Notifying the IRS of Organizational Changes

admin | August 24, 2009

Tax-exempt organizations and for-profit companies are going through tough financial times.

To strengthen their financial standing, attract additional funding or better serve their communities, some tax-exempt organizations are merging with like-minded groups, while others are forced to shut down permanently. If your organization is affected in this way, you have a lot to think about and do.

There are the obvious considerations, such as dealing with the effects on your staff, volunteers, donors and the community that you serve. But there are also things that you may not have thought about. For instance, don’t forget to tell the Internal Revenue Service of your change in status and show how your organization distributed its assets.

What Should You Do?
Most organizations will notify the IRS of the changes by filing a final Form 990,
Form 990-EZ or the e-Postcard (Form 990-N). Which form your organization uses depends on its gross income and assets. Generally speaking, larger organizations file a Form 990, while small organizations file the e-Postcard.

Each form has a specific area in which to provide the information about the termination or asset transfer. Form 990 and Form 990-EZ also require, in cases of termination or transfer of more than 25 percent of net assets, completion of a Schedule N, in which you must give more detailed information about how you distributed assets.

E-Postcard filers have the simplest process. Organizations with gross receipts of $25,000 or less will fill out and file the e-Postcard electronically. All they need to do is check the appropriate box to report a termination

Private foundations have a different procedure. They must notify the IRS of termination by filing a final Form 990-PF. In addition, private foundations must consider the special rules that apply to termination of private foundation status. Visit http://www.irs.gov/charities and go to “Life Cycle of a Private Foundation” to see the complete explanation.

Timing is Everything
When your organization terminates or merges into another organization, your final 990 filing may have a different due date than the organization’s normal annual return. This final form is due four months and 15 days after the date of the organization’s termination. Although it may not seem like it at the moment, filing that final Form 990 is an important and necessary step to help smooth your organization’s transition.

For more information, talk to your tax preparer or visit the IRS Web site, http://www.irs.gov/charities.