Preliminary Steps
Shutting down a nonprofit involves several stages. Take care of your employees and clients. Pay your debts or negotiate settlements before closing. Document your work. To dissolve a nonprofit corporation, the board of directors votes on dissolution, and if the organization has members, the membership must also vote to approve dissolution. Prepare articles of dissolution and a written plan for liquidating remaining assets. File the organization’s final Form 990 with the IRS.
Understanding why nonprofits close is essential as it guides the process. IRS requires dissolution procedures in Articles of Incorporation to ensure proper termination.
IRS Requirements and Procedures
Internal Revenue Code Section 6043(b) establishes rules for when a tax-exempt organization must notify the IRS of liquidation, termination or contraction. This notice removes the organization from IRS records and stops IRS letters about missed returns.
Dissolving a 501c3 nonprofit involves significant decisions and requires following regulations. Nonprofit assets cannot be distributed to members but must instead transfer to a similar nonprofit.
Legal actions finalize dissolution. Completing and filing Form 990 maintains tax-exempt status and failing to do so can result in penalties and loss of status.
Formal Dissolution Process
The board must first make a dissolution plan, covering outstanding liabilities and assets.
A 501(c)(3) organization, when dissolving, must distribute assets for a 501(c)(3) exempt purpose or to the government for a public purpose. File a final return or notice if terminating.
Additional Considerations
If a nonprofit fails to file its annual return for three years, the IRS automatically revokes tax-exempt status. These fines and reporting requirements do not go away when the organization earns over $1 million in gross income, as the IRS increases late fees to $100/day.
Many charitable nonprofits close voluntarily, usually because funds or resources run out, or the mission becomes outdated.
FAQ
How do I close a nonprofit with the IRS?
To dissolve, vote for dissolution, and file Form 990 and additional paperwork with the IRS.
What is the IRS form for dissolution of a non-profit organization?
The board needs to approve a plan of dissolution before filing the necessary paperwork with the state and the IRS.