Non-profit question

Client wants to dissolve a non-profit with the IRS (received IRS ltr). It was never active and never received any donations. The officer opened a new bank account for the non-profit and deposited $2,000 of her own monies in it. When dissolving can this officer take this money back without running into problems? I read that remaining assets need to be spend on charitable purposes when dissolving. Or does she need to donate it to another non-profit?

How was the 2k treated? If as a charitable donation....then bylaws would control, usually has to be donated to another nonprofit.

If as a loan, no problem. And maybe not too late unless she took the donation on 1040 already.

You don't dissolve it with the IRS. You dissolve with the state authority where it was formed.

Highly dependent on state law. What state is this in? The state AG's office (or equivalent) may be able to assist/have some guidance.

Is the non-profit recognized by IRS, i.e. 501(c)(3)? is there a determination letter?

He made a donation. He doesn't get that back. Upon dissolution the assets of the org are distributed as specified in the articles of organization, which will no doubt be to another charitable org.

You don't dissolve it with the IRS. You dissolve with the state authority where it was formed.

It is my understanding that you have to send the termination info to the IRS.

"Generally, most organizations must notify the IRS when they terminate. Organizations that applied for and received a determination of exemption:
If you applied for and received a determination of tax-exempt status and you are not required to file an annual return or notice, you should send your termination information and documentation described below to the TEGE."

Client will donate the money to a charity. A no-interest loan to the charity could have been an option but it's better if a loan document had been attached to the 1023 (which isn't the case). Client doesn't want any issues so this seems the best way to go.

CA situation is different. They forgot to file 3500 for non-profit status.

I agree with that but first you have to do the state dissolution.

Whether or not they filed a 3500 with CA, they still need to follow the procedures for disposition of assets and dissolution. I think they would need/be advised to get permission from the CA AG on the distribution of assets. I'm not familiar enough with tax-exempt entities or nonprofits to know the answer, but I know enough to suggest that you contact the AG or try to find information from the AG and be absolutely sure you don't have to do anything before distributing assets.

It's a corporation for CA because the form 3500 was never filed. It's been suspended on the Secretary of State website. It's my understanding that after 5 years the CA FTB and CA SOS will legally terminate the business. The officer is taking out her initial shareholder contribution.

Well, she CAN'T be a shareholder of a nonprofit. Back to square 1. Did she write it off as a contribution????? And how did the non profit book it??????

She's an officer in the federal non-profit but a shareholder for CA because the paperwork to become a non-profit in CA was never filed. For CA it's a corporation (which has been suspended). She'll donate the money in the non-profit bank account to another charity. This is money she put in initially to get the non-profit started. For the corporation, she surrenders the stock and gets her money back.

I think you're mixing things up. It may be wise to advise they speak with an attorney.

There's no such thing as a federal nonprofit, except maybe some weird entity types that are chartered at the federal level.

Form 3500 is a form to request tax exempt status. It has nothing to do with a corporation type. You can be a nonprofit corporation without requesting or being granted tax exempt status. My understanding is that you cannot obtain 501(c)(3) status as a for profit corporation.

[quote="atxsaltax" It may be wise to advise they speak with an attorney.
.[/quote]

Are you an attorney? If you are, what field do you specialise in?

Andrew, folks are just trying to help. It seems that you're caught between CA law and Fed rules. For Fed purposes, lots of non profit categories, only one of which gets charitable contributions: 501(c)(3).

For non profit purposes, there is no such thing as a shareholder. Now, if you've got CA problems of that order, I'd say it has nothing to do with the Fed.

It's only $2k...but still, be careful.

[quote="atxsaltax" It may be wise to advise they speak with an attorney.
.

Are you an attorney? If you are, what field do you specialise in?[/quote]

Not sure why you're asking but:

I am, but I am not licensed in California. My primary area of practice is state and local tax.

I think they would need/be advised to get permission from the CA AG on the distribution of assets. I'm not familiar enough with tax-exempt entities or nonprofits to know the answer, but I know enough to suggest that you contact the AG or try to find information from the AG and be absolutely sure you don't have to do anything before distributing assets.

'The only reason I asked is because of your answer "I know enough". I checked and they're not registered with the CA AG.

1) if they are a C(3), then there is no such thing as returning money back to her. ALL assets require distribution to another c(3).

2) if they are a c(4) or c(7), then I can see the money going back to the members.

I think they would need/be advised to get permission from the CA AG on the distribution of assets. I'm not familiar enough with tax-exempt entities or nonprofits to know the answer, but I know enough to suggest that you contact the AG or try to find information from the AG and be absolutely sure you don't have to do anything before distributing assets.

'The only reason I asked is because of your answer "I know enough". I checked and they're not registered with the CA AG.

OK, well I sincerely hope everything works out.

1) if they are a C(3), then there is no such thing as returning money back to her. ALL assets require distribution to another c(3).

Yes, that's what's going to happen, money goes to another c(3).

Client is not entirely open to hiring an attorney for the CA part who'll have to revive the already suspended CA corporation, file form 3500 to get non-profit status so that it's in alignment with the IRS non-profit, register with CA AG. And after all that work the attorney will have to dissolve it asap for CA.