Dissolving a nonprofit corporation requires you follow specific regulations and steps. Understanding the differences between for-profit and nonprofit dissolution will help you close up shop with relative ease.
The dissolution of a 501(c)(3), otherwise known as a nonprofit organization, occurs most commonly because of a merger with another 501(c)(3) nonprofit.
Dissolving a nonprofit organization is different from dissolving a for-profit company.
Because of its tax exempt status, nonprofit assets cannot be distributed to business members. Such distribution would violate the nonprofit status of the company. You are not permitted to give away or sell the assets of a nonprofit but must instead transfer them to a similar nonprofit organization.
Steps to dissolving a nonprofit
File a final form
In this type of dissolution, the IRS mandates that the board of directors of the nonprofit organization complete certain requirements to "dissolve," or shut down, the 501(c)(3). If your are terminating your organization or going out of business by merging with another organization, you need to file a final form by the 15th day of the fifth month after the end of the period for which your tax return is due.
Vote for dissolution
501(c)(3) dissolution involves having your nonprofit organization officially vote for dissolution of the corporation. If no voting members exist in your nonprofit, the board can move to close and terminate the business of the nonprofit.
File Form 990
This is the official IRS form that wraps up your nonprofit and declares it dissolved for tax purposes. If you don’t file this form, the IRS may continue to consider your business operational. There are three Form 990 options, the amount of assets and your gross earnings for the fiscal year that you are terminating (dissolving), determines which form you need. The IRS needs to know that this is your final tax return. Completing the form is rather simple. Just fill in the boxes on the correct version of Form 990. Check the box labeled: "Termination," which can be found at the top of the first page. Answer "yes" for terminated, liquidated, dissolved, or distributed net assets. If your business is set to have a successor or may be being transferred to another business, you should enter that corporation name on the line shown.
- 990-N (e-postcard). This form is generally filed for nonprofits with gross receipts of $50,000 or less.
- Form 990 EZ. If your nonprofit gross receipts were under $200,000 dollars and your total assets were under $500,000 for that tax year, you can choose to file the 990 EZ.
- Regular 990 Form. If your nonprofit has $200,000 or more in gross receipts or an asset total of $500,000 or more, you must complete this form.
File the paperwork
Along with your Form 990, the IRS will want a certified copy of your articles of dissolution (or merger) and plans (if any) to liquidate or merge your nonprofit. Schedule N of Form 990 lists specific documents to be filed and those are available on the IRS website.
What to do after filing
To make sure that your nonprofit dissolution is completed properly, you must check with the Attorney General's Office in your state to find out if supplemental filings are required in your particular state of incorporation. Some states will insist upon receiving certified copies of your articles of dissolution and your 990 Form.
How long will dissolution take?
With just a bit of planning and form completion, you will have your Nonprofit Corporation dissolved within thirty to sixty days, depending upon your state. Step by step, you can do it. Of course, always check with your tax advisor to stay current on the ever-changing Tax Code Requirements.
Find out more about Closing Your Business