Amended in Senate August 17, 2015

Amended in Assembly May 28, 2015

California Legislature—2015–16 Regular Session

Assembly BillNo. 557


Introduced by Assembly Member Irwin

February 23, 2015


An act to add Sections 5008.9, 6610.5, 8610.5, and 9680.5 to the Corporations Code, and to add Section 23156 to the Revenue and Taxation Code, relating to nonprofit corporations.

LEGISLATIVE COUNSEL’S DIGEST

AB 557, as amended, Irwin. Nonprofit corporations: abatement: dissolution: surrender.

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

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

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

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

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

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

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

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

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

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

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

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

Vote: majority. Appropriation: no. Fiscal committee: yes. State-mandated local program: yes.

The people of the State of California do enact as follows:

P4    1

SECTION 1.  

The Legislature finds and declares all of the
2following:

3(a) There are more than 150,000 nonprofit corporations in
4California that provide a variety of programs and services in areas
5as diverse as education, recreation, health care, legal, job training,
6and housing to millions of Californians. These organizations,
7depending on their formation status, are required to register with
8the office of the Secretary of State, the Franchise Tax Board, and
9the office of the Attorney General.

10(b) Every year, hundreds of nonprofit corporations seek
11administrative changes to expand their mission or alter their tax
12status, and, in some cases, to even go out of existence. This
13dissolution process, which involves the winding down of the
14nonprofit corporation’s affairs, is very cumbersome and protracted.

15(c) In order to more effectively analyze and monitor the status,
16finances, and activities of a nonprofit corporation, it is in the
17public’s interest to establish a streamlined process to efficiently
18dissolve a nonprofit corporation. The act of dissolving the nonprofit
19corporation and abating unpaid taxes, interest, and penalties serves
20a statewide public purpose by ensuring that nonprofit corporations
21that have been suspended or forfeited tax-exempt status are no
22longer able to do business in thebegin delete state, which will relieve the
23citizens of California from unknowingly donating to a nonprofit
P5    1corporation that is not complying with the laws of the state, and
2does not constitute a gift of public funds within the meaning of
3Section 6 of Article XVI of the California Constitution.end delete
begin insert state.end insert

4

SEC. 2.  

Section 5008.9 is added to the Corporations Code, to
5read:

6

5008.9.  

(a) A nonprofit corporation described in Section 5059,
75060, or 5061, or a foreign nonprofit corporation, as defined in
8Section 5053, that has qualified to transact intrastate business,
9shall be subject to administrative dissolution or administrative
10surrender in accordance with this section if, as of January 1, 2016,
11or later, the nonprofit corporation’s or foreign corporation’s
12corporate powers are, and have been, suspended or forfeited by
13the Franchise Tax Board for a period of not less than 48 continuous
14months.

15(b) Prior to the administrative dissolution or administrative
16surrender of the nonprofit corporation or foreign corporation, the
17corporation shall be notified of the pending administrative
18 dissolution or administrative surrender as follows:

19(1) The Franchise Tax Board shall mail written notice to the
20last known address of a nonprofit corporation or foreign
21corporation meeting the requirement described in subdivision (a).

22(2) If the nonprofit corporation or foreign corporation does not
23have a valid address in the records of the Franchise Tax Board,
24the notice provided in subdivision (d) shall be deemed sufficient
25notice prior to administrative dissolution or administrative
26surrender.

27(c) The Franchise Tax Board shall transmit to the Secretary of
28Statebegin insert and the Attorney General’s Registry of Charitable Trustsend insert the
29namesbegin insert and Secretary of State file numbersend insert of nonprofit corporations
30and foreign corporations subject to the administrative dissolution
31or administrative surrender provisions of this section.

32(d) The Secretary of State shall provide 60 calendar days’ notice
33of the pending administrative dissolution or administrative
34surrender on its Internet Web site by listing the corporation name
35and the Secretary of State’s file number for the nonprofit
36corporation or foreign corporation. The Secretary of State shall
37also, in conjunction with the information above, provide
38instructions for a nonprofit corporation or foreign corporation to
39submit a written objection of the pending administrative dissolution
40or administrative surrender to the Franchise Tax Board.

P6    1(e) (1) A nonprofit corporation or foreign corporation may
2provide the Franchise Tax Board with a written objection to the
3administrative dissolution or administrative surrender.

4(2) The Franchise Tax Board shall notify the Secretary of State
5if a written objection has been received.

6(f) If no written objection to the administrative dissolution or
7administrative surrender is received by the Franchise Tax Board
8during the 60-day period described in subdivision (d), the nonprofit
9corporation or foreign corporation shall be administratively
10dissolved or administratively surrendered in accordance with this
11section. The certificate of the Secretary of State shall be prima
12facie evidence of the administrative dissolution or administrative
13surrender.

14(g) (1) If the written objection of a nonprofit corporation or
15foreign corporation to the administrative dissolution or
16administrative surrender has been received by the Franchise Tax
17Board before the expiration of the 60-day period described in
18subdivision (d), that nonprofit corporation or foreign corporation
19shall have an additional 90 days from the date the written objection
20is received by the Franchise Tax Board to pay or otherwise satisfy
21all accrued taxes, penalties, and interest and to file a current
22Statement of Information with the Secretary of State.

23(2) (A) If the conditions in paragraph (1) are satisfied, the
24administrative dissolution or administrative surrender shall be
25canceled.

26(B) If the conditions in paragraph (1) are not satisfied, the
27nonprofit corporation or foreign corporation shall be
28administratively dissolved or administratively surrendered in
29accordance with this section as of the date that is 90 days after the
30receipt of the written objection.

31(3) The Franchise Tax Board may extend the 90-day period in
32paragraph (1), but for no more than one period of 90 days.

33(h) Upon administrative dissolution or administrative surrender
34in accordance with this section, the nonprofit corporation’s or the
35foreign corporation’s liabilities for qualified taxes, interest, and
36penalties as defined in Section 23156 of the Revenue and Taxation
37Code, if any, shall be abated. Any actions taken by the Franchise
38Tax Board to collect that abated liability shall be released,
39withdrawn, or otherwise terminated by the Franchise Tax Board,
40and no subsequent administrative or civil action shall be taken or
P7    1brought to collect all or part of that amount. Any amounts
2erroneously received by the Franchise Tax Board in contravention
3of this section may be credited and refunded in accordance with
4Article 1 (commencing with Section 19301) of Chapter 6 of Part
5 10.2 of Division 2 of the Revenue and Taxation Code.

6(i) If the nonprofit corporation or foreign corporation is
7administratively dissolved or administratively surrendered under
8this section, the liability to creditors, if any, is not discharged. The
9liability of the directors of, or other persons related to, the
10administratively dissolved or administratively surrendered
11nonprofit corporation or foreign corporation is not discharged. The
12administrative dissolution or administrative surrender of a nonprofit
13corporation or foreign corporation pursuant to this section shall
14not diminish or adversely affect the ability of the Attorney General
15to enforce liabilities as otherwise provided by law.

16

SEC. 3.  

Section 6610.5 is added to the Corporations Code, to
17read:

18

6610.5.  

(a) Notwithstanding any other provision of this
19division, when a corporation has not issued any memberships, a
20majority of the directors, or, if no directors have been named in
21the articles or have been elected, the incorporator or a majority of
22the incorporators, may sign and verify a certificate of dissolution
23stating all of the following:

24(1) That the certificate of dissolution is being filed within 24
25months from the date the articles of incorporation were filed.

26(2) That the corporation does not have any debts or other
27liabilities, except as provided in paragraph (3) and subdivision (d).

28(3) That the tax liability will be satisfied on a taxes-paid basis
29or that a person or corporation or other business entity assumes
30the tax liability, if any, of the dissolving corporation and is
31responsible for additional corporate taxes, if any, that are assessed
32and that become due after the date of the assumption of the tax
33liability.

34(4) That a final franchise tax return, as described by Section
3523332 of the Revenue and Taxation Code, has been or will be filed
36with the Franchise Tax Board as required under Part 10.2
37(commencing with Section 18401) of Division 2 of the Revenue
38and Taxation Code.

39(5) That the corporation was created in error.

P8    1(6) That the known assets of the corporation remaining after
2payment of, or adequately providing for, known debts and liabilities
3have been distributed as required by law or that the corporation
4acquired no known assets, as the case may be.

5(7) That a majority of the directors, or, if no directors have been
6named in the articles or have been elected, the incorporator or a
7majority of the incorporators authorized the dissolution and elected
8to dissolve the corporation.

9(8) That the corporation has not issued any memberships, and
10if the corporation has received payments for memberships, those
11payments have been returned to those making the payments.

12(9) That the corporation is dissolved.

13(b) A certificate of dissolution signed and verified pursuant to
14subdivision (a) shall be filed with the Secretary of State. The
15Secretary of State shall notify the Franchise Tax Boardbegin insert and the
16Attorney General’s Registry of Charitable Trustsend insert
of the dissolution.

17(c) Upon filing a certificate of dissolution pursuant to
18subdivision (b), a corporation shall be dissolved and its powers,
19rights, and privileges shall cease.

20(d) Notwithstanding the dissolution of a corporation pursuant
21to this section, its liability to creditors, if any, is not discharged.
22The liability of the directors of, or other persons related to, the
23dissolved corporation is not discharged. The dissolution of a
24corporation pursuant to this section shall not diminish or adversely
25affect the ability of the Attorney General to enforce liabilities as
26otherwise provided by law.

27

SEC. 4.  

Section 8610.5 is added to the Corporations Code, to
28read:

29

8610.5.  

(a) Notwithstanding any other provision of this
30division, when a corporation has not issued any memberships, a
31majority of the directors, or, if no directors have been named in
32the articles or have been elected, the incorporator or a majority of
33the incorporators, may sign and verify a certificate of dissolution
34stating the following:

35(1) That the certificate of dissolution is being filed within 24
36months from the date the articles of incorporation were filed.

37(2) That the corporation does not have any debts or other
38liabilities, except as provided in paragraph (3) and subdivision (d).

39(3) That the tax liability will be satisfied on a taxes-paid basis,
40or that a person or corporation or other business entity assumes
P9    1the tax liability, if any, of the dissolving corporation and is
2responsible for additional corporate taxes, if any, that are assessed
3and that become due after the date of the assumption of the tax
4liability.

5(4) That a final franchise tax return, as described by Section
623332 of the Revenue and Taxation Code, has been or will be filed
7with the Franchise Tax Board as required under Part 10.2
8(commencing with Section 18401) of Division 2 of the Revenue
9and Taxation Code.

10(5) That the corporation was created in error.

11(6) That the known assets of the corporation remaining after
12payment of, or adequately providing for, known debts and liabilities
13have been distributed as required by law or that the corporation
14acquired no known assets, as the case may be.

15(7) That a majority of the directors, or, if no directors have been
16named in the articles or have been elected, the incorporator or a
17majority of the incorporators authorized the dissolution and elected
18to dissolve the corporation.

19(8) That the corporation has not issued any memberships, and
20if the corporation has received payments for memberships, those
21payments have been returned to those making the payments.

22(9) That the corporation is dissolved.

23(b) A certificate of dissolution signed and verified pursuant to
24subdivision (a) shall be filed with the Secretary of State. The
25Secretary of State shall notify the Franchise Tax Boardbegin insert and the
26Attorney General’s Registry of Charitable Trustsend insert
of the dissolution.

27(c) Upon filing a certificate of dissolution pursuant to
28subdivision (b), a corporation shall be dissolved and its powers,
29rights, and privileges shall cease.

30(d) Notwithstanding the administrative dissolution of a
31corporation pursuant to this section, its liability to creditors, if any,
32is not discharged. The liability of the directors of, or other persons
33related to, the administratively dissolved corporation is not
34discharged. The dissolution of a corporation pursuant to this section
35shall not diminish or adversely affect the ability of the Attorney
36General to enforce liabilities as otherwise provided by law.

37

SEC. 5.  

Section 9680.5 is added to the Corporations Code, to
38read:

39

9680.5.  

(a) Notwithstanding any other provision of this
40division, when a corporation has not issued any memberships, a
P10   1majority of the directors, or, if no directors have been named in
2the articles or been elected, the incorporator or a majority of the
3incorporators, may sign and verify a certificate of dissolution
4stating the following:

5(1) That the certificate of dissolution is being filed within 24
6months from the date the articles of incorporation were filed.

7(2) That the corporation does not have any debts or other
8liabilities, except as provided in paragraph (3) and subdivision (d).

9(3) That the tax liability will be satisfied on a taxes-paid basis
10or that a person or corporation or other business entity assumes
11the tax liability, if any, of the dissolving corporation and is
12responsible for additional corporate taxes, if any, that are assessed
13and that become due after the date of the assumption of the tax
14liability.

15(4) That a final franchise tax return, as described by Section
1623332 of the Revenue and Taxation Code, has been or will be filed
17with the Franchise Tax Board as required under Part 10.2
18(commencing with Section 18401) of Division 2 of the Revenue
19and Taxation Code.

20(5) That the corporation was created in error.

21(6) That the known assets of the corporation remaining after
22payment of, or adequately providing for, known debts and liabilities
23have been distributed as required by law or that the corporation
24acquired no known assets, as the case may be.

25(7) That a majority of the directors, or, if no directors have been
26named in the articles or been elected, the incorporator or a majority
27of the incorporators authorized the dissolution and elected to
28dissolve the corporation.

29(8) That the corporation has not issued any memberships, and
30if the corporation has received payments for memberships, those
31payments have been returned to those making the payments.

32(9) That the corporation is dissolved.

33(b) A certificate of dissolution signed and verified pursuant to
34subdivision (a) shall be filed with the Secretary of State. The
35Secretary of State shall notify the Franchise Tax Board of the
36dissolution.

37(c) Upon filing a certificate of dissolution pursuant to
38subdivision (b), a corporation shall be dissolved and its powers,
39rights, and privileges shall cease.

P11   1(d) Notwithstanding the dissolution of a nonprofit corporation
2pursuant to this section, its liability to creditors, if any, is not
3discharged. The liability of the directors of, or other persons related
4to, the dissolved corporation is not discharged. The dissolution of
5a nonprofit corporation pursuant to this section shall not diminish
6or adversely affect the ability of the Attorney General to enforce
7liabilities as otherwise provided by law.

8

SEC. 6.  

Section 23156 is added to the Revenue and Taxation
9Code
, to read:

10

23156.  

(a) The Franchise Tax Board shall abate, upon written
11request by a qualified nonprofit corporation, unpaid qualified taxes,
12interest, and penalties for the taxable years in which the qualified
13nonprofit corporation certifies, under penalty of perjury, that it
14was not doing business, within the meaning of subdivision (a) of
15Section 23101.

16(b) For purposes of this section:

17(1) “Qualified nonprofit corporation” means a nonprofit
18corporation identified in Section 5059, 5060, or 5061 of the
19Corporations Code or a foreign nonprofit corporation, as defined
20in Section 5053 of the Corporations Code that has qualified to
21transact intrastate business in this state and that satisfies any of
22the following conditions:

23(A) Was operating and previously obtained tax-exempt status
24with the Franchise Tax Board, but had its tax-exempt status
25revoked under subdivision (c) of Section 23777.

26(B) Was operating and previously obtained tax-exempt status
27with the Internal Revenue Service, but had its tax-exempt status
28revoked under Section 6033(j) of the Internal Revenue Code.

29(C) Was never doing business, within the meaning of subdivision
30(a) of Section 23101, in this state at any time after the time of its
31incorporation in this state.

32(2) “Qualified taxes, interest, and penalties” means tax imposed
33under Section 23153 and associated interest and penalties, and any
34penalties imposed under Section 19141. “Qualified taxes, interest,
35and penalties” does not include tax imposed under Section 23501
36or 23731, or associated interest or penalties.

37(c) The qualified corporation must establish that it has ceased
38all business operations at the time of filing the request for
39abatement under this section.

P12   1(d) (1) The abatement of unpaid qualified tax, interest, and
2penalties is conditioned on the dissolution of the qualified
3corporation within 12 months from the date of filing the request
4for abatement under this section.

5(2) If the qualified corporation is not dissolved within 12 months
6from the date of filing the request for abatement or restarts business
7operations at any time after requesting abatement under this section,
8the abatement of qualified tax, interest, and penalties under this
9section shall be canceled and the qualified taxes, interest, and
10penalties subject to that abatement shall be treated as if the
11abatement never occurred.

12(e) The Franchise Tax Board shall prescribe any rules and
13regulations that may be necessary or appropriate to implement this
14section. Chapter 3.5 (commencing with Section 11340) of Part 1
15of Division 3 of Title 2 of the Government Code shall not apply
16to any standard, criterion, procedure, determination, rule, notice,
17or guideline established or issued by the Franchise Tax Board
18pursuant to this section.

19

SEC. 7.  

No reimbursement is required by this act pursuant to
20Section 6 of Article XIII B of the California Constitution because
21the only costs that may be incurred by a local agency or school
22district will be incurred because this act creates a new crime or
23infraction, eliminates a crime or infraction, or changes the penalty
24for a crime or infraction, within the meaning of Section 17556 of
25the Government Code, or changes the definition of a crime within
26the meaning of Section 6 of Article XIII B of the California
27Constitution.



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