A little-noticed amendment to the New York State Executive Law that took effect on January 1, 2021, is causing confusion for charitable organizations that operate in New York State. The amendment, new Executive Law § 172-b(9), requires not-for-profit corporations that file a financial disclosure report (form CHAR500) with the Charities Bureau of the New York Department of Law to file an additional copy of the report with the New York secretary of state.
Confusion Over When to File
The new law does not change the deadline to file the report. However, it fails to address administrative extensions of the filing deadline previously granted by the Department of Law.
The statutory deadline remains the 15th day of the fifth month after the close of the filer’s fiscal year. Thus, for a not-for-profit corporation that uses the calendar year as its fiscal year, the statutory deadline to file form CHAR500 for 2020 is May 15, 2021. At the time the amendment was enacted, the Department of Law had issued two standing automatic extensions of the statutory deadline. A pre-COVID-19 notice extended the filing deadline for all filers by six months. A subsequent, COVID-19-related extension, added an additional six months to the previous extension, resulting in an aggregate extension of 12 months. Both extensions remain in effect, but they apply only to the obligation to file with the Department of Law.
The Department of State has not addressed extensions of the statutory deadline in either its proposed regulations or the FAQs posted to its website. Therefore, the Department of State has not acknowledged any extension of the filing deadline.
It would appear that an extension of the filing deadline granted by the Department of Law would not automatically apply to the secretary of state. The Department of State has been silent about its filing deadline and any extensions that it might grant. Absent clarification, this means that a charity operating on a calendar year must file a “copy” of its 2020 financial disclosure report with the secretary of state by May 15, 2021, even though it is not required to file the original of that report with the Department of Law until May 15, 2022.
Confusion Over What to File
The Department of State’s proposed regulations (19 NYCRR Part 146) require that, in addition to filing a copy of its form CHAR500 with the secretary of state, the filer also submit a statement describing its mission in a manner consistent with its IRS application for tax-exempt status, and a “narrative description of the filing entity’s activities provided with such application.”i The Executive Law contains no such requirement, although a similar requirement applies to registered charities that are exempt from filing form CHAR500 or do not solicit funds in New York State.ii The proposed regulations have caused certain commentators, including the Not-for-Profit Law Committee of the New York City Bar Association, to complain that the “mission and narrative statement” requirement exceeds the secretary of state’s statutory authority.
What to Do?
Most not-for-profit corporations and their auditors have already established timelines to prepare the entity’s 2020 financial statements, secure required audits or reviews, and to file form CHAR500 within the extended deadlines provided by the Department of Law. It is unlikely that these charities and their auditors can accelerate their timelines sufficiently to comply with the statutory deadline.
The new law neither contains new enforcement mechanisms nor grants enforcement powers to the secretary of state. Therefore, a charity’s failure to timely submit a copy of its financial disclosure report to the secretary of state subjects the charity to the same consequences as late filing the original form CHAR500 with the Charities Bureau. The Executive Law provides that such a failure authorizes the Attorney General (but not the secretary of state) to cancel the noncompliant organization’s Charities Bureau registration, effectively revoking the charity’s authority to solicit donations in New York State. Although the matter is not free from doubt, it seems unlikely that the Attorney General will cancel an organization’s Charities Bureau registration solely for failing to submit to the secretary of state a copy of a report before that report is required to be filed with the Department of Law. Therefore, it appears that noncompliance with the statutory filing deadline poses little risk to noncompliant charities, provided that the noncompliance is limited to 2021.
For those organizations that are able to do so, filing with both the Department of Law and the Department of State by the statutory deadline remains the safest course of action. The secretary of state requires filers to submit their reports electronically. The Department of State website includes a link to an electronic filing portal. In the absence of further guidance from the Department of State, filers should also comply with the Department of State’s mandate to include a description of the filer’s charitable mission and activities.
If you have questions regarding the content of this alert, please contact Ray McCabe, partner, at rmccabe@barclaydamon.com, or another member of the firm’s Corporate Practice Area.
i See Proposed Regulation 19 NYCRR 146.3(b).
ii See Executive Law § 172-b(3).