Model Protection of Charitable Assets Act to Be Submitted to State Legislatures

September 22, 2011

The Uniform Law Commission has approved the Model Protection of Charitable Assets Act, which will now be introduced in a number of states around the country. The purpose of this act is to articulate the role the Attorney General or other state official has towards protecting charitable assets. 

The model legislation requires that each state maintain a registry of nonprofit organizations within each state. In order to accomplish/populate this registry, each state will need to require nonprofits to file an annual report with the state if a nonprofit:

  • is formed under the laws of that state,
  • has its principal place of business in the state, 
  • holds more than $50,000 in assets in that state (other than those held primarily for investment purposes), or
  • conducts certain activities in the state for a charitable purpose. (This may or may not include charitable solicitation in the state depending on modifications each state may make.)

The model legislation’s annual report would require certain identifying information in addition to requiring:

  • a description of the most significant charitable activities;
  • a response whether the organization has entered into a contract, loan, lease or other financial transaction with an officer, director, trustee, other fiduciary, or a family member (or related entity in which one has a material financial interest) of an officer, director, trustee or other fiduciary;
  • a response whether the organization was aware of an embezzlement, theft, or diversion of charitable assets of the organization;
  • a response whether any charitable assets have been used to pay a penalty, fine, or judgment, or whether any such have been paid by an officer, director, trustee or fiduciary on behalf of the organization;
  • a response whether the organization is aware of the use of restricted funds of the organization for a purpose other than the charitable purpose specified in the restriction;
  • a response whether the organization’s federal or state tax status has been modified.

Finally there are certain events which will be reportable events when they occur.  They include:

  • Dissolution, termination, or disposition of all or substantially all of the charitable assets
  • Removing the organization from the jurisdiction of the state
  • Removal of significant charitable assets of the organization from the state
  • Any amendment of the record that describes the charitable purpose of the organization
  • Certain proceedings in federal and state court involving the organization

The model legislation has been prepared with alternative language that may provide for exemptions for religious organizations and churches, but this would be up to each state’s legislature to determine which of these exclusions they may adopt.

This text is provided with the understanding that ECFA is not rendering legal, accounting, or other professional advice or service. Professional advice on specific issues should be sought from an accountant, lawyer, or other professional.

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