.89

Minutes of Last Meeting

 

§9.90

Election of Officers

 

§9.91

Adoption of Resolution

 

§9.92

Establishment of Executive Committee

 

§9.93

Establishment of Special Committees

 

§9.94

Amendment of Articles or Bylaws

 

§9.95

Adjournment or Recess to Another Time or Place

 

§9.96

Final Adjournment

 

§9.97

Submission and Approval

09-099

§§9.99-9.102

Unanimous Written Consent

 

§9.100

Directors’ Signing of Document

 

§9.101

Action Taken by Board

 

§9.102

Signature Block

09-141

§9.141

Checklist: Board Approval of Transactions With Interested Directors

09-142

§9.142

Minutes Reflecting Approval of Transaction—Public Benefit and Religious Corporations

CH10

Chapter 10

Members and Other Interested Persons

10-064

§10.64

Proxy Distributed to Ten or More Members of Public Benefit or Mutual Benefit Corporation With 100 or More Members

10-065

§10.65

Proxy Distributed to Fewer Than Ten Members or to Members of Nonprofit Corporation With Fewer Than 100 Members

10-068

§10.68

Written Ballot to Amend Bylaws

10-086

§10.86

Notice of Meeting

10-091

§10.91

Waiver of Notice and Consent

CH14

Chapter 14

Regulation of Fundraising

14-012

§14.12

Acknowledgment and Receipt for Charitable Contribution of More Than $250

14-018

§14.18

Disclosure Statement for Quid Pro Quo Charitable Contributions

14-026

§14.26

Safe-Harbor Procedures for Mail and Other Print Media Solicitations

14-027

§14.27

Safe-Harbor Procedures for Telephone Solicitations

14-028

§14.28

Safe-Harbor Procedures for Television Solicitations

14-029

§14.29

Safe-Harbor Procedures for Radio Solicitations

14-030

§14.30

Safe-Harbor Procedures for Labor or Agricultural Organizations and Business Leagues

14-045

§§14.45-14.49

Title and Nature of Solicitation

 

§14.46

Deductibility of Contribution

 

§14.47

Solicitation for Law Enforcement, Firefighting, or Veterans Organizations

 

§14.48

Whether Soliciting Organization Will Benefit From Contribution

 

§14.49

Signature Block

CH18

Chapter 18

Tax-Exempt Financing for Nonprofit Corporations

18-049

§18.49

Reimbursement Resolution

18-051

§18.51

Approving Resolution

18-052

§18.52

Committee Approval

CH20

Chapter 20

Corporate Changes

20-012

§§20.12-20.17

Title; Identification of Parties

 

§20.13

Conveyance Approved

 

§20.14

Notice to Attorney General

 

§20.15

Members’ Approvals

 

§20.16

Other Approvals

 

§20.17

Signature Block

20-031

§20.31

Checklist: Contents of Request for Approval From Attorney General

20-033

§§20.33-20.38

Title and Introduction

 

§20.34

Member or Shareholder Approval

 

§20.35

Public Benefit Corporation to Mutual Benefit, Business, or Social Purpose Corporation

 

§20.36

Mutual Benefit Corporation to Public Benefit Corporation

 

§20.37

Other Approvals

 

§20.38

Declaration and Signatures

20-043A

§20.43A

Letter to Attorney General With Copy of Merger Agreement

20-051

§§20.51-20.53

Introduction and Parties

 

§20.52

Merger Terms

 

§20.53

Attestation and Signatures

20-055

§§20.55-20.72

Introduction

 

§20.56

Parties’ Intent

 

§20.57

Surviving Corporation

 

§20.58

Disappearing Corporation

 

§20.59

Effective Date

 

§20.60

Approvals and Consents

 

§20.61

Statement of Merger

 

§20.62

Articles and Bylaws

 

§20.63

Directors and Officers

 

§20.64

Effect of Merger on Memberships

 

§20.65

Interim Provisions

 

§20.66

Termination or Abandonment

 

§20.67

Amendments to Agreement

 

§20.68

Governing Law

 

§20.69

Entire Agreement

 

§20.70

Counterparts

 

§20.71

Further Assurances

 

§20.72

Attestation and Signatures

20-073

§§20.73-20.79

Title; Identification of Parties

 

§20.74

Board Approval of Merger

 

§20.75

Member Approval of Merger

 

§20.76

Additional Required Approvals

 

§20.77

Attorney General Notice or Consent

 

§20.78

Approval of Commissioner of Business Oversight

 

§20.79

Declaration and Signatures

20-084

§20.84

Checklist: Procedures

20-087

§§20.87-20.98

Intention to Wind Up and Dissolve Corporation

 

§20.88

Corporation Without Members

 

§20.89

Resolution to Wind Up and Dissolve

 

§20.90

Members’ Consent

 

§20.91

Resolution for Certificate of Election to Wind Up and Dissolve

 

§20.92

Resolution Authorizing Filing of Final Tax Returns

 

§20.93

Resolution Permitting Other Necessary Actions

 

§20.94

Introduction to Plan of Liquidation and Distribution of Assets

 

§20.95

Resolution to Provide for Debts

 

§20.96

Resolution to Set Aside Reserve

 

§20.97

Resolution to Distribute Assets

 

§20.98

Resolution Authorizing Necessary Instruments

20-099

§20.99

Resolution by Members Approving Dissolution

20-102

§§20.102-20.103

Title, Parties, and Election

 

§20.103

Declaration and Signatures

20-106

§§20.106-20.113

Address and Salutation

 

§20.107

Request for Waiver of Objections

 

§20.108

Documents Enclosed

 

§20.109

Nature of Corporate Assets

 

§20.110

Assets Are Not Proceeds of Restricted Funds

 

§20.111

Distribution of Assets

 

§20.112

Distributees’ Status

 

§20.113

Closing and Signatures

20-117

§20.117

Notice to Members and Creditors

20-121

§20.121

Notice to Creditors

20-126

§§20.126-20.134

Title; Identification of Parties

 

§20.127

All Final Franchise Returns

 

§20.128

Corporate Affairs Wound Up

 

§20.129

Debts and Liabilities

 

§20.130

Election to Dissolve

 

§20.131

Distribution of Assets; Public Benefit or Religious Corporations

 

§20.132

Distribution of Assets; Mutual Benefit Corporations

 

§20.133

Statement of Dissolution

 

§20.134

Declaration and Signatures

 

Selected Developments

June 2017 Update

The IRS 2016–2017 Priority Guidance Plan includes a plan to update Rev Rul 67–390, 1067–2 Cum Bull 179, which may affect the requirement that a nonprofit unincorporated association that has obtained a tax exemption must reapply for exemption. Department of the Treasury, 2016–2017 Priority Guidance Plan, p 8 (Aug. 15, 2016). See §2.12.

A new requirement under the Protecting Americans From Tax Hikes Act of 2015 (PATH Act) (Pub L 114–113, 129 Stat 3118) provides that an IRC §501(c)(4) organization must notify the IRS of its name, address, and other information within 60 days of formation, and, to implement the requirement, the IRS has

  • Released temporary and proposed regulations explaining the notification system (Rev Proc 2016–41, 2016–30 Int Rev Bull 165);

  • Promulgated an electronic, online-only form of notice, IRS Form 8756 (Notice of Intent to Operate Under Section 501(c)(4));

  • Established a $50 user fee to file the form. See §§3.71A, 19.33.

The minimum amount a foundation must distribute in its taxable year ending in 2017 is 5 percent of the fair market value of its assets during the taxable year ending in 2016. Treas Reg §53.4942(a)–2(c)(1). See §4.37.

In response to the ruling in Jewish Community Ctrs. Dev. Corp. v County of Los Angeles (2016) 243 CA4th 700, the California Board of Equalization (BOE) now requires that an owner of property used on a regular basis by a different entity must submit certain affidavits with its first time or annual filings, and the BOE has promulgated forms to do so: Form BOE-267, Claim for Welfare Exemption (First Filing), and Form BOE-267-O, Welfare Exemption Supplemental Affidavit, Organizations and Persons Using Claimant's Real Property. See §11.14.

In 2016, the California Attorney General issued new regulations mandating reporting of information that charitable donors report on their Form 990s, but providing that the AG will keep the information confidential unless it is otherwise subject to public inspection. 11 CCR §310. See §12.7.

In 2017, the IRS released an updated Form 990-EZ that includes a series of "help" icons describing key information needed to complete many of the fields within the electronic form. IR–2017–14 (Jan. 31, 2017). See §12.22.

The unemployment tax rate for new employers in 2017 is 3.4 percent of each employee's wages up to $7000. Un Ins C §§930, 982. See §13.17.

Effective January 1, 2017, all California employers with ten or more employees must electronically submit all employee tax returns, wage reports, and payroll deposits to the Employment Development Department (EDD); all remaining employers must e-file and e-pay starting in January, 2018. Un Ins C §1088(h). See §13.22A.

California has created a Subsequent Injuries Benefits Trust Fund (AIBTF) for employees who had a disability at the time they were injured on the job. See http://www.dir.ca.gov/dwc/claims.html. See also §13.23.

The IRS has revised its form of Employment Eligibility Verification (IRS Form I-9); the new "smart" Form I-9 must be used as of January 22, 2017. See §13.31.

New rules proposed by the Wage and Hour Division of the Department of Labor for executive, administrative, and professional exemptions under the Fair Labor Standards Act (FLSA) were scheduled to go into effect on December 1, 2016 (81 Fed Reg 32391 (May 23, 2016)), but the new rules are currently on hold because in November 2016, a federal judge entered a nationwide preliminary injunction blocking them. Nevada v US Dept. of Labor (ED Tex, Nov. 22, 2016, No. 4:16–CV–00731) 2016 US Dist Lexis 162048. See §13.36.

Amendments effective in 2017 clarify that the California Equal Pay Law (Lab C §§1197.5, 1199.5) prohibits pay differences based on race or prior salary. Stats 2016, ch 856. See §13.38.

The Ninth Circuit held that to qualify for the church-plan exemption under the Employee Retirement Income Security Act of 1974 (ERISA) (29 USC §§1001–1461), a plan must have been established and maintained by a church or by a principal-purpose organization. Rollins v Dignity Health (9th Cir 2016) 830 F3d 900. See §13.43.

The values of goods or services of insubstantial value that an organization need not disclose, of token benefit amounts that are not taken into account to reduce charitable deductions, membership benefits, and various other low-cost amounts have been adjusted for 2017. Rev Proc 2016–55, 2016–45 Int Rev Bull 707. See §§14.15, 14.16, 15.21, 17.26, 17.41.

The IRS has modified the safe harbor criteria under which management and service contracts will not constitute private business use. Rev Proc 2016–44, 2016 Int Rev Bull 316, as modified, amplified, and superseded by Rev Proc 2017–13, 2017–6 Int Rev Bull 787. See §18.18.

President Trump has issued Executive Order No. 13770, prohibiting certain lobbying activities by federal appointees. Executive Order No. 13770 (Jan. 28, 2017); 82 Fed Reg 9333 (Feb. 3, 2017). See §19.40A.

The California Fair Political Practices Commission (FPPC) made several changes to the test for qualifying as a lobbyist. 2 Cal Code Regs §18236, FPPC Advice Letter (Nov. 14, 2016) File No. A-16-167. See §19.46.

The FPPC also amended a regulation to require more detailed reporting of "other payments to influence legislative or administrative action" on quarterly lobbyist employer and $5,000 filer reports. 2 Cal Code Regs §18616(f)(2). See §19.46.

In a case brought by the Republican Party of Louisiana, a three-judge panel upheld the BCRA ban on "soft money" contributions to political parties; the Republican Party of Louisana has filed a jurisdictional statement asking the United States Supreme Court to review the decision. Republican Party of La. v FEC (D DC 2015) 146 F Supp 3d 1. See §19.84.

California law was updated to transfer the reporting requirements for nonprofits that expend $50,000 or more related to issues advocacy to the Political Reform Act of 1974 (Govt C §§81000–91014) and to transfer enforcement responsibility for their reporting provisions from the Franchise Tax Board (FTB) to the FPPC. Govt C §84222.5 (Stats 2016, ch 825). See §19.93.

In March 2017, the FTB published the first FTB Nonprofit Administrative Dissolution/Surrender Notice period with the Secretary of State. See http://www.sos.ca.gov/business-programs/business-entities/ftb-admin-notice/. See also §20.148A.

A practice tip has been added in chap 21 advising nonprofits involved in partnership arrangements to consider FASB ASU Nos. 2015–02 and 2017–02, effective for fiscal years beginning after December 15, 2016, in determining the appropriate accounting arrangements. See §21.28.

The Financial Accounting Standards Board (FASB) has issued ASU No. 2016–14 (Presentation of Financial Statements of Not-for-Profit Entities), effective for fiscal years beginning after December 15, 2017, which, among other things, changes requirements for the statement of functional expenses and presentations of net asset classes and cash flows and also requires certain enhanced disclosures. See §21.87.

The Secretary of State has replaced the former Statement of Information – Foreign Corporation (Secretary of State Form SI-350) with Statement of Information – Foreign (Secretary of State Form SI-550); foreign nonprofit corporations must file this form with their first Statement of Information. See §22.3.

The IRS has issued a new Revenue Procedure setting forth procedures for determination letters, exempt status, private foundation status, and user fees, and combining those items" formerly in separate Revenue Procedures" into one. Rev Proc 2017–5, §12, 2017–1 Int Rev Bull 230. See §22.29.

About the Third Edition Authors

ELIZABETH S. BLUESTEIN, Vice President and General Counsel at Public Counsel in Los Angeles, is responsible for supervising and coordinating the operational work of Public Counsel's various legal programs and ensuring compliance with applicable corporate and legal requirements. Before 2009, Ms. Bluestein was the Directing Attorney of Public Counsel's Community Development Project. In that role, she provided a wide range of legal and capacity-building services to nonprofit community-based organizations. Ms. Bluestein is an adjunct professor at Loyola Law School Los Angeles, where she teaches a nonprofit tax and transaction clinic. She served as the chair of the California State Bar Association's Standing Committee on the Delivery of Legal Services from 2013–2014, and is an advisor to the State Bar Business Law Section's Nonprofit Organizations Committee. She is also a past Chair of the Exempt Organizations Committee of the Tax Section of the Los Angeles County Bar Association. Ms. Bluestein graduated from Harvard University, magna cum laude, in 1990, and received her J.D. in 1993 from the University of California, Berkeley, School of Law, where she was a member of the Order of the Coif. Before joining Public Counsel, Ms. Bluestein developed substantial transactional legal experience at the law firm of Sullivan & Cromwell LLP, where she represented clients in complex financing and acquisition transactions, and she gained extensive experience in transactional tax law at Gibson, Dunn & Crutcher LLP, advising and structuring transactions for clients including start up companies, real estate developers, multinational corporations, and nonprofit organizations. She is the author of chapter 14A (Charitable Solicitation Permit and Licensing Information for California Cities and Counties).

REYNOLDS T. CAFFERATA, a partner with the Los Angeles firm of Rodriguez, Horii, Choi & Cafferata LLP, advises charitable organizations and individuals regarding complex charitable gifts, charitable trusts, donor-advised funds, private foundations, support organizations, and other gift mechanisms and counsels corporate fiduciaries regarding the management of charitable trusts. He is a fellow of the American College of Trust and Estate Counsel and has served as chair of the Exempt Organizations Committee of the Los Angeles County Bar Association. He is also a frequent speaker on complex charitable gifts and trusts and has authored numerous articles on the subject. Mr. Cafferata received his B.A. from George Washington University (summa cum laude), and his J.D. from the University of Southern California, where he was a member of the Order of the Coif. He is an author of chapter 4 (Donor Funds, Private Foundations, and Supporting Organizations).

STEVEN J. CHIDESTER, a partner in the Rancho Santa Fe office of Luce, Forward, Hamilton & Scripps LLP, practices in the areas of estate planning, trust and estate administration, charitable giving, and the representation of tax-exempt organizations. Mr. Chidester has represented exempt organizations in civil and probate court and before states Attorneys General and also has considerable experience designing and using computer modeling to show the economic consequences of various estate planning and charitable giving techniques. He is a frequent writer and speaker on charitable giving issues. Mr. Chidester received his B.A. from Brigham Young University, cum laude, and his J.D. from Brigham Young University, magna cum laude, and clerked for the Honorable Gilbert S. Merritt in the Sixth Circuit Court of Appeals. Mr. Chidester is an author of chapter 1 (Attorney's Role During Formation and Operation).

WILLIAM C. CHOI, a member of the Los Angeles firm of Rodriguez, Horii, Choi & Cafferata LLP, specializes in the areas of tax-exempt organizations and state and local taxation. He has served as a member of the Executive Committee of the California State Bar Taxation Section and as Chair of the Exempt Organizations Committee, Taxation Section, of the Los Angeles County Bar Association. Mr. Choi received his B.S. (Highest Honors) from San Jose State University, and his J.D. from the University of Southern California, where he was a member of the law review. He is the author of chapter 11 (Property Tax Exemption for Nonprofit Organizations).

MEGAN M. CHRISTENSEN is a partner in the Washington, DC, office of Manatt, Phelps & Phillips, LLP. Her practice focuses on federal income taxation. She advises taxable and tax-exempt clients in a broad array of areas, including tax-exempt status, nonprofit governance, new markets and rehabilitation tax credits, and federal and state civil tax issues. She is a member of the District of Columbia Bar Association and the Business Law and Taxations Sections of the American Bar Association, and she is Vice Chair of the American Bar Association Business Law Section's Committee on Nonprofit Organizations. She has spoken and written widely on tax and tax-exempt matters. Ms. Christensen received her B.A. from The College of William & Mary in 1996, her J.D. from the Washington University School of Law in 2005, where she clerked for the majority tax counsel of the Senate Finance Committee, and an LL.M. from the New York University School of Law in 2006. She is an author of chapter 18 (Tax-Exempt Financing for Nonprofit Corporations).

LANI MEANLEY COLLINS, a partner at Collins & Associates, Santa Barbara, specializes in nonprofit and tax-exempt organizations and estate and trust planning and administration. Ms. Collins has over 30 years of experience in estate, gift, generation-skipping, and property tax planning and charitable planned giving. She has also acted as an outside "in-house counsel" to local, regional, and national tax-exempt organizations. She is a past chair of the Nonprofit Organizations Committee of the Business Law Section of the California State Bar and is immediate past president of the Estate Planning Council of Santa Barbara. She is a frequent speaker and instructor on estate planning and exempt and nonprofit organizations. Ms. Collins received her B.A. with highest honors from the University of California, Santa Barbara, where she was elected to Phi Beta Kappa, and her J.D. from Cornell Law School. She is a certified specialist in Estate Planning, Probate & Trust Law by the Board of Legal Specialization of the State Bar of California. Ms. Collins is an author of chapter 1 (Attorney's Role During Formation and Operation).

GREGORY L. COLVIN, a principal and Chair of the Board of the San Francisco firm of Adler & Colvin, a Law Corporation, specializes in nonprofit and tax-exempt law. He is the co-chair of the Subcommittee on Political and Lobbying Organizations and Activities of the Exempt Organizations Committee of the ABA Section of Taxation. Mr. Colvin is also an adjunct professor at the University of San Francisco Institute for Nonprofit Organization Management, author of numerous publications, and a frequent speaker at seminars on IRS political and lobbying rules. He received his A.B. (magna cum laude) from the University of Washington, where he was elected to Phi Beta Kappa, and his J.D. from Yale Law School, where he served on the Board of Editors of the Yale Law Journal. Mr. Colvin is an author of chapter 19 (Legislative and Political Activities).

KENNETH G. COVENEY is a partner at Dostart Clapp Hannick & Coveney, LLP, La Jolla, and an Adjunct Professor of Law in the University of San Diego Graduate Tax Program. Mr. Coveney's practice is devoted to estate and transfer tax planning, estate and trust administration, tax-exempt organizations, and general tax consultation, with a focus on the creation, protection, and disposition of client assets. Mr. Coveney earned a B.C.E. from Santa Clara State University; his law degree from Stanford University, where he was elected to the Order of the Coif; and his LL.M. in Taxation from New York University School of Law. He is an author of chapter 12 (Required Tax Filings, Recordkeeping, Reporting, and Rights of Inspection) and chapter 16 (Management of Charitable Funds).

JEFFREY D. DAVINE, a partner in the Los Angeles firm of Mitchell Silberberg & Knupp LLP, specializes in taxation, including representation of nonprofit entities and charitable gift planning. He chairs the Entertainment and Tax Committee of the Los Angeles County Bar Association Taxation Section and is past chair of the Los Angeles County Bar Association Young Tax Lawyers. He is a frequent writer on charitable giving and other taxation issues. He received his B.S. from the University of California, Berkeley, where he was elected to Phi Beta Kappa, and his J.D. from the University of California, Los Angeles, School of Law. Mr. Davine is the author of chapter 15 (Charitable Giving).

JILL S. DODD is a partner in the San Francisco office of Manatt, Phelps & Phillips, LLP. Her practice focuses on the representation of charitable organizations, and on trusts, estates, and wealth transfer planning for very high net worth individuals and families, with a particular emphasis on planned charitable giving. She acts as outside general counsel to charitable organizations of all sizes, from large community foundations to operating charities to private family foundations, and counsels very high net worth individuals in all aspects of gift, estate, and philanthropic planning. Ms. Dodd is immediate past president of the Board of Directors of the Northern California Planned Giving Council, was voted a "California Super Lawyer" for 2007 and 2008, and was voted one of the "Best Lawyers in America" for 2005–2009. She is a frequent speaker on charitable giving and nonprofit management issues. Ms. Dodd received her B.A. from Oberlin College (highest honors), where she was elected to Phi Beta Kappa, an M.A. from Harvard University, and her J.D. from the University of California, Berkeley, School of Law. Ms. Dodd is an author of chapter 18 (Tax-Exempt Financing for Nonprofit Corporations).

PAUL J. DOSTART is a partner in the La Jolla firm of Dostart Clapp Hannick & Coveney, LLP, and an Adjunct Professor of Law in the University of San Diego Graduate Tax Program. Mr. Dostart primarily counsels tax-exempt organizations on tax compliance, corporate governance, and fiduciary issues. He is a Life Fellow of the American Bar Foundation, a fellow of the American College of Tax Counsel, and former chair of the San Diego County Bar Association Tax Law Section. He is the 2009 chair of the Tax Exempt Organizations Committee of the California State Bar Taxation Section, and an officer of the Exempt Organizations Committee of the ABA Section of Taxation. Mr. Dostart received his B.S. from the University of Iowa, his J.D. from the University of Houston, and his LL.M. in Taxation from New York University. He is registered as a CPA in Illinois. He is an author of chapter 12 (Required Tax Filings, Recordkeeping, Reporting, and Rights of Inspection) and chapter 16 (Management of Charitable Funds).

CHERIE L. EVANS is a partner in the Berkeley firm of Evans & Rosen LLP. She primarily counsels nonprofit and tax-exempt organizations on corporate and tax law issues. Ms. Evans is a past chair of the Nonprofit Organizations Committee of the California State Bar Business Law Section. She received her B.A. (cum laude) from California Polytechnic State University, her J.D. from Pepperdine University School of Law, her LL.M. in Taxation (with honors) from Golden Gate University School of Law, and her LL.M. in French and European Community Law from Université Paris 1 Panthéon-Sorbonne. She is the Executive Editor of the book, as well as an author of chapter 2 (Choice of Entity Considerations). She also authored the Table of Corporations Code Default Provisions in chapter 7.

ROSEMARY E. FEI is a principal in the San Francisco firm of Adler & Colvin, a Law Corporation, and specializes in nonprofit and tax-exempt law, with emphasis on nonprofits' lobbying and partisan political activities and on corporate governance. Ms. Fei is on the Board of Directors of The Conservation Campaign; a member of the Exempt Organizations Committee of the ABA Section of Taxation; the former chair of the Board of Redefining Progress; and a former director of the Center for Lobbying in the Public Interest, CompassPoint Nonprofit Services, and The Marine Mammal Centers. She also serves on the Public Policy Steering Committee of Northern California Grantmakers. Ms. Fei frequently speaks on IRS political and lobbying rules and on corporate governance and fiduciary duties of nonprofit directors. She received her B.S. (summa cum laude) from The Wharton School, University of Pennsylvania, and her J.D. (cum laude) from Harvard Law School. Ms. Fei is an author of chapter 19 (Legislative and Political Activities).

M. CARR FERGUSON is senior counsel at Davis, Polk & Wardwell, New York, New York, and a visiting Professor of Law at the University of San Diego Graduate Tax Program. As a member of the Davis, Polk & Wardwell Tax Controversy Practice Group, his practice includes federal and international taxation of corporations and individuals, principally in the areas of business transactions, including sales, acquisitions, financing, and insolvency arrangements. Mr. Ferguson is a former trial attorney for the United States Department of Justice and served as the Assistant Attorney General of the United States in charge of the United States Department of Justice Tax Division. He was also a professor of law for many years at Iowa State University, Stanford University, and New York University, where he was the Charles L. Denison Professor of Law. Mr. Ferguson is the author of several books and articles on federal taxation. He is a member of the American Law Institute, a fellow of the American College of Tax Counsel, and former chair of the ABA Section of Taxation as well as the 2008 recipient of its Distinguished Service Award. Mr. Ferguson received a B.A. and an LL.B. from Cornell University and an LL.M. in taxation from New York University School of Law. He is an author of chapter 12 (Required Tax Filings, Recordkeeping, Reporting, and Rights of Inspection) and chapter 16 (Management of Charitable Funds).

ERIC K. GOROVITZ, a principal of the San Francisco firm Adler & Colvin, a Law Corporation, practices in the areas of nonprofit and tax-exempt legal issues, with an emphasis on political advocacy and nonprofit corporate governance. He has served as consumer attorney at Hersh & Hersh, San Francisco, and is a member of the California Political Attorneys Association, the ABA Section of Taxation, the California State Bar Association, and the Bar Association of San Francisco. Mr. Gorovitz has published and spoken widely on nonprofit legal and advocacy issues and has conducted many trainings for nonprofit organizations. He received his B.A. from Cornell University, his J.D. from Georgetown University Law Center, and his M.P.H. from Johns Hopkins University. He is an author of chapter 19 (Legislative and Political Activities).

CAROL K. KAO is a partner in the Rancho Santa Fe offices of Withers Bergman LLP, and specializes in estate planning, probate and trust administration, charitable giving, and nonprofit and tax-exempt organizations. She is a fellow in the American College of Trust and Estate Counsel. Ms. Kao is also a CPA in California. She is the past chair of the Tax Exempt Organizations Committee of the California State Bar Taxation Section. In addition, she is a former member of the Executive Committee of the California State Bar Trusts and Estate Section. Ms. Kao received her B.A. from the University of California, Los Angeles, and her J.D. from the University of Southern California. She is an author of chapter 14 (Regulation of Fundraising).

PAMELA S. KAUFMANN, a partner in the San Francisco firm of Hanson Bridgett LLP, specializes in nonprofit corporations and tax law, senior care and housing, and health care law. She is the Director of Sustainability and Charitable Giving at Hanson Bridgett, a former chair of the Tax Exempt Organizations Committee of the California State Bar Taxation Section, and a member and past chair of the Legal Committee of LeadingAge, the national trade association for nonprofit homes and services for the aging. Ms. Kaufmann frequently writes and speaks on issues of interest to the nonprofit and tax-exempt sector. She received her B.A. (with distinction in all subjects) from Cornell University and her J.D. from the University of Virginia. Ms. Kaufmann is the author of chapter 13 (Nonprofit Operations).

LACEY E. KEYS is a Senior Associate Attorney in the Sacramento firm of Olson Hagel & Fishburn LLP. She practices in the firm's political law group advising clients, including nonprofits and other organizations, on compliance with federal, state, and local campaign finance, election, lobbying, and governmental ethics laws. Ms. Keys is a member of the California Political Attorneys Association and serves as a board member and officer for the Sacramento Law Foundation and the Sacramento County Bar Association's Diversity Fellowship Program. Ms. Keys received her B.A. from the University of San Diego and her J.D. from the University of California, Hastings College of the Law. She is an author of chapter 19 (Legislative and Political Activities).

OFER LION is a partner in the Los Angeles office of Seyfarth Shaw LLP, where his practice focuses on tax-exempt organizations and nonprofits, including health care organizations, colleges and universities, academic and research institutions, public charities, private foundations, and private operating foundations. He has represented such institutions in a wide range of tax, transactional, corporate, governance, and fiduciary matters. Mr. Lion received his B.A. from Pennsylvania State University in 1997, and his J.D. from the University of California, Los Angeles, School of Law in 2002. He was named as a Super Lawyers Magazine "Southern California Rising Star" in 2011, 2012, and 2013. He is a member of the American Bar Association Tax Section, Exempt Organizations Committee, and is Co-Chair of that Committee's Subcommittee on Unrelated Business Income Tax (UBIT). He is also a member of the California State Bar Association Taxation Section, Tax-Exempt Organizations Committee, and is past Chair of the Los Angeles Bar Association, Exempt Organizations Practice Group. He has been quoted as a tax-exempt organizations authority in numerous news stories, including on NPR, in the New York Times, and in the Wall Street Journal, and taught a course in tax-exempt organizations as an adjunct professor at the University of California, Los Angeles, School of Law. Mr. Lion is an author of chapter 17 (Taxation of Investment and Business Activities).

JOAN M. MURPHY is an Assurance Partner at PwC, where she specializes in providing audit and accounting services for higher education and not-for-profit organizations, including private, public, and community foundations; colleges and universities; and governmental entities. Ms. Murphy is an instructor and editor of PricewaterhouseCoopers's governmental, higher education, and not-for-profit industry training courses. She has been a member of the planning committee for the AICPA's Financial Executive Forum for Not-for-Profit organizations, which is a national conference held annually. She also has been a moderator and panelist at several presentations hosted by this conference as well as other industry conferences. Ms. Murphy received her B.A. from Sonoma State University in 1983, and her California CPA license in March 1990. She is a member of the American Institute of Certified Public Accountants (AICPA) and the California Society of CPAs. She is a co-author of chapter 21 (Financial Accounting for Not-for-Profit Organizations).

JEFF C. NGUYEN, a partner in the San Francisco office of Manatt, Phelps & Phillips, LLP, specializes in the representation of tax-exempt organizations and advises a broad range of organizations on all aspects of their operations. He has represented tax-exempt organizations in resolving complex disputes with the IRS and state authorities, in obtaining IRS private letter rulings on novel issues, and in the acquisition of charitable subsidiaries and assets in the domestic and international arenas. He has served the charitable community in various volunteer capacities, including serving on several nonprofit governing boards and committees and advising a number of other charitable organizations on a pro bono basis. Mr. Nguyen received his B.S. from Oregon State University, his J.D. from the University of California, Hastings College of the Law, and his LL.M. from Golden Gate University. Mr. Nguyen is an author of chapter 18 (Tax-Exempt Financing for Nonprofit Corporations).

LANCE H. OLSON is a partner in the Sacramento firm of Olson Hagel & Fishburn LLP, where his practice areas include politics, elections, ethics, lobbying, campaign initiatives, and conflict of interest law. He served as an Adjunct Professor at the McGeorge School of Law, teaching election law from 1996 through 2004. He was a member of the Bi-Partisan Commission on the California Political Reform Act. He is a member and past president of the California Political Attorneys Association from 1989 to 1990 and a member of the Democratic National Committee National Lawyers Council. Mr. Olson received his B.A. from California State University, Sacramento, and his J.D. from the McGeorge School of Law, University of the Pacific. He is an author of chapter 19 (Legislative and Political Activities).

SHANNON M. PARESA, of counsel at the Los Angeles firm of Rodriguez, Horii, Choi & Cafferata LLP, practices in the areas of California nonprofit corporations law, federal and California tax exemption, and California state and local taxation. She received her B.B.A. from the University of Hawai'i at Manoa, and her J.D. from the University of California, Los Angeles, School of Law. She is an author of chapter 4 (Donor Funds, Private Foundations, and Supporting Organizations) and chapter 11 (Property Tax Exemption for Nonprofit Organizations).

STEPHANIE L. PETIT is a principal in the San Francisco law firm of Adler & Colvin, a Law Corporation, which specializes in the representation of nonprofit organizations and their donors, with an emphasis on tax and corporate matters. Ms. Petit serves as the editor of the Exempt Organizations Department of the Journal of Taxation and is a member of the ABA Section on Taxation. She has served as an adjunct faculty member at the University of San Francisco's Institute for Nonprofit Organization Management and regularly teaches continuing legal education classes and speaks on nonprofit law. Before joining Adler & Colvin, Ms. Petit practiced general business law and served as a law clerk to the Honorable Sidney R. Thomas of the U.S. Court of Appeals for the Ninth Circuit. Ms. Petit received her A.B. (cum laude) in 1995 from Princeton University and her J.D. in 1998 from the University of California, Berkeley, School of Law, where she was a member of the Order of the Coif and an associate editor of the California Law Review. She is an author of chapter 3 (Planning for, Obtaining, and Maintaining Tax-Exempt Status).

ARTHUR M. RIEMAN is a principal and managing attorney of The Law Firm for Non-Profits, P.C., Studio City. He specializes in nonprofit and exempt organization law. Mr. Rieman has served as a corporate lawyer and a plaintiff's employment and civil rights attorney, and as general counsel for a direct marketing firm. Before becoming a lawyer, he spent 6 years launching start-up telecommunications companies. Mr. Rieman received his MBA from the University of California, Los Angeles, and his J.D. in 1988 from the University of California, Los Angeles, School of Law. He co-founded The Cultural Planning Group, a nonprofits arts consulting firm, and has served on numerous nonprofits boards. Mr. Rieman writes and speaks frequently on nonprofit corporation operations and governance and is an author of chapter 14 (Regulation of Fundraising).

CARLEY A. ROBERTS, a partner at Sutherland Asbill & Brennan LLP, Sacramento, specializes in state and local tax matters, as well as multistate tax matters, with particular proficiency in income and franchise tax, sales and use tax, gross receipts tax, and local tax. Ms. Roberts was listed as a Leading Lawyer, State and Local Tax, Chambers USA (2007–2008 and 2011–2013), has been recognized as a Northern California Super Lawyer in the area of Tax (2011–2013), was the Recipient of the V. Judson Klein Award in 2013, was the Chair/Chair Emeritus of the California Tax Policy Conference (2007–2013), has been a member of the California State Bar Taxation Section Executive Committee (2007–2012), and currently serves as an advisor to the Taxation Section Executive Committee. Ms. Roberts received her B.S., with honors, in 1996 from Brigham Young University, and her J.D., with honors, in 1999 from the Pacific McGeorge School of Law. She is an author of chapter 8 (Sales and Use Tax).

BARBARA A. ROSEN, a partner with the Berkeley firm of Evans & Rosen LLP, advises nonprofit and tax-exempt organizations on governance and tax matters. She is a member and past chair of the Exempt Organizations Committee of the California State Bar's Taxation Section, a past member of the Executive Board of the Taxation Section, and a member of the ABA Taxation Section's Exempt Organizations Committee. She speaks and writes frequently on tax-exempt issues and is a co-author of several articles on these issues. She is an editor on Fishman & Schwarz, Nonprofit Organizations, Cases and Materials (2d ed 2001). Ms. Rosen is an associate member of, and professional advisor to, the Association of Small Foundations and is a member of the Northern California Planned Giving Council. She is an adjunct professor with the LL.M program of Golden Gate University and has taught at the University of California, Hastings College of the Law. Ms. Rosen received her B.A. from Indiana University in 1973, an M.S. in Taxation from Golden Gate University in 1987, and her J.D. from the University of California, Hastings College of the Law, in 2000. Ms. Rosen is licensed to practice law in California and is also a licensed California CPA. She is an author of chapter 2 (Choice of Entity Considerations).

CYNTHIA R. ROWLAND, a partner in the San Francisco firm of Farella Braun + Martel LLP, specializes in counseling tax-exempt organizations on tax and corporate law issues. She has written numerous articles on current tax laws and tax issues of interest to tax-exempt organizations and charitable donors, frequently organizes seminars for tax-exempt organizations and their advisers, and regularly lectures on topics in the field for the ABA Section of Business Law, the California State Bar, and other groups. Ms. Rowland is a past chair of both the Nonprofit Corporations Committee of the ABA Section of Business Law and the Tax Exempt Organizations Committee of the California State Bar Taxation Section. She received her B.B.A. in finance, with honors, from the University of Notre Dame, and her J.D. from the University of California, Hastings College of the Law. She is listed in Best Lawyers in America in the field of nonprofit/charities law. Ms. Rowland is the author of chapter 5 (Forming the Corporation and Beginning Operations), chapter 6 (Articles of Incorporation), and chapter 7 (Bylaws).

LISA A. RUNQUIST is a principal of the Northridge firm of Runquist & Associates, and specializes in nonprofit organizations. She is a past chair of the California State Bar Business Law Section Nonprofit Organizations Committee and of the ABA Section of Business Law Committee on Nonprofit Corporations, its Subcommittees on Current Developments in Nonprofit Corporation Law and on Religious Organizations, and the Section of Taxation Exempt Organizations Subcommittees on Religious Organizations, State and Local Regulation, and Non-(c)(3) Exempt Organizations. Ms. Runquist is also the author of numerous publications, most recently principal author and editor of Guide to Representing Religious Organizations (ABA 2009). In addition, she is the author of the ABC's of Nonprofits (ABA 2005), and is a frequent speaker at seminars on nonprofit organizations. She received her B.A. from Hamline University and her J.D. from the University of Minnesota. Ms. Runquist is the author of chapter 20 (Corporate Changes).

NANCY E. SHELMON, CPA, was a Senior Partner in the Not-For-Profit and Higher Education Services group of PricewaterhouseCoopers LLP. Before her retirement, Ms. Shelmon devoted her time at PwC to not-for-profit, higher education, and governmental entities. She received her B.S. in accounting from the University of Minnesota. She was a member of the American Institute of Certified Public Accountants (AICPA)'s Not-for-Profit Expert Panel from 2001 to 2011. In addition, Ms. Shelmon was chair of the AICPA planning committee for the Annual Not-for-Profit Conference and was a speaker and panelist at the organization's conferences from 2001 to 2011. She is a co-author of Gross, McCarthy & Shelmon, Financial and Accounting Guide for Not-for-Profit Organizations (8th ed 2012), published by Wiley & Sons. She was the lead speaker for 8 years at the California CPA Society's annual nonprofit conference, and drafted the current version of the AICPA publication, Not-for-Profit Entities" AICPA Audit and Accounting (2011). Ms. Shelmon was also a member of the group that developed the The AICPA Audit Committee Toolkit: Not-for-Profit Organizations (2010). She is Audit Chair for the Board of Directors of both the Los Angeles Urban League and the International Medical Corps. Ms. Shelmon is an author of chapter 21 (Financial Accounting for Not-for-Profit Organizations).

WILLIAM C. STALEY, Woodland Hills, practices primarily in the areas of tax planning and general business law for closely held businesses and nonprofit organizations. He focuses on structuring, negotiating, and documenting business start-ups, reorganizations, acquisitions, and dispositions, business succession planning, and obtaining rulings on tax issues. He has special expertise in organizing, restructuring, reviving, and dissolving nonprofit corporations and private foundations. He is a past chair of the Taxation Section of the Los Angeles County Bar Association and is a member of the California State Bar Taxation and Business Law Sections and the American Bar Association Taxation and Business Law Sections. Mr. Staley received his B.A. from California State University, Northridge, and his J.D. in 1981 from the University of California, Los Angeles, School of Law. He speaks frequently to groups of attorneys, accountants, and other business advisors. He is the author of chapter 22 (Suspension, Forfeiture, and Revocation of Tax-Exempt Status).

PATRICK B. STERNAL, formerly of the Los Angeles firm Runquist & Associates, works with nonprofit and business organizations, forming, maintaining, merging, and dissolving business and tax-exempt entities. He is the past chair of the Religious Organizations Subcommittee of the Nonprofit Corporations Committee of the ABA Section of Business Law, and a member of the Exempt Organizations Committee of the ABA Section of Taxation. He is also a member of the Exempt Organizations Committee of the California State Bar Taxation Section and the Nonprofit Organizations Committee of the California State Bar Business Law Section. He received his B.A. from Thomas Aquinas College, his J.D. from Ave Maria School of Law, and his LL.M. (with high distinction) from Loyola Law School. He is an author of chapter 2 (Choice of Entity Considerations).

FREDERICK R. VANDEVEER, a partner in the Rancho Santa Fe firm of Withers Bergman LLP, specializes in estate planning, probate and trust administration, and tax-exempt organizations. Mr. Vandeveer is a past chair of the Tax-Exempt Organizations Committee of the California State Bar Taxation Section and a fellow of the American College of Trust and Estates Council as well as a member of its Charitable Planning Committee. He received his B.A. from the University of Utah and his J.D. from Brigham Young University. Mr. Vandeveer is an author of chapter 14 (Regulation of Fundraising).

ROBERT A. WEXLER is a principal in the San Francisco law firm of Adler & Colvin, a Law Corporation, which specializes in the representation of nonprofit organizations and their donors, with an emphasis on tax and corporate matters. Mr. Wexler is an Instructor in Law at Stanford Law School, where he teaches the Law of Nonprofit Organizations, and he is also an Adjunct Instructor at the Institute for Nonprofit Organization Management at the University of San Francisco. He has served as a board member and officer on nonprofit boards, and he has been actively involved in the Volunteer Legal Services Program of the Bar Association of San Francisco. Mr. Wexler served as the editor of the Exempt Organizations Department of the Journal of Taxation for more than 10 years. He is a member of the ABA and an active participant of the Section of Taxation's Exempt Organization Committee, where he serves as co-chair of the Subcommittee on Unrelated Business Income Activities. Mr. Wexler received his B.A., magna cum laude, Phi Beta Kappa, from Brown University, and his J.D. from Columbia University. He is the author of chapter 3 (Planning for, Obtaining, and Maintaining Tax-Exempt Status) and also provided the Chart on Attributes of Corporations, Flexible Purpose Corporations, and Benefit Corporations in chapter 2.

J. PATRICK WHALEY, a partner in the Los Angeles firm of Musick, Peeler & Garrett LLP, specializes in taxation and nonprofit and charitable organizations. He has served as chair of the Exempt Organizations Committee of the ABA Section of Taxation and the Los Angeles County Bar Association. He is a frequent speaker about the various legal problems of tax-exempt organizations and has authored numerous articles on this subject. Mr. Whaley received his A.B. from Pomona College, his LL.B. from Stanford University, and his LL.M. from New York University. He is the former Executive Editor of this book, as well as an author of chapter 8 (Sales and Use Taxes) and chapter 17 (Taxation of Investment and Business Activities of Tax-Exempt Corporations).

GARY L. WOLLBERG, a partner in the San Diego office of Musick, Peeler & Garrett LLP, specializes in corporation law with a special expertise in representing nonprofit organizations in matters of formation, federal and state tax compliance, governance, capital financing, acquisitions, and dissolutions. He has served as chair of the Nonprofits Committee of the California State Bar Business Law Section, and has spoken and written frequently on corporations, nonprofit law, and business litigation. He received his B.A., summa cum laude, from the University of California, San Diego, and his J.D. from the University of California, Berkeley, School of Law. Mr. Wollberg is the author of chapter 9 (Directors and Officers) and chapter 10 (Members and Other Interested Persons).

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