Sunday, June 29, 2008

Regulations Governing Dissolution

Generally, once the board moves to dissolve the NPO, it is no longer considered active by the IRS. One of the final moves an organization may make might be to finish reporting any outstanding income or expenses and file all final paperwork with the state, informing them of the organization’s non-active status.

Board members of a nonprofit are not permitted to divide up remaining assets of the NPO among themselves. All money, property and equipment must be put to charitable use. “Charitable use,” however, can take many forms. Any money that is left over can be given to another charitable organization or used to pay off any debts the NPO owes. Once all funds are allocated, the NPO must finish the process by closing its accounts.

Property may be given to another NPO or may be donated to the community, as in the formation of a park. In either case, the end use of the property must be considered charitable. Any property that is sold, traded, or otherwise disposed of within two years of receiving it as a donation must be documented to the IRS. The NPO must file Form 8282, “Donee Information Return (IRS-557, 2005).” If there is no property owned, but a space is rented or leased, the nonprofit may have to pay a fine for breaking the lease. Any remaining funds may be used to pay off any such fines associated with closure.