Organizations Other Than Private Foundations
How You Should Inform the IRS
Usually this is done by filing a final Form 990, 990-EZ or e-Postcard (990-N). Which of these the organization files depends largely on its gross receipts and assets.
For the 2008 tax year returns (filed in 2009 or 2010) the filing guidelines are:
- Gross receipts normally less than or equal to $25,000, file the e-Postcard (990-N)
- Gross receipts greater than $25,000 and less than $1 million, and total assets less than $2.5 million, the organization can choose to file Form 990-EZ or 990
- Gross receipts $1 million or more or total assets greater than or equal to $2.5 million, file Form 990
http://www.irs.gov/charities/article/0,,id=184445,00.html
When the Return is Due
If you are terminating your organization or effectively going out of business by merging with another organization, you will need to file a final form four months and 15 days after the date of the organization’s termination.
Information You Will Need to Disclose
Form 990 filers should check the Termination box in the header area on page 1 of the return and answer yes to the question whether the organization liquidated, terminated, or dissolved (line 31 of Part IV) and, if applicable, to the question whether the organization engaged in a significant disposition of net assets (line 32 of Part IV).the return and answer yes to the question whether the organization liquidated, terminated, dissolved or substantially contracted (line 36 of Part V).
After you’ve indicated on the 990 or 990-EZ that you are terminating your organization or transferring assets, you’ll need to file a Schedule N: Liquidation, Termination, Dissolution, or Significant Disposition of Assets. The information required on Schedule N includes a description of the assets and any transaction fees, the date of distribution, the fair market value of the assets and information about the recipients of the assets.
Relationship Between Your Organization and Transferee Organization
Schedule N also asks specific questions about whether an officer, director, trustee, or key employee of your organization is, or is expected to be, involved in the successor or transferee organization by governing, controlling, or having a financial interest in that organization. If you answer ‘yes’ to any of the questions, you will need to provide the name of the person involved and an explanation of the circumstances.
Attachments to Your Return
You will need to provide a certified copy of your articles of dissolution or merger, resolutions and plans of liquidation or merger along with your Form 990 or 990-EZ. You may also need to provide any other relevant documentation.
State Filings
Organizations in certain states must notify the state attorney general or other appropriate state office of the organization’s intent to dissolve, liquidate, or terminate. A list of state officials can be found on the Charities and Non-profits Web site at www.irs.gov/charities. Enter State Nonprofit Incorporation Forms and Information into the search window.
Private Foundations
Termination of Foundation Under State Law
For the short tax year in which your foundation is fully liquidated, dissolved, or terminated, you must file a final Form 990-PF, Return of Private Foundation. You should check the Final Return box in the header area on page 1 of the return, answer yes to the question whether the foundation had a liquidation, termination, or dissolution; and provide the information set forth in General Instruction T of the Form 990-PF instructions. This information includes the following:
- A statement attached to the return explaining the termination,
- A certified copy of any liquidation plan, resolution, etc., and all amendments or supplements that were not previously filed,
- A list of the names and addresses of all recipients of assets, and
- An explanation of the nature and fair market value of assets distributed to each recipient
You also must consider the special rules that apply to termination of private foundation status.
Termination of Private Foundation Status
Once an organization is classified as a private foundation, it may only terminate that status under the provisions of Internal Revenue Code section 507. Under section 507, there are four ways to terminate private foundation status, two of which involve tax liability:
- Voluntary termination by notifying the IRS of intent to terminate and paying a termination tax - To voluntarily terminate under section 507(a)(1), the organization must send a statement to the Manager, Exempt Organizations Determinations (Internal Revenue Service, Exempt Organizations Determinations, P.O. Box 2508, Cincinnati, OH 45201) of its intent to terminate its status under section 507(a)(1). The statement must provide, in detail, the computation and amount of private foundation termination tax. Unless the organization requests abatement, it must pay the tax at the time the statement is filed.
- Involuntary termination - for either willful repeated violations or a willful and flagrant violation of the private foundation excise tax provisions and becoming subject to the termination tax
- Transfer of assets to certain public charities - A private foundation may terminate its status under section 507(b)(1)(A) by distributing all its net assets to one or more organizations with a ruling or determination letter described in section 509(a)(1). However, the organization to which the distribution is made must have been in existence and so described for a continuous period of at least 60 months before the distribution. A private foundation that terminates its status in compliance with section 507(b)(1)(A) is not required to notify the IRS of its intent to terminate, and does not incur any tax under section 507(c).
- Operating as a public charity for a continuous period of 60 months after giving appropriate notice - An organization may terminate its private foundation status under section 507(b)(1)(B) if it meets the requirements of section 509(a)(1), (2), or (3)) for a continuous 60-month period beginning with the first day of any tax year, and notifies the Service before beginning the 60-month period that it is terminating its private foundation status.
- The name and address of the private foundation,
- Its intention to terminate its private foundation status,
- The Code section under which it seeks classification (section 509(a)(1), (2), or (3)),
- If section 509(a)(1) applies, the specific type of section 170(b)(1)(A) organization for which it seeks classification,
- The date its regular tax year begins, and
- The date the 60-month period begins.
A foundation may also transfer its assets to another private foundation, commence voluntary termination, and pay no termination tax because it has no assets. In this case, the transferee acquires all of the aggregate tax benefits of the transferor associated with the transferred assets.
REFERENCES
Form 990, Return of Organization Exempt From Income Tax -
http://www.irs.gov/pub/irs-pdf/f990.pdf
Form 990-EZ, Short Form Return of Organization Exempt From Income Tax -
http://www.irs.gov/pub/irs-pdf/f990ez.pdf
Schedule N: Liquidation, Termination, Dissolution, or Significant Disposition of Assets -
http://www.irs.gov/pub/irs-pdf/f990sn.pdf
Form 990-N, Electronic Notice (e-Postcard) for Tax-Exempt Organizations not Required To File Form 990 or 990-EZ - http://www.irs.gov/charities/article/0,,id=169250,00.html
Form 990-PF, Return of Private Foundation - http://www.irs.gov/pub/irs-pdf/f990pf.pdf
Form 990 Series, Filing Phase-In -
http://www.irs.gov/charities/article/0,,id=184445,00.html
State Non Profit Information -
http://www.irs.gov/charities/article/0,,id=167760,00.html
Life Cycle of a Public Charity -
http://www.irs.gov/charities/charitable/article/0,,id=122670,00.html
Life Cycle of a Private Foundation -
http://www.irs.gov/charities/foundations/article/0,,id=127912,00.html
Publication 4779 (May 2009)
Catalog Number 53287F
http://www.irs.gov/pub/irs-pdf/p4779.pdf
24 Factors In Developing an Exit Strategy for Nonprofit and Nongovernmental Organization (A Business Plan in Reverse)
http://dongriesmannsnonprofitblog.blogspot.com/2008/10/24-factors-in-developing-exit-strategy.html
Concern for Leaders of Small and Mid-size NPOs in This Economy
http://dongriesmannsnonprofitblog.blogspot.com/2009/06/concern-for-leaders-of-small-and-mid.html
Nonprofit Collaborative or Partnership Agreements:
http://dongriesmannsnonprofitblog.blogspot.com/2009/05/nonprofit-collaborative-or-partnership.html
Posts
37 comments:
This was very helpful. I founded a non-profit organization almost ten years ago and I've done everything myself because of an inactive board. We haven't raised any funds and have never had anything to report, so I've decided to dissolve it, yet privately own the company myself. After all, it's been only me anyway. Thanks for this post.
Hi,
I am sorry to hear that your vision did not become fulfilled. You are taking the correct steps to disslove. I am pleased the article helped.
My best, Don
I am in a similar situation to Momsweb in that I am in charge of a practically defunt non-profit. There are no funds left to speak of, no assets and no participation from the other members. I got the okay to officially dissolve and have sent the 990-n postcard. How do I draft the letter to the state regarding the dissolution as there are no assets to distribute. I just want to make sure I file correctly to have everything wrapped up. thanks
Hi, Kelly,
Look at the state web site for dissolution of business or nonprofits. States have a process for this and forms are generally on line. There will probably be a fee. Here is the form NJ uses, as an example only
http://www.state.nj.us/treasury/revenue/dcr/pdforms/c159b.pdf
You cannot own a nonporofit organization as a single owner if that is what you have in mind. Check your state law on incorporating a nonprofit. If you are going for-profit, then the business law of your state will guide you.
You should also take down anything that has been put on a web site about the organization.
I hope that helps. Don
Kelly,
For some reason the NJ URL broke. Please copy this and paste, with no space after treasury/
http://www.state.nj.us/treasury/ revenue/dcr/pdforms/c159b.pdf
I meant nonprofit not nonporofit. Bad spell check. Don
Can a ceo of a public non profit just take ownership of all the funds and capital property? There is 5 or 6 million involved?
Based on minimal "facts" and assuming the public nonprofit is organized in the United States and recognized by the IRS as tax exempt, no. if the whole nonprofit is really a fraud and not organized in a state and not recognized by the IRS as a tax exempt organization, then there are other problems. Do you want to do something about this group? How are you associated with the group - staff, board, client, friend or what? What proof do you have that this has happened? if this is true then it needs to be reported to the state attorney general, the IRS and local law enforcement as well as any funders - as a start. Such crimes do unfortunately occur frequently in nonprofits when the board and funders do not accept responsibility for oversight and accountability.
Do you have any steps for a working non-profit attempting to take on another dissolving non-profit?
Good question. First and foremost, hire a good lawyer. I say "hire" because a volunteer lawyer will not be able to accomplish all that should be done. For a look at some of the considerations see the blog Nonprofit Collaborative or Partnership Agreements:
http://dongriesmannsnonprofitblog.blogspot.com/2009/05/nonprofit-collaborative-or-partnership.html
See also my article about how to hire a lawyer
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
Those should give you a head start as to whether merger is a good idea for your group.
I am a fan of nonprofits merging whenever they can in this climate of funding and critical assessment of the nonprofit field. We need stronger nonprofits meeting their missions but also becoming advocates for their mission, clients, customers and for the sector as a whole.
Hire a lawyer, be true to the mission and perform due diligence.
Best wishes in your endeavor.
Don
Love the article, but do you have any info on how we can convert our non-profit to a for profit entity?
Hello Meals
Good question.
I have not written on this subject but here are some quick and helpful information and links for help.
Consult an attorney in the area who is familiar with corporate law. Prepare an audit of the nonprofit by a CPA before the change.
Your state or province laws will be mostly in play here. Their web site can lead you to the paper work involved and what departments or agencies you have to touch base with. There may be local as well as state and federal tax laws relative to handling the money and other property, land, building(s), computers, desks, etc. that belong to nonprofit.
NPO assets must remain in a nonprofit tax exempt status or taxes must be paid on them. Check with your lawyer.
This may require a name change so check with state law to make sure you can use the name in a for-profit mode. You will have to get a new FEIN but you need a corporate name for that
Change all social media about the nonprofit organization..
Retain all corporate information about the nonprofit See
http://dongriesmannsnonprofitblog.blogspot.com/2008/11/one-phase-of-nonprofit-organizational.html
How to find a lawyer -
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
24 Factors for Developing an Exit Strategy
http://dongriesmannsnonprofitblog.blogspot.com/2008/10/24-factors-in-developing-exit-strategy.html
Contact the IRS about the change and that the nonprofit tax exempt organization has dissolved.
IRS guidance in the change of an organization's structure
http://www.irs.gov/businesses/small/article/0,,id=99903,00.html
IRS links to all their forms with instructions for a tax exempt organization including dissolution.
http://www.irs.gov/charities/article/0,,id=159930,00.html
and
http://www.irs.gov/charities/article/0,,id=214269,00.html
Closing a business check list
http://www.irs.gov/businesses/small/article/0,,id=98703,00.html
Cancelling an FEIN
http://www.irs.gov/businesses/small/article/0,,id=177073,00.html
The local or state Small Business Agency will have help available for you.
http://www.sba.gov/category/navigation-structure/starting-managing-business
For additional information on dissolving an exempt organization, call (877) 829-5500 or your local branch office of the IRS.
Article at Social Edge
http://www.socialedge.org/discussions/business-models/archive/2007/02/05/converting-from-non-profit-to-for-profit-status
Walden University recently published a brief overview about the change you propose
http://thinkup.waldenu.edu/finance-and-accounting/taxes/item/11738-how-to-change-my-business-entity-from-nonprofit-to-profit
A list with links to all state and local agencies you may have to communicate with
http://www.statelocalgov.net/
Don
Dear Don, Thank you very much for this detailed and informative piece. I am helping to dissolve a now defunct 501(c)(3) org registered in California. I just learned that in addition to the IRS papers, I will need to file with the CA Secretary of State a form on "Domestic Nonprofit Corporation: Certificate of Election to Wind Up and Dissolve" and "Certificate of Dissolution." There are no fees associated with filing these forms. My question to you is are there any fees that I need to pay to IRS to terminate the nonprofit status and the corporation? Thank you so much in advance.
Hi, Lev. There are no IRS' fees to dissolve a tax exempt organization. Please see
http://www.irs.gov/charities/article/0,,id=156422,00.html
Don
For some reason the link broke on the link to the IRS article on terminating a tax exempt organization.
http://www.irs.gov/charities/article/0,,id=156422,00.html
Our board voted to dissolve our non profit and we are beginning the process. We have a considerable amount of debt that we won't be able to pay off. Our board president told me today that he wantss to start a new non-profit and transfer our programming and assets to the new organization so they can continue services without the debt. I feel this is in bad faith and probable illegal. Is this something he could do?
It would seem to me that those owed money have a claim on the assets to settle accounts. The board president may be edging to fraud. I would suggest you talk to the president and suggest she/he stop, act responsibly and pay the debts. The board should have a lot to say about this and prevent the transfer as you indicate. The property, assets do not belong to the president or any member of the board. I also suggest if it is not stopped that you talk to the county attorney's office or state attorney general office. Are you on the board or a staff member? You could have some liability if you let this stand. Don
Don, Thank you for the reply. I am a staff person at the organization and there are actually two of four board members working together on this idea. Our bylaws state that we must have 5 board members and we havn't since last November because those two board mdmbers were against adding anyone.
Hi again, Anonymous. These additional facts help. It seems that the executive director has her/his hands full. The issues you raise certainly can be very unsettling for staff, leaving you wondering about what is going on and what is happening with your jobs. Does the executive keep you all posted accurately and timely about events or are you piecing things together trying to make sense of it all. It surely can make you get out your resume for updating, doesn't it? I hope the exec is keeping you all informed. The battle seems to be at her/his level, but if she/he is also part of the ongoing problem and not keeping you informed, you may have to be certain of your facts to act. Have you been talking with other staff about the board issues? What are their feelings? How are they handling things? How are you handling things?
Don
Don,
I have had a nonprofit for 10yrs and times hav been extremely difficult the last year. I have a soso active board but im thinking of dissolving. The only thing is we just engaged in a new project and have received about 10,000 towards it, can i give the funding back and start a for-profit and continue that project and request funds be given under the forprofit. It wasnt a grant. question 2. what happens if we have debt?
Hello. You have not given enough information for me to answer your questions. The $10,000 should be returned to the donor if you are not going to fulfill the project for which the funds were given to the organization. If the organization intends to use the $10,000 for some other purpose, you should talk to the donor about that. I suggest you talk to an attorney in your community who is familiar with the law affecting nonprofits about these issues including paying off the debt. See my article
How to find a lawyer for your nonprofit
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
I have a newborn non-profit in its earliest stages. It started as a part of my sole-proprietorship. We conducted events for pay to help raise funds to create the organization. We filed the articles of incorporation. Unfortunately, it has been only me, volunteers have failed to help, and I am running out of energy to get the organization going. I have a pile of uncashed checks for the events we held. I'm thinking of discontinuing efforts to make the organization completely legitimate and dissolving the articles of incorporation I've filed. We have not filed taxes yet (first year), have not broke $1000 in income, and have two board members who are uninterested in continuing. As the founder, what do I do to convert the organization back to my sole proprietorship only? The secretary of state office has told me to have our registered agent send them a letter to dissolve, but it seems that is not everything I need to do. This is in Washington state. Could you please advise?
After 20 years plus, I too am considering closing our nonprofit doors. I feel better after reading the posts. My Board is ineffective and the organization has moved slightly away from its mission and cannot meet the needs of the target population because of lack of volunteere, poor commitment to tasks, weak infrastructure. We receive funding, can't get the help needed. I can relate to those who say that it has come down to that one person running things. It can't be done effectively. The information here has been just what I needed. I no longer feel like a failure, just over my head. We've done some great things for the community,but it is time to shut the doors.
Wow! I too am experiencing some of the same problems and I believe it is time to close the doors after 20 plus years of providing services to the community. We have grown so that we have moved slightly away from the mission and we cannot meet the demands anymore: ineffective Board. lack of committment and a poor volunteer base. I do find that I am holding things together by a string. The voluteers and target population want the organization to go on, but we no longer have the infrastructure. Great information. Now I can move forward.
Don,
I was treasurer of an Elementary school PTA in Pennsylvania that dissolved in Nov 2011. I am just now completing the IRS 990 and notifying PA Dept of Corporation.
Another Elementary school nearby in the same district is a legal PTO. Both schools' parent organizations voted to join into one PTO after the district restructured the schools (one is now k-3 the other 4-5 grade).
As newly appointed Treasurer of the PTO, I am thinking that all I need to do is file for name & activity (add location) changes with the IRS, and amend the articles of Incorporation with PA for the current PTO. Do you think that is correct?
Hi Holly,
It's a legal question and I cannot give legal advice for you. I would send out an "All Points Bulletin" seeking a lawyer-parent with knowledge about nonprofit/business law who will give an hour or so pro bono. It seems to me that you may also have to amend IRS Form 1023 but I am not certain of that. That's in addition to filing state forms. Most if not all the forms you need from the state and IRS are probably online. You may want to be sure that you have to undergo so much hassle for an organization with what, perhaps under $5,000 annual revenue.
How to find a lawyer for your nonprofit
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
Don
Don,
Almost all of the members of my nonprofit have passed away (and the whole board of directors) and I (the wife of the previous director) am still getting bills and being asked for services that I am happy to pay and/or provide, but have no access to the corporate account. How can I temporarily be appointed to handle financial matters until the majority of responsibilities are complete? I believe that dissolution is premature, considering there are still services that members' families are entitled to.
Thank you!
Hello Anonymous,
I suggest that you attempt to add board members to comply with the requirements of the organization's bylaws, if the number is currently lower than that.
I am concerned by the sentence I have copied here that the organization seems to be formed to benefit its members rather than the general public under nonprofit tax exempt law in a state and the IRS -
"considering there are still services that members' families are entitled to."
I highly recommend that you talk to an attorney familiar with nonprofit tax exempt laws. See my article,
How to find a lawyer for your nonprofit
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
My best to you,
Don
thank you!
Hi Don! We are in the process of changing over the board over a not-for-profit high school hockey club. The future of our club is in question and we may be looking at merging with another club or dissolving altogether. The previous board had signrd a 5 yr contract with the rink for our ice costs, in doing so this locked us in at a much lower rate. We still have 1 year left on that contract. My question is how we handle that contract if we are forced to merge or dissolve? Is there anyway the current board could be held personally liable for the remaining balance on this contract?
Hi. Thank you for posting your comments and question. It's a legal quesion that I cannot answer for you. You may find useful information at these links -
24 Factors In Developing an Exit Strategy for Nonprofit and Nongovernmental Organization (A Business Plan in Reverse)
http://dongriesmannsnonprofitblog.blogspot.com/2008/10/24-factors-in-developing-exit-strategy.html
How to find a lawyer for your nonprofit
http://stepbystepfundraising.com/how-to-find-a-lawyer-nonprofit/
I hope you are able to sort through the issues involved in a merger, the contract, fiscal arrangements and so on which can be complex. Your board should have the advice of an attorney in the process.
My best,
Don
Don,
This article has been very informative. I formed a NFP approximately two years ago with the state of Illinois. I Invested $1000 into it. In the meantime, nothing has come to fruition. Have not filed taxes. Did not file for 501(c)3 status. Filed 1 Annual Report. If I were to dissolve at this point, can I keep the remaining investment or do I have to donate it to similar organizations at this point?
I realize I may be oversimplifying the matter. I'm simply looking to move swiftly in dissolution as I have been meaning to for over a year.
Your insight on this matter is appreciated greatly.
Best,
Brad Levy
I am on the Board of a nonprofit which has existed for over 50 years, but for various reasons dissolution is probably the best action to take at this point. I have 3 questions. (1)Unfortunately, our Bylaws do not specifically address the issue of dissolution. I am unsure whether the entire membership needs to vote for dissolution or whether the Board can make the decision. How should we proceed? (2) We have considerable financial assets. I have investigated any restrictions on all the donated funds, but I fear there are no remaining family members (to ask for permission to redirect the funds) for some of the funds so I do not know how to ethically find a new 'home' for the monies. (3) For the unrestricted funds which have been used for scholarships, is it ethical to spend the capital, knowing that we will eventually cease to exist?
Thank you.
Hello. Since you indicate the bylaws do not address the dissolution of the organization look at the incorporation papers and state law. You did not mention whether the group has been recognized by the IRS as a tax exempt organization. The IRS also has requirements relative to dissolution.They should give you your answer. Inasmuch as the organization has resources it may be worth hiring an attorney who works in corporate and tax exempt law to guide you and the board through the process. The issues you raise are legal issues not just ethical ones.There are many potential red flags in what you wrote.
My best to you as you sort out the issues. Don Griesmann
Hello Brad. I an sorry for the delay. It fell through a wide crack in my life. The answers to your questions will be found in Illinois state nonprofit law and possibly the state incorporation papers you filed. You indicate the organization did not file with the IRS for recognition as tax exempt so they would not be involved. If you took the donation as a tax credit they could be if the funds are not given to a similar nonprofit tax exempt group. A donation is a donation. Be careful to document everything you do when you file with the state and the donation and keep copies of everything for at least seven years .I do suggest you talk to an attorney licensed in Illinois and who practices in corporate and nonprofit law.
I wish you well. Don Griesmann
We started a 501 c3 4 years ago and are looking to transfer our funds into the Trust of a Children's Hospital that we have soley supported. This will streamline our dispersement of funds since our mission is providing grants for families traveling for a specific fetal cardiac treatment offered at this facility.
We are always under $50,000 in gross receipts annually and therefore file the 990 e post-card. When we dissolve do we need to file the Schedule N?
If so, I looked it over and it appears we could fill this in ourselves. We will simply be transferring all money in our checking to Boston Children's Hospital. There are no other assets and there will be no one on the board who will be on the staff or board of this hospital.
Would you advise against filing this form ourselves?
Hello,
We are a smaller 501 c3 and would like to transfer our money to teh Trust at a Children's Hospital that we have worked closely with.
We have filed the 990 e postcard in for the past 4 years. When we dissolve our organization, do we need to file the Schedule N? I don't see anything written about the smaller organizations less than $50,000 in gross receipts.
We would be transferring all of our money to the Trust, we have no other assets, and none of our board members are affiliated with the hospital. So, when I looked at the Schedule N I thought I could fill it in if needed. so my two questions are: Being 990 e-postcard filers do we also need to file a Schedule N if dissolving and would you advise against filling in the Schedule N form ourselves?
Thank you!
Hi
I have a question. I formed a non profit organization in 2005 with 5 Board members, by 2010 the number came down to 3. I have worked so hard to keep it going because no one is paying much attention to it as a result of this we missed 3 consecutive years not filling the 990-N electronic form and IRS gave us an automatic revocation. We have to reapply all over again and its a lot of work. We both just decided to close it. My question is (1) we are not registered with the state attorney general, how do we get the clearance letter from them. (2) i believe to close the organization we have to fill 990 electronic form. But how do we do that when we are already revocked (3) we don't have any assets nor debts. Please advise
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