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.
