Report Title:

Supervision of charitable trusts and nonprofit organizations act.

Description:

Gives the AG express statutory oversight authority over nonprofits as well as charitable trusts. Requires charitable trust and corporations (other than religious organizations) to register with the AG by submitting a copy of their federal tax return. Ensures that funds solicited by and donated to charitable organizations by the community are truly applied for the charitable purposes intended by the donors. Requests the DOT and DCCA to provide a list of organizations granted tax exempt status and registered nonprofits and access to tax information.

THE SENATE

S.B. NO.

2688

TWENTY-FIRST LEGISLATURE, 2002

 

STATE OF HAWAII

 


 

A BILL FOR AN ACT

 

RELATING TO THE SUPERVISION OF CHARITABLE TRUSTS AND NONPROFIT ORGANIZATIONS ACT.

 

BE IT ENACTED BY THE LEGISLATURE OF THE STATE OF HAWAII:

SECTION 1. The State confers tax-exempt status to charitable trusts and nonprofit organizations, including private foundations, because they provide needed public services that reduce the overall burdens of government. The people of this State, therefore, have a vested interest in the proper administration, operation, and disposition of all property held for charitable purposes in this State, and shall be represented by the attorney general in all courts of this State in respect of such property held by charitable trusts and nonprofit organizations including private foundations.

The purposes of this Act are: (1) to expressly clarify that the attorney general's powers and duties over charitable trusts as parens patriae include all nonprofit organizations, such as private foundations, and fiduciaries holding property for charitable purposes; (2) to ensure that trustees and others holding property for charitable purposes properly administer, register, and report on the existence of property held for charitable purposes to the attorney general; (3) to ensure that funds solicited by and donated to charitable organizations by the community are truly applied for the charitable purposes intended by the donors; and (4) to provide specific enforcement mechanisms for the attorney general to carry out preexisting common law supervisory powers and duties over charitable trusts and charitable corporations.

SECTION 2. The Hawaii Revised Statutes is amended by adding a new chapter to be appropriately designated and to read as follows:

"CHAPTER ___

SUPERVISION OF CHARITABLE TRUSTS AND NONPROFIT ORGANIZATIONS ACT.

§ -1 Short title. This chapter shall be known and may be cited as the Supervision of Charitable Trusts and Nonprofits Act.

§ -2 Application of this chapter. This chapter applies to any trustee, as defined in section -3.

§ -3 Definitions. For purposes of this chapter,

"Trustee" means any person, individual, group of individuals, corporation, nonprofit corporation, limited liability company, limited liability partnership, unincorporated association, trust, or other legal entity holding property for any charitable purpose; or any chief operating officer, director, executive director, manager, responsible officer or partner, or owner of a corporation or other organization holding property for a charitable purpose.

"Charitable purpose" means any purpose to promote the well-being of the public at large, or for the benefit of an indefinite number of persons, including but not limited to educational, literary, or scientific purposes, or for the prevention of cruelty to children or animals, or for the benefit of religion, rehabilitation services, public recreation, or civic improvement.

§ -4 Excluded entities. This chapter does not apply to the United States, any state, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, or to any of their agencies or governmental subdivisions.

§ -5 Authority of attorney general. The attorney general's preexisting duty, as parens patriae, to oversee the activities of a trustee of any trust that is wholly or partially charitable, shall also include to any person, individual, group of individuals, corporation, nonprofit corporation, limited liability company, limited liability partnership, unincorporated association, trust, or other legal entity holding property for any charitable or nonprofit purposes.

§ -6 Registration of charitable trusts and nonprofit organizations. (a) After January 1, 2003, the trustee of a trust or organization that has in whole or in part a charitable or nonprofit purpose shall register the trust or organization with the attorney general. Religious organizations performing tax-exempt activities, and small organizations that are not required either to file an Internal Revenue Service form 990 or 900 EZ or a Hawaii general excise tax return under chapter 237 are exempt from the registration requirements imposed by this section and the payment of registration fees under section –7(d).

(b) "Register" for purposes of this section means provide to the attorney general a copy of the trust's or organization's Internal Revenue Service form 990, 990EZ, 990PF, or 990T or similar tax return (return of exempt organization) for the organization's most recent calendar or fiscal year, whichever is applicable.

§ -7 Duty to provide federal tax information returns and other information to the attorney general. (a) Except as otherwise provided, every trustee shall file with the attorney general on the date that the organization's Internal Revenue Service tax return is due, including any Internal Revenue Service extensions, a copy of the current Internal Revenue Service tax return of the charitable organization including, but not limited to, form 990, 990-EZ, 990-PF, or 990-T or similar tax return.

(b) The attorney general may suspend for good cause the filing of a return or report as to a particular charitable trust or organization for a reasonable, specifically designated time upon written application of the trustee filed with the attorney general, and after the attorney general has filed in the register of charitable trusts and organizations a written statement that the interests of the beneficiaries, or the public, as the case may be, will not be prejudiced thereby, and the period when such returns or reports shall resume.

(c) Upon request of the attorney general, each trust or organization subject to the filing requirements of subsection (a) shall promptly provide the attorney general with copies of its trust agreement or indenture, articles of incorporation and bylaws, or other governing documents, and current financial statements, federal and state applications for tax-exempt status, and any other information reasonably requested by the Attorney General.

(d) Every trustee filing a return or report required by this section shall pay to the fund established in section -16, a fee based on the trust's or organization's gross income and receipts, as set forth in the trust's or organization's federal tax return, during the time covered by the report, as follows:

(1) $10, if less than $25,000;

(2) $50, if $25,000 or more but less than $100,000;

(3) $100, if $100,000 or more but less than $250,000;

(4) $150, if $250,000 or more but less than $500,000;

(5) $200, if $500,000 or more but less than $1,000,000;

(6) $300, if $1,000,000 or more but less than $5,000,000;

(7) $500, if more than $5,000,000 and less than 10,000,000;

(7) $750, if more than $10,000,000.

(e) In the case of each failure to file a return or report required under this subsection (determined with regard to any extension of time for filing), unless it is shown that the failure is due to reasonable cause, there shall be paid by the person failing to so file, $20 for each day during which the failure continued, but the total amount imposed under this subsection on any person for failure to file any return or report shall not exceed $20,000. Returns and reports submitted without the proper fee shall not be accepted for filing.

§ -8 Rules. The attorney general may adopt rules necessary for the administration of this chapter.

§ -9 Investigation. In addition to the powers conferred under chapter 28, the attorney general may investigate transactions and relationships of any trustee subject to this chapter for the purpose of determining whether the property held for charitable purposes is properly administered, whether any trustee has violated any provision of this chapter, or whether any trustee has breached a fiduciary duty. The attorney general may require any agent, trustee, fiduciary, beneficiary, institution, association, corporation, or other person to appear, at a named time and place designated by the attorney general, in the county where the person resides or is found, to give testimony under oath and to produce books, memoranda, papers, documents of title and evidence of assets, liabilities, receipts, disbursements, or other information in the possession or control of the person ordered to appear, subject to all privileges enjoyed by all witnesses in this State.

§ -10 Attendance of parties and witnesses; enforcement by the courts. In addition to the powers conferred under chapter 28, when the attorney general requires the attendance of any person, or the production of documents, as provided in this chapter, the attorney general shall issue an order setting forth the time when and the place where attendance is required and shall cause the same to be served upon the person in the manner provided for service of process in civil cases. The order shall have the same force and effect as a subpoena and, upon application of the attorney general, obedience to the order may be enforced by the circuit or probate court in the county where the person served with the subpoena resides or is found, in the same manner as though the notice were a subpoena. The court may, in case of refusal to obey the order issued by the attorney general, issue an order requiring such person to appear before the attorney general to give testimony and to produce documentary evidence, if so ordered, or to give evidence relating to the matter in question, and any failure to obey such order of the court may be punishable as a contempt of court.

§ -12 Powers of the attorney general; jurisdiction of court. In addition to the powers conferred under chapter 28, the attorney general may institute appropriate proceedings to secure compliance with this chapter and to invoke the jurisdiction of the court. The powers and duties of the attorney general provided in this chapter are in addition to existing powers and duties. Nothing in this chapter shall impair or restrict the jurisdiction of any court with respect to any of the matters covered by it, except that no court shall have the jurisdiction to modify or terminate any trust of property for charitable purposes unless the attorney general is a party to the proceedings. Failure without good cause to comply with any order of any court shall constitute grounds for removal of the officers and directors of a charitable organization or trustees of a charitable trust and the appointment by the court of successor officers and directors or trustees.

§ -13 Duties of taxing and business registration authorities. (a) Before April 20th of each year, every officer, agency, board, or commission of this State, that has received an application for exemption from taxation by any charitable organization or trust subject to this chapter, shall provide the attorney general with a list that includes the name and business address of every trust or charitable organization. The list shall include any application for exemption filed with the agency as of December 31 of the preceding year. Notwithstanding any statutory confidentiality provisions to the contrary, every taxing authority of the State, or its agencies or political subdivisions, shall make available to the attorney general for inspection and copying all tax returns and return information of all charitable organizations upon request.

(b) Before June 30 of each year the department of commerce and consumer affairs shall provide the attorney general with a list of all active Hawaii nonprofit corporations. The list shall include each corporation's name and address, and the names of the current officers, directors, and members, if any.

(c) Before June 30 of each year, the department of commerce and consumer affairs shall provide the attorney general with list of Hawaii nonprofit corporations that are no longer considered by the department to be in good standing or that have been involuntarily dissolved by the department.

§ -14 Recovery of expenses by the State. In any proceeding in any court concerning a charitable trust or other nonprofit organization, including private foundations, brought by the attorney general seeking enforcement or compliance with the provisions of this chapter, or in which the attorney general is cited by the court or a trustee as a necessary or proper party, the court having jurisdiction of such proceedings shall require the payment of all reasonable expenses incurred by the attorney general from the corpus or income, or both, of the trust or organization, in such reasonable amounts as the court may order. Necessary expenses include but are not limited to the costs of special deputy attorneys general, accountants, auditors, consultants, and experts employed or retained to assist with the investigation, preparation, and presentation in court of the charitable trust or nonprofit organization enforcement action. The court may also award to the attorney general reasonable attorney's fees, at hourly rates prevailing in the community for similar services, to compensate for the time expended by deputies in connection with any enforcement action brought under this chapter. All fees and expenses collected under this section shall be deposited by the department of the attorney general in the Hawaii charitable trust and nonprofit special fund created by section –16.

§ -15 Injunctive relief. In any action in which the attorney general alleges that a charitable trust or nonprofit organization needs to be protected or the trustees, directors, officers, or members of a charitable trust or organization have breached their fiduciary duties, and injunctive relief and removal of trustees is sought, the circuit or probate courts shall exercise their discretion as the equities require and may, as a part of injunctive relief, and after a hearing where the trustees shall have an opportunity to be heard, appoint temporarily or permanently a receiver or a temporary trustee, trustees, directors, officers, or members to protect and operate the trust or organization and may temporarily or, as ultimate relief for breach of duty or to protect the trust or organization, permanently remove any trustee, officer, director, or member from office and appoint replacements to protect the public interest. The public interest is paramount and the stewardship of a charitable organization is a privilege to serve as a fiduciary for the public good.

§ -16 Hawaii charitable trust and nonprofit organizations special fund. There is created in the state treasury the Hawaii charitable trust and nonprofit organizations special fund. All fees and penalties collected by the attorney general pursuant to this chapter shall be deposited in the Hawaii charitable trust and nonprofit organizations special fund. Moneys in the fund shall be expended by the attorney general for the enforcement of this chapter, the dissemination of public information, and charitable trust, and charitable nonprofit organization oversight.

§ -17 Contrary and inconsistent provisions invalid. This chapter shall supersede the provisions of any charitable instrument that are contrary to or inconsistent with the provisions of this chapter."

SECTION 3. This Act shall not be construed to diminish, defeat, or impair any common law power that the attorney general may possess as parens patriae of charitable trusts, or any right established by an order of a court of competent jurisdiction.

SECTION 4. Section 36-27, Hawaii Revised Statutes, is amended to read as follows:

"§36-27 Transfers from special funds for central service expenses. Except as provided in this section, and notwithstanding any other law to the contrary, from time to time the director of finance, for the purpose of defraying the prorated estimate of central service expenses of government in relation to all special funds, except the:

(1) Special out-of-school time instructional program fund under section 302A-1310;

(2) School cafeteria special funds of the department of education;

(3) Special funds of the University of Hawaii;

(4) State educational facilities improvement special fund;

(5) Convention center capital and operations special fund under section 206X-10.5;

(6) Special funds established by section 206E-6;

(7) Housing loan program revenue bond special fund;

(8) Housing project bond special fund;

(9) Aloha Tower fund created by section 206J-17;

(10) Domestic violence prevention special fund under section 321-1.3;

(11) Spouse and child abuse special account under section 346-7.5;

(12) Spouse and child abuse special account under section 601-3.6;

(13) Funds of the employees' retirement system created by section 88-109;

(14) Unemployment compensation fund established under section 383-121;

(15) Hawaii hurricane relief fund established under chapter 431P;

(16) Hawaii health systems corporation special funds;

(17) Boiler and elevator safety revolving fund established under section 397-5.5;

(18) Tourism special fund established under section 201B-11;

(19) Department of commerce and consumer affairs' special funds;

(20) Compliance resolution fund established under section 26-9;

(21) Universal service fund established under chapter 269;

(22) Integrated tax information management systems special fund under section 231-3.2;

(23) Insurance regulation fund under section 431:2-215;

(24) Hawaii tobacco settlement special fund under section 328L-2;

(25) Emergency budget and reserve fund under section 328L-3;

(26) Probation services special fund under section 706-649;

(27) High technology special fund under section 206M-15.5;

(28) Public schools special fees and charges fund under section 302A-1130(f);

(29) Cigarette tax stamp enforcement special fund established by section 28-14;

(30) Cigarette tax stamp administrative special fund established by section 245-41.5; [and]

(31) Tobacco enforcement special fund established by section 28-15; and

(32) Hawaii charitable trust and nonprofit special fund established by section    –16;

shall deduct five per cent of all receipts of all other special funds, which deduction shall be transferred to the general fund of the State and become general realizations of the State. All officers of State and other persons having power to allocate or disburse any special funds shall cooperate with the director in effecting these transfers. To determine the proper revenue base upon which the central service assessment is to be calculated, the director shall adopt rules pursuant to chapter 91 for the purpose of suspending or limiting the application of the central service assessment of any fund. No later than twenty days prior to the convening of each regular session of the legislature, the director shall report all central service assessments made during the preceding fiscal year."

SECTION 5. Section 554-8, Hawaii Revised Statutes, is repealed.

["§554-8 Charitable trusts; expenses. In any proceedings in any court, concerning a trust, which is wholly or partly charitable and in which the attorney general has been cited by the court or trustees as a necessary or proper party, the court having jurisdiction of such proceedings may require the payment of all reasonable and necessary expenses incurred by the attorney general for the protection of the beneficial interest in, or for the proper conduct of, such proceedings from the corpus or income, or both, of the trust estate, in such reasonable amounts as the court may order."]

SECTION 6. There is appropriated out of the general revenues of the State of Hawaii the sum of $114,000, or so much thereof as may be necessary, for fiscal year 2002-2003 to be paid into the Hawaii charitable trust and nonprofit organization special fund created by section –16 of section 2. The sums appropriated by this Act shall be expended by the department of the attorney general for the purposes of the fund.

SECTION 7. Statutory material to be repealed is bracketed and stricken. New statutory material is underscored.

SECTION 8. This Act shall take effect on January 1, 2003; provided that the amendments made to section 36-27, Hawaii Revised Statutes, by this Act shall not be repealed when this section is reenacted on July 31, 2003, pursuant to section 9 of Act 142, Session Laws of Hawaii 1998.

INTRODUCED BY:

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