BILL ANALYSIS Ó
AB 557
Page 1
ASSEMBLY THIRD READING
AB
557 (Irwin)
As Amended May 28, 2015
Majority vote
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|Committee |Votes |Ayes |Noes |
| | | | |
| | | | |
|----------------+------+---------------------+---------------------|
|Banking |11-0 |Dababneh, Travis | |
| | |Allen, Achadjian, | |
| | |Brown, Chau, Gatto, | |
| | |Hadley, Kim, Low, | |
| | |Perea, Mark Stone | |
| | | | |
|----------------+------+---------------------+---------------------|
|Revenue & |9-0 |Ting, Brough, | |
|Taxation | |Dababneh, Gipson, | |
| | |Roger Hernández, | |
| | |Mullin, Patterson, | |
| | |Quirk, Wagner | |
| | | | |
|----------------+------+---------------------+---------------------|
|Appropriations |17-0 |Gomez, Bigelow, | |
| | |Bonta, Calderon, | |
| | |Chang, Daly, Eggman, | |
| | |Gallagher, | |
| | | | |
| | | | |
| | |Eduardo Garcia, | |
AB 557
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| | |Gordon, Holden, | |
| | |Jones, Quirk, | |
| | |Rendon, Wagner, | |
| | |Weber, Wood | |
| | | | |
| | | | |
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SUMMARY: Establishes an administrative dissolution process and an
administrative surrender process for nonprofit and foreign
corporations. Specifically, this bill:
1)Provides that a nonprofit mutual benefit corporation, a
nonprofit public benefit corporation, a nonprofit religious
corporation or a foreign nonprofit corporation (all further
references to nonprofits unless stated otherwise) shall be
subject to administrative dissolution or administrative
surrender if the nonprofit corporation's corporate powers are
suspended or forfeited by the Franchise Tax Board (FTB) and have
been suspended or forfeited by the FTB for a period of not less
than 48 continuous months; or,
2)Prior to the administrative dissolution or administrative
surrender of a nonprofit or foreign corporation the nonprofit
corporation shall be notified by:
a) The FTB by mailing a written notice to the last known
address of a nonprofit corporation;
b) If the nonprofit does not have a valid address in the
records of the FTB or the Secretary of State (SOS), the
notice required by the SOS on its Internet Web site of the
pending administrative dissolution or administrative
surrender shall be sufficient.
3)Requires the FTB to transmit to the SOS the names of nonprofit
and foreign corporations subject to administrative dissolution
or administrative surrender.
4)Allows a nonprofit or foreign nonprofit to provide FTB with a
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written objection.
5)Provides that if no objection is received by FTB during the 60
day period the nonprofit foreign nonprofit corporation shall be
dissolved or surrendered. The SOS will provide a certificate as
prima facie evidence.
6)Provides that if a written objection is received by the FTB
within the 60 day period then the nonprofit corporation shall
have another 90 days from the date of the written objection to
satisfy all debt and file a current SOI with the SOS.
7)Allows the FTB or the SOS to extend the 90 day period for an
additional 90 days.
8)Requires the corporation's liabilities for qualified taxes,
interest and penalties to be abated and refunded if the
nonprofit corporation has been dissolved or surrendered.
9)Specifies that if a nonprofit corporation is dissolved or
surrendered that the liability to creditors is not discharged as
well as clarifies that the measure does not diminish or
adversely affect the ability of the Attorney General to enforce
liabilities.
10)Allows the following related to nonprofit public benefit
corporations, nonprofit mutual benefit corporations, and
nonprofit religious corporations:
a) A corporation can dissolve when the corporation has not
issued any membership if all of the following are verified on
a certificate:
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i) Certificate must be filed within 24 months from the
date that the articles of incorporation (AOI) was filed;
ii) The corporation does not have any debts or
liabilities;
iii) The tax liability shall be satisfied on a taxes-paid
basis;
iv) A final franchise tax return;
v) The corporation was created in error;
vi) Distribution of assets;
vii) No issuance of membership; and
viii) That the corporation is dissolved.
b) Provides that once the certificate is filed the
corporation shall be dissolved.
c) Specifies that the dissolution does not relieve liability
to creditors.
11)Requires the FTB to abate upon written request by a qualified
corporation, unpaid taxes, interest, and penalties for the
taxable years the nonprofit corporation certifies under penalty
of perjury that it was not doing business.
a) Defines "qualified corporation" as a nonprofit mutual
benefit corporation, a nonprofit public benefit corporation,
and a nonprofit religious corporation incorporated in
California or a nonprofit foreign corporation that satisfies
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any of the following:
i) Was operating and previously obtained tax-exempt
status with the FTB but had the tax-exempt status revoked;
ii) Was operating and previously obtained tax-exempt
status with the Internal Revenue Service (IRS) but had
tax-exempt status revoked; or
iii) Never did business in California at any time after the
time of its incorporation.
b) Defines "qualified taxes, interest, and penalties" as a
tax imposed and associated interest and penalties but does
not include taxes imposed under Revenue and Taxation Code
Section 23731 or associated interest or penalties.
c) Requires the qualified corporation to show that it has
ceased all business operations at the time of the filing
request for abatement.
d) Provides that 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.
e) Specifies that if a qualified corporation is not dissolved
with 12 months from the date of filing the request for
abatement or restarts business operations, then the abatement
of qualified tax, interest, and penalties shall be cancelled
and treated as if the abatement never occurred.
f) Allows the FTB to prescribe rules and regulations as
necessary.
EXISTING LAW:
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1)Requires foreign corporations to file within 90 days and
annually thereafter during the applicable filing period a
statement containing specified information. (Corporations Code
Section 2117)
2)Requires nonprofit public benefit corporations and nonprofit
mutual benefit corporations to file within 90 days and
biennially thereafter a statement of information. (Corporations
Code Sections 6210 and 8210)
3)Establishes the process for voluntary windup and dissolution for
nonprofit corporations which is initiated by an election to
dissolve which may be made by the vote or written consent of a
majority of all the members of the corporation or, if there are
no members, by the board of directors. Following the election
the corporation must file documents with the SOS such as a
certificate of election to wind up and dissolve prior to or
together with a certificate of dissolution. In addition
dissolution documents can be filed only if the status of the
corporation is active on the records of the SOS. Upon filing of
the certificate of dissolution by the SOS, the corporation will
be completely dissolved and its corporate existence will cease
in California. (Corporation Code, Sections 6611, 6615, 8611,
8615, 9680, 12631 and 12625)
4)Requires that nonprofit public benefit corporations and
nonprofit religious corporations provide a letter from the
Attorney General's office that either waives objections to the
distribution of the corporation's assets or confirms that the
corporation has no assets accompanied with the certificate of
dissolution. (Corporations Code Sections 6615 and 9680)
5)Requires nonprofit mutual benefit corporations if holding assets
in a charitable trust, the distribution of those assets must be
approved by the Attorney General or be made by decree of a
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superior court. (Corporations Code Section 8716)
FISCAL EFFECT: According to the Assembly Appropriations
Committee, this bill will have one-time General Fund costs of
approximately $150,000 to SOS to update systems and implement new
processes; minor costs to FTB, likely absorbable; potential
long-term savings from no longer having to track and issue notices
to defunct nonprofit businesses. No impact to state income tax
revenues.
COMMENTS: The goal of this bill is to streamline the dissolution
process for nonprofit and foreign corporations. According to the
author's office:
There is a significant problem with non-profit
corporations filing incorporation papers with the
Secretary of State, and then failing to launch or
continue operations and remain up to date and filing
and tax requirements. These inactive non-profits never
go through the formal dissolution process and become a
hindrance to the state. The Secretary of State (SOS),
Franchise Tax Board (FTB), and Attorney General are
responsible for regulating nonprofit corporations and
spend a significant amount of resources and time
attempting to register, tax, and audit nonprofits that
no longer exist. The SOS and FTB estimate that there
are close to 60,000 nonprofits currently in their
systems that would be eligible for the administrative
dissolution process established under AB 557.
AB 557 creates a streamlined administrative
dissolution process for nonprofits that have been
suspended for at least 48 continuous months after
proper notice has been served. This new process will
allow FTB and SOS to dissolved non-profits that have
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been sitting inactive on the 'books'.
This bill allows the FTB to waive delinquent taxes, penalties and
interest under specified conditions. This bill establishes a
process for involuntary administrative dissolution for a nonprofit
corporation, if the entity has been suspended or forfeited by the
FTB or the SOS for not less than 48 months. In addition, the
measure allows SOS to use the corporation address information
obtained from the FTB and allows a nonprofit that was incorporated
in error to use a short dissolution process that is currently
available to for-profit corporations.
As pointed out in the measure's findings, a number of nonprofits
have disbanded but do not take the proper steps to dissolve thus
incur taxes, penalties and interest unnecessarily. This bill will
put together a process that will allow inactive nonprofits to
cease to exist in a more streamlined approach.
Analysis Prepared by: Mark Farouk / B. & F. /
(916) 319-3081
FN: 0000793