California AG: Update on Proposed Changes to Registration for Charities

On June 5, 2019, the Department of Justice (DOJ) published notice of modifications to the text of the proposed amendments to California Code of Regulations and certain charity-related registration forms. We wrote on the original proposed amendments to the initial registration Form CT-1 and annual registration renewal Form RRF-1 here and here, respectively. The proposed modifications are in response to comments received regarding the proposed amendments and for the purposes of clarification. We were among those who submitted comments to the original proposed amendments and are generally pleased with the changes (most significantly to Form CT-1), though we’ll take a more careful look in the coming days to see if we have additional responses to the modified drafts.

Form CT-1

The modification to Form CT-1 includes replacing the question that referenced fiscal sponsorship (see our discussion of the problem with the question here). The question: “Does the organization share revenue or governance with any other non-profit organization (e.g., fiscal sponsorships and affiliations)?” has been changed to “Is the organization under common control, does it have a close connection with, or is it related to, any other nonprofit organization or for-profit organization or trust?” As the notice provides:

This modification is made in response to public comments that the proposed question, intended to identify closely related organizations, was unclear. The comments also stated that using the examples of fiscal sponsorships and affiliations was unhelpful because those terms are not defined. The modification eliminates those terms and instead uses terms the IRS uses, such as “common control,” “close connection,” and “related to.” The modification also includes definitions in the CT-1 instructions, which largely track the IRS definitions and are necessary for clarity.

“Common control” means you and one or more other organizations or trusts have: (1) a majority of directors, officers, or trustees appointed or elected by the same organization(s) or individuals, (2) a majority of directors, officers, or trustees consisting of the same individuals. Common control also occurs when you and one or more organizations have a majority ownership interest in a corporation, partnership, or trust. “Ownership” means voting power in a corporation, profits interest in a partnership, or beneficial interest in a trust.

“Close connection” means any of the following relationships between organizations: (1) control of one organization by another through common directors, officers, or trustees or through authority to approve budgets or expenditures; (2) coordination or sharing of operations as to facilities, programs, employees, or other activities; or (3) common persons exercising substantial influence over the organizations.

“Related to” an organization means to control or be controlled by an organization. “Control” means (1) to have the power (by the organization or through one or more officers, directors, trustees or agents) to remove and replace (or to appoint, elect, or approve or veto the appointment or election of) the majority of another organization’s directors or trustees, or a majority of members who elect a majority of another organization’s directors or trustees; (2) to own more than 50% of a stock corporation; (3) to own more than 50% of the profits or capital interests or is managing partner, general partner, or managing member of a partnership or LLC; or (4) to own more than 50% of the beneficial interest in a trust.

Comments:

If you have any comments regarding the proposed modifications, the DOJ will accept written comments between June 5, 2019 and June 20, 2019. All written comments must be submitted to the DOJ no later than 5:00 p.m. on June 20, 2019, and addressed to either:

James Toma, Supervising Deputy Attorney General 
California Department of Justice 
Charitable Trusts Section
300 S. Spring St., Suite 1702
Los Angeles, CA 90013
Email: [email protected]

Teresa DePaz, Legal Secretary 
California Department of Justice 
Charitable Trusts Section 
300 S. Spring St., Suite 1702 
Los Angeles, CA 90013 
Email: [email protected]