BILL NUMBER: AB 557 CHAPTERED
BILL TEXT
CHAPTER 363
FILED WITH SECRETARY OF STATE SEPTEMBER 30, 2015
APPROVED BY GOVERNOR SEPTEMBER 30, 2015
PASSED THE SENATE AUGUST 20, 2015
PASSED THE ASSEMBLY AUGUST 27, 2015
AMENDED IN SENATE AUGUST 17, 2015
AMENDED IN ASSEMBLY MAY 28, 2015
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, 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. 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. 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.
THE PEOPLE OF THE STATE OF CALIFORNIA DO ENACT AS FOLLOWS:
SECTION 1. The Legislature finds and declares all of the
following:
(a) There are more than 150,000 nonprofit corporations in
California that provide a variety of programs and services in areas
as diverse as education, recreation, health care, legal, job
training, and housing to millions of Californians. These
organizations, depending on their formation status, are required to
register with the office of the Secretary of State, the Franchise Tax
Board, and the office of the Attorney General.
(b) Every year, hundreds of nonprofit corporations seek
administrative changes to expand their mission or alter their tax
status, and, in some cases, to even go out of existence. This
dissolution process, which involves the winding down of the nonprofit
corporation's affairs, is very cumbersome and protracted.
(c) In order to more effectively analyze and monitor the status,
finances, and activities of a nonprofit corporation, it is in the
public's interest to establish a streamlined process to efficiently
dissolve a nonprofit corporation. The act of dissolving the nonprofit
corporation and abating unpaid taxes, interest, and penalties serves
a statewide public purpose by ensuring that nonprofit corporations
that have been suspended or forfeited tax-exempt status are no longer
able to do business in the state.
SEC. 2. Section 5008.9 is added to the Corporations Code, to read:
5008.9. (a) A nonprofit corporation described in Section 5059,
5060, or 5061, or a foreign nonprofit corporation, as defined in
Section 5053, that has qualified to transact intrastate business,
shall be subject to administrative dissolution or administrative
surrender in accordance with this section if, as of January 1, 2016,
or later, the nonprofit corporation's or foreign corporation's
corporate powers are, and have been, suspended or forfeited by the
Franchise Tax Board for a period of not less than 48 continuous
months.
(b) Prior to the administrative dissolution or administrative
surrender of the nonprofit corporation or foreign corporation, the
corporation shall be notified of the pending administrative
dissolution or administrative surrender as follows:
(1) The Franchise Tax Board shall mail written notice to the last
known address of a nonprofit corporation or foreign corporation
meeting the requirement described in subdivision (a).
(2) If the nonprofit corporation or foreign corporation does not
have a valid address in the records of the Franchise Tax Board, the
notice provided in subdivision (d) shall be deemed sufficient notice
prior to administrative dissolution or administrative surrender.
(c) The Franchise Tax Board shall transmit to the Secretary of
State and the Attorney General's Registry of Charitable Trusts the
names and Secretary of State file numbers of nonprofit corporations
and foreign corporations subject to the administrative dissolution or
administrative surrender provisions of this section.
(d) The Secretary of State shall provide 60 calendar days' notice
of the pending administrative dissolution or administrative surrender
on its Internet Web site by listing the corporation name and the
Secretary of State's file number for the nonprofit corporation or
foreign corporation. The Secretary of State shall also, in
conjunction with the information above, provide instructions for a
nonprofit corporation or foreign corporation to submit a written
objection of the pending administrative dissolution or administrative
surrender to the Franchise Tax Board.
(e) (1) A nonprofit corporation or foreign corporation may provide
the Franchise Tax Board with a written objection to the
administrative dissolution or administrative surrender.
(2) The Franchise Tax Board shall notify the Secretary of State if
a written objection has been received.
(f) If no written objection to the administrative dissolution or
administrative surrender is received by the Franchise Tax Board
during the 60-day period described in subdivision (d), the nonprofit
corporation or foreign corporation shall be administratively
dissolved or administratively surrendered in accordance with this
section. The certificate of the Secretary of State shall be prima
facie evidence of the administrative dissolution or administrative
surrender.
(g) (1) If the written objection of a nonprofit corporation or
foreign corporation to the administrative dissolution or
administrative surrender has been received by the Franchise Tax Board
before the expiration of the 60-day period described in subdivision
(d), that nonprofit corporation or foreign corporation shall have an
additional 90 days from the date the written objection is received by
the Franchise Tax Board to pay or otherwise satisfy all accrued
taxes, penalties, and interest and to file a current Statement of
Information with the Secretary of State.
(2) (A) If the conditions in paragraph (1) are satisfied, the
administrative dissolution or administrative surrender shall be
canceled.
(B) If the conditions in paragraph (1) are not satisfied, the
nonprofit corporation or foreign corporation shall be
administratively dissolved or administratively surrendered in
accordance with this section as of the date that is 90 days after the
receipt of the written objection.
(3) The Franchise Tax Board may extend the 90-day period in
paragraph (1), but for no more than one period of 90 days.
(h) Upon administrative dissolution or administrative surrender in
accordance with this section, the nonprofit corporation's or the
foreign corporation's liabilities for qualified taxes, interest, and
penalties as defined in Section 23156 of the Revenue and Taxation
Code, if any, shall be abated. Any actions taken by the Franchise Tax
Board to collect that abated liability shall be released, withdrawn,
or otherwise terminated by the Franchise Tax Board, and no
subsequent administrative or civil action shall be taken or brought
to collect all or part of that amount. Any amounts erroneously
received by the Franchise Tax Board in contravention of this section
may be credited and refunded in accordance with Article 1 (commencing
with Section 19301) of Chapter 6 of Part 10.2 of Division 2 of the
Revenue and Taxation Code.
(i) If the nonprofit corporation or foreign corporation is
administratively dissolved or administratively surrendered under this
section, the liability to creditors, if any, is not discharged. The
liability of the directors of, or other persons related to, the
administratively dissolved or administratively surrendered nonprofit
corporation or foreign corporation is not discharged. The
administrative dissolution or administrative surrender of a nonprofit
corporation or foreign corporation pursuant to this section shall
not diminish or adversely affect the ability of the Attorney General
to enforce liabilities as otherwise provided by law.
SEC. 3. Section 6610.5 is added to the Corporations Code, to read:
6610.5. (a) Notwithstanding any other provision of this division,
when a corporation has not issued any memberships, 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, may sign and verify a certificate of dissolution
stating all of the following:
(1) That the certificate of dissolution is being filed within 24
months from the date the articles of incorporation were filed.
(2) That the corporation does not have any debts or other
liabilities, except as provided in paragraph (3) and subdivision (d).
(3) That the tax liability will be satisfied on a taxes-paid basis
or that a person or corporation or other business entity assumes the
tax liability, if any, of the dissolving corporation and is
responsible for additional corporate taxes, if any, that are assessed
and that become due after the date of the assumption of the tax
liability.
(4) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, has been or will be filed
with the Franchise Tax Board as required under Part 10.2 (commencing
with Section 18401) of Division 2 of the Revenue and Taxation Code.
(5) That the corporation was created in error.
(6) That the known assets of the corporation remaining after
payment of, or adequately providing for, known debts and liabilities
have been distributed as required by law or that the corporation
acquired no known assets, as the case may be.
(7) That 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 authorized the dissolution and
elected to dissolve the corporation.
(8) That the corporation has not issued any memberships, and if
the corporation has received payments for memberships, those payments
have been returned to those making the payments.
(9) That the corporation is dissolved.
(b) A certificate of dissolution signed and verified pursuant to
subdivision (a) shall be filed with the Secretary of State. The
Secretary of State shall notify the Franchise Tax Board and the
Attorney General's Registry of Charitable Trusts of the dissolution.
(c) Upon filing a certificate of dissolution pursuant to
subdivision (b), a corporation shall be dissolved and its powers,
rights, and privileges shall cease.
(d) Notwithstanding the dissolution of a corporation pursuant to
this section, its liability to creditors, if any, is not discharged.
The liability of the directors of, or other persons related to, the
dissolved corporation is not discharged. The dissolution of a
corporation pursuant to this section shall not diminish or adversely
affect the ability of the Attorney General to enforce liabilities as
otherwise provided by law.
SEC. 4. Section 8610.5 is added to the Corporations Code, to read:
8610.5. (a) Notwithstanding any other provision of this division,
when a corporation has not issued any memberships, 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, may sign and verify a certificate of dissolution
stating the following:
(1) That the certificate of dissolution is being filed within 24
months from the date the articles of incorporation were filed.
(2) That the corporation does not have any debts or other
liabilities, except as provided in paragraph (3) and subdivision (d).
(3) That the tax liability will be satisfied on a taxes-paid
basis, or that a person or corporation or other business entity
assumes the tax liability, if any, of the dissolving corporation and
is responsible for additional corporate taxes, if any, that are
assessed and that become due after the date of the assumption of the
tax liability.
(4) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, has been or will be filed
with the Franchise Tax Board as required under Part 10.2 (commencing
with Section 18401) of Division 2 of the Revenue and Taxation Code.
(5) That the corporation was created in error.
(6) That the known assets of the corporation remaining after
payment of, or adequately providing for, known debts and liabilities
have been distributed as required by law or that the corporation
acquired no known assets, as the case may be.
(7) That 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 authorized the dissolution and
elected to dissolve the corporation.
(8) That the corporation has not issued any memberships, and if
the corporation has received payments for memberships, those payments
have been returned to those making the payments.
(9) That the corporation is dissolved.
(b) A certificate of dissolution signed and verified pursuant to
subdivision (a) shall be filed with the Secretary of State. The
Secretary of State shall notify the Franchise Tax Board and the
Attorney General's Registry of Charitable Trusts of the dissolution.
(c) Upon filing a certificate of dissolution pursuant to
subdivision (b), a corporation shall be dissolved and its powers,
rights, and privileges shall cease.
(d) Notwithstanding the administrative dissolution of a
corporation pursuant to this section, its liability to creditors, if
any, is not discharged. The liability of the directors of, or other
persons related to, the administratively dissolved corporation is not
discharged. The dissolution of a corporation pursuant to this
section shall not diminish or adversely affect the ability of the
Attorney General to enforce liabilities as otherwise provided by law.
SEC. 5. Section 9680.5 is added to the Corporations Code, to read:
9680.5. (a) Notwithstanding any other provision of this division,
when a corporation has not issued any memberships, a majority of the
directors, or, if no directors have been named in the articles or
been elected, the incorporator or a majority of the incorporators,
may sign and verify a certificate of dissolution stating the
following:
(1) That the certificate of dissolution is being filed within 24
months from the date the articles of incorporation were filed.
(2) That the corporation does not have any debts or other
liabilities, except as provided in paragraph (3) and subdivision (d).
(3) That the tax liability will be satisfied on a taxes-paid basis
or that a person or corporation or other business entity assumes the
tax liability, if any, of the dissolving corporation and is
responsible for additional corporate taxes, if any, that are assessed
and that become due after the date of the assumption of the tax
liability.
(4) That a final franchise tax return, as described by Section
23332 of the Revenue and Taxation Code, has been or will be filed
with the Franchise Tax Board as required under Part 10.2 (commencing
with Section 18401) of Division 2 of the Revenue and Taxation Code.
(5) That the corporation was created in error.
(6) That the known assets of the corporation remaining after
payment of, or adequately providing for, known debts and liabilities
have been distributed as required by law or that the corporation
acquired no known assets, as the case may be.
(7) That a majority of the directors, or, if no directors have
been named in the articles or been elected, the incorporator or a
majority of the incorporators authorized the dissolution and elected
to dissolve the corporation.
(8) That the corporation has not issued any memberships, and if
the corporation has received payments for memberships, those payments
have been returned to those making the payments.
(9) That the corporation is dissolved.
(b) A certificate of dissolution signed and verified pursuant to
subdivision (a) shall be filed with the Secretary of State. The
Secretary of State shall notify the Franchise Tax Board of the
dissolution.
(c) Upon filing a certificate of dissolution pursuant to
subdivision (b), a corporation shall be dissolved and its powers,
rights, and privileges shall cease.
(d) Notwithstanding the dissolution of a nonprofit corporation
pursuant to this section, its liability to creditors, if any, is not
discharged. The liability of the directors of, or other persons
related to, the dissolved corporation is not discharged. The
dissolution of a nonprofit corporation pursuant to this section shall
not diminish or adversely affect the ability of the Attorney General
to enforce liabilities as otherwise provided by law.
SEC. 6. Section 23156 is added to the Revenue and Taxation Code,
to read:
23156. (a) The Franchise Tax Board shall abate, upon written
request by a qualified nonprofit corporation, unpaid qualified taxes,
interest, and penalties for the taxable years in which the qualified
nonprofit corporation certifies, under penalty of perjury, that it
was not doing business, within the meaning of subdivision (a) of
Section 23101.
(b) For purposes of this section:
(1) "Qualified nonprofit corporation" means a nonprofit
corporation identified in Section 5059, 5060, or 5061 of the
Corporations Code or a foreign nonprofit corporation, as defined in
Section 5053 of the Corporations Code that has qualified to transact
intrastate business in this state and that satisfies any of the
following conditions:
(A) Was operating and previously obtained tax-exempt status with
the Franchise Tax Board, but had its tax-exempt status revoked under
subdivision (c) of Section 23777.
(B) Was operating and previously obtained tax-exempt status with
the Internal Revenue Service, but had its tax-exempt status revoked
under Section 6033(j) of the Internal Revenue Code.
(C) Was never doing business, within the meaning of subdivision
(a) of Section 23101, in this state at any time after the time of its
incorporation in this state.
(2) "Qualified taxes, interest, and penalties" means tax imposed
under Section 23153 and associated interest and penalties, and any
penalties imposed under Section 19141. "Qualified taxes, interest,
and penalties" does not include tax imposed under Section 23501 or
23731, or associated interest or penalties.
(c) The qualified corporation must establish that it has ceased
all business operations at the time of filing the request for
abatement under this section.
(d) (1) The abatement of unpaid qualified tax, interest, and
penalties is conditioned on the dissolution of the qualified
corporation within 12 months from the date of filing the request for
abatement under this section.
(2) If the qualified corporation is not dissolved within 12 months
from the date of filing the request for abatement or restarts
business operations at any time after requesting abatement under this
section, the abatement of qualified tax, interest, and penalties
under this section shall be canceled and the qualified taxes,
interest, and penalties subject to that abatement shall be treated as
if the abatement never occurred.
(e) The Franchise Tax Board shall prescribe any rules and
regulations that may be necessary or appropriate to implement this
section. Chapter 3.5 (commencing with Section 11340) of Part 1 of
Division 3 of Title 2 of the Government Code shall not apply to any
standard, criterion, procedure, determination, rule, notice, or
guideline established or issued by the Franchise Tax Board pursuant
to this section.
SEC. 7. No reimbursement is required by this act pursuant to
Section 6 of Article XIII B of the California Constitution because
the only costs that may be incurred by a local agency or school
district will be incurred because this act creates a new crime or
infraction, eliminates a crime or infraction, or changes the penalty
for a crime or infraction, within the meaning of Section 17556 of the
Government Code, or changes the definition of a crime within the
meaning of Section 6 of Article XIII B of the California
Constitution.