Thank you, @cbreeze. I didn’t know the timeline for registering. It’s true that she can’t transfer title when the car isn’t registered in-state but I thought had to do with the smog test, not anything else.
We purchased an older car from my brother 5 years ago for $1 with the agreement that we will sell it back to him when he or we are ready. It is a 1993 Mustang and he is attached to it. We rarely use it but it does come in handy for a third car. We have taken care of all of the maintance except replacing a seat cover that arrived split.
We have the car on our insurance. It is registered in our state, not his.
If your D decides to sell the car to a friend with the idea that she would buy it back then he needs to put the car on his insurance and they need to write up an understanding regarding maintanance. Also, agree, it may very well pass and emmissions test.
IF our D’s end up back and need a car the question becomes whether they can afford to replace this one.
Everything is about revenues for the state. 
http://www.mercurynews.com/california/ci_26102158/out-state-license-plates-chp-clamping-down-drivers
We actually had to deal with the smoke test on one of our cars which is registered to California but the car is OOS. It is not economically possible to ship the car back to California just to “pass” the smoke test and the DMV in California would not accept the smoke test result done in another state.
We went to DMV to get it resolved. Basically, we paid the same amount of tax and filled out a form stating that the car is not currently in the state on a long term basis. They then exempted us from having the car smoke tested. It is quite a hassle but it is better than having the car shipped back just to have a smoke test.
We are not sure when it is the time we need to do this again. Every year or every other year? Or, eventually Ca will not allow us to register the car here.
A flip of the problem in the back of our mind is: Even though the California state is fine with the car’s license registration fees paid, can the other state be fine with this arrangement (i.e., paying the car tax to California state instead of the other state where the car is driven) if this car is owned by a Californian (with a California’s driver license) who goes to another state as a student?
I think it is a grey area. It seems many states allow their OOS students to do this. Eventually, I think a person’s driver license and his car’s registration need to belong to the same state – at least to do so to not get the unwanted attention of the police or state patrol.
However, I heard it could be not uncommon in the NE area where someone may live in one state and go to school or work at another state because many of the states there are very small as compared to most states elsewhere. The person could live in one state and drive to another state everyday, or the person could have a permanent address in one state and temporarily live in another state for a few months or half a year only, and will return to his home state (where his car or driver license belongs.) It gets my head spins for all the different combinations of situations. It is not all the tax issue. I heard that if you drive a car with another state’s license plate, legal or not, it could be a red flag to some of the police and they may stop you just because you are driving a car with another state’s license plate.
@mcat2:
People do that in NYC a lot, they have NJ tags, often using the address of a business or family member, even though they live in NYC, for the cost of insurance. Even though NJ is known for relatively high insurance rates, it is still a lot less than having a car in NYC, which between accidents and stolen cars, generally makes rates higher.
If the car orignially came from somewhere where road salt is used or has been housed/driven in a foggy beachside place in CA, I would check it for structural rust. It may not be a safe car to hang on to - could crumple in a collision.
I think CA is tough on people with a CA driver’s license and out-of-state plates. My husband got a ticket for that once.
We live in California and had a junk car that kept dying. If we’d sold it, I would have felt embarrassed taking $400 for it. So we donated it to the Red Cross, who sold it at auction for $2000! Donors get a charity write-off for the amount of the sale, so we made more money than if we’d sold it.
http://www.redcross.org/support/donating-fundraising/donations/vehicle-donation-program
Since a couple of posters stated the terms “smoke check” and “smoke test” I thought I’d correct it for the benefit of others - it’s a “Smog check” - i.e. ‘smog’ - not ‘smoke’.
In California the Smog check needs to be done after 6 years on a brand new car (since 99% will pass prior to that point), but they still collect a smog fee every year regardless, and thereafter it’s every 2 years, unless the car is a 1975 or older one in which case it doesn’t need to be smog checked.
It’s my aging brain, thanks for correcting.
I should add, the Red Cross made the donation very VERY easy for us. They picked the car up at our house. Turnaround time from donation to receiving their tax receipt letter was about two weeks. They like to sell the cars quickly because they don’t want inventory sitting around.
If the car is not running, they accept those also. 
The public radio stations also accept car donations and will give you a tax letter for your donation as well. I believe Goodwill accepts cars whether running or not for donations.