All charities have various reporting requirements under state and federal laws that often change over time. Keeping ahead of these developments can be challenging, but doing so is critical to the maintenance and success of your organization. If you have questions about your charity’s reporting duties under current state or federal laws, contact the California Center for Nonprofit Law at (949) 892-1221 today for legal advice and guidance.
In 2021, California lawmakers passed AB 900, which went into effect on July 1, 2022. This law aimed to add a new section to the Probate Code to fix an inadvertent loophole in the reporting requirements for California charities. The law at issue requires charities to give written notice to the Attorney General at least 20 days before selling, leasing, conveying, exchanging, transferring, or otherwise disposing of all or substantially all their charitable assets.
On June 23, 2023, the Attorney General’s Office published a regulation interpreting certain aspects of the new law. The regulation is Section 328.1: “Notice of Transactions Involving All or Substantially All Assets of Charitable Corporation or Trust, or Assets in Charitable Trust Held by a Nonprofit Mutual Benefit Corporation.”
A major criticism of AB 900 was that the amount of assets necessary to trigger the reporting requirement for charities is unclear in many circumstances. While the meaning of “all” assets is clear, the term “substantially all” is far from clear. In response, the regulation defines what constitutes “substantially all” of the charity’s assets in terms of triggering a reporting requirement to the Attorney General.
Section 328.1(a) defines “substantially all” as follows:
“an asset or assets equal to or exceeding 75% of the value of all assets held by the charitable corporation or trust at the time of the notice or at any time during the six months before submitting the notice. Notice must be provided if the transaction involves ‘substantially all’ assets under either book value or fair market value.”
Furthermore, Section 328.1(b) states that charities may not avoid triggering the reporting requirement by structuring a series of smaller transactions designed to subvert the 75% threshold. If a transaction appears to be related to other transactions, the Attorney General will analyze all the related transactions as a single transaction to give notice. In determining whether a series of transactions should be treated as a single transaction, the Attorney General will consider the surrounding circumstances, including, but not limited to, the following factors:
- whether the parties to the transaction are the same in another transaction or related to or affiliated with parties in another transaction;
- whether the completion of one transaction is conditioned upon the completion of another transaction;
- whether the membership, officers, or governing board of the charitable corporation or trust has taken any action to wind down or dissolve the charitable corporation or trust; and
- whether the liabilities of the charitable corporation or trust significantly outweigh its assets.
Finally, Section 328.1(c) sets forth the potential for requesting a waiver of the reporting requirements. A request for a waiver requires an applicant to provide “all material facts” to the Attorney General. Generally, a waiver request is appropriate “if and when there is a determination that “the transaction poses no risk to the public interest and the financial cost to the charitable corporation, trust, or mutual benefit corporation of providing notice to the Attorney General outweighs the potential benefit to the public interest.”
Call the California Center for Charities & Nonprofit Law Today
If your charity needs legal advice or assistance, we are here to help. Contact an experienced nonprofit lawyer today. Call the California Center for Nonprofit Law offices at (949) 892-1221, email us at firstname.lastname@example.org, or contact us online for more information today. We offer a wealth of experience handling the unique legal issues that nonprofit organizations routinely face.