Q:
We are disbanding our organization. We are a 501c3.
Is there anything special we must do prior to
closing our doors? What about regarding the distribution
of our assets?
A:
This must have been a difficult decision for the
board. Sometimes, however, it is clearly the best
decision to make.
There
are several things to consider. Let’s start
with whom you must communicate. You are obligated
to notify both the Internal Revenue Service and
the State. To let the IRS know about your decision
send a letter to the office of Exempt Organizations
Determinations (PO Box 2508, Cincinnati, OH 45201).
At that time you might also request a determination
letter or private ruling regarding any potential
tax consequences your organization faces by dissolving.
Of course, you don’t want to forget to file
a final 990. When you do, be sure to check the
box “Final Return” in the heading
area of page 1. To ensure that you are doing everything
by the book you may call the IRS Tax Exempt and
Government Entities Customer Account Services
office toll-free at 877-829—5500.
In
each state, who to contact and what must be done
will be slightly different. Here in Florida, you
must file Articles of Dissolution through the
Florida Department of State, Division of Corporations.
You can download that form by going to www.sunbiz.org
and clicking on “download filing forms.”
I
would certainly also send a letter to your supporters
and clients explaining the decision to dissolve.
I would stress your accomplishments over the years
and thank people for the part they played in helping
to change the community for the better. You can
refer them to other organizations that have a
related mission and similar values.
Before
you can dissolve, you must ensure that all your
creditors are paid. Look at your outstanding contracts.
There may be a time that is better than others
to actually cease operations. Determine if there
is any room for negotiation on these outstanding
contracts.
If
part of the reason you are closing your doors
is that you couldn’t sustain the organization
financially, this will require you to sell whatever
assets can be liquidated in order to meet your
obligations, including any penalties for early
lease terminations and so on. While you probably
don’t have the luxury of waiting to get
the best possible prices for what you are selling,
you can’t afford to sell at “rock
bottom” either. Someone could claim that
you are failing to meet your duty of care –
to make the best possible decisions on behalf
of the organization. Conceivably, they could file
a lawsuit against each of the directors personally
to make up the income perceived as lost to the
community’s benefit.
By
law, whatever remains in terms of cash or tangible
property must go to another exempt organization.
(This means that whoever is helping to close the
office can’t just take home any of the left
over items!) Many governing documents will indicate
that the organization designated to receive your
assets should have a related mission. As board
members you must also consider if the organization
will use your assets in a way that stays as true
as possible to your donors’ wishes.
You
have a real job ahead of you. I wish you luck.
Readers,
please note: The above information is critical
if your organization is in the midst of, or contemplating,
a merger. Depending on how the merger is structured,
one or perhaps both of the organizations will
be dissolved. Generally, if one organization absorbs
the other the assets of the absorbed organization
go to its merger partner. In such a case, the
remaining entity may be willing to also take on
any debt owed by the first organization rather
than forcing a sale. The remaining entity usually
recognizes that the donor list, volunteers, supplies
and so on that are received as a result of the
merger were probably the impetus for the merger
and thus more than compensate for the debt.
