Tax Preparation Checklists To Help You Get Your Tax Documentation In Order

Schedule N (Form 990 or 990-EZ), Liquidation, Termination, Dissolution, or Significant Disposition of Assets

Schedule N Form 990 or Form 990-EZ is used by organizations for reporting information relating to dissolving a nonprofit corporation and going out of existence or disposing of more than 25 percent of its net assets through a sale, contraction, exchange, or other disposition.

Organization that completely liquidate, terminate, or dissolve and ceased operations during the tax are required to prepare and submit Schedule N, Part I to the IRS. Organization in the process of closing down, may need to complete complete Part II.

Who is Required to Prepare and File Schedule N and Tax Form 990 or 990EZ?

If you are an organization that answered “Yes” to Checklist of Required Schedules, Part IV Form 990, line 31 or 32; or Form 990-EZ, line 36; your organization must prepare and submit Schedule N with Form 990 or Form 990-EZ, with your tax return.

What are the Conditions that Require an Organization to File a Schedule N Tax Form?

Organizations required to complete Schedule N include any organization that during the tax year completely liquidated, terminated, or dissolved-ceasing operations, and any organizations that were still terminating their affairs at year end but had not completely liquidated, or completely dissolved and ceased operations.

Organizations that have terminated operations and have no plans for future activities must prepare Part I of Schedule N. Any organization that went through a significant disposition of nets assets is required to prepare Part II of Schedule N.

Schedule N (Form 990 or 990-EZ),

Reasons Behind the Use of Form 990, Schedule N - Dissolving a Nonprofit Corporation

  • The organization has fulfilled its mission
  • Insurmountable challenges to the organization’s sustainability
  • Another organization is fulfilling the needs for your nonprofit
  • Your nonprofit is merging with another nonprofit

Dissolution of tax-exempt organizations is a change in your nonprofit’s corporate status that is governed by state law, and requires you to properly notify the IRS at the proper time that the nonprofit is closed and no longer in operation.

Schedule N Form 990 Termination Guideline

Schedule N Form 990 Tax Prep Checklist

click to print schedule m form 990 tax preparation checklist

With this Guideline for Closing Down a Non-Profit Organization, it is Important to Consider the Community Impact and Those Effected.

  • those who were served by the nonprofit’s mission
  • organization volunteers, staff members, and board members

Significant adjustments are common when a nonprofit closes its doors. Managing the message of why the organization is dissolving can be a very important part of this process.

Federal laws tax-exempt nonprofit dissolution

  • The charitable organization must distribute its assets to another tax-exempt organization (see Schedule N of the IRS 990)
    • Identify other nonprofit's that will accept the assets including:  cash, tangible property (vehicles, office equipment, etc.) intangible property like databases, and intellectual property
  • Legal documents may be required for the transfer of assets including property deeds, contracts, and trademark registrations.

Board of Directors Responsibilities

  • the board reviews organization articles of incorporation and bylaws for determining continued operation or dissolution
  • determine if reorganizing through bankruptcy is appropriate
  • the board votes to dissolve the organization (documented minutes)
  • the board votes to approve a “plan of dissolution” (drafted plan)
  • insure the minimum number of bylaws required board members remain seated for proper dissolution processes
  • file dissolution papers with the state
  • file the final annual report (Form 990) with the IRS
  • determine any corporate actions needed after active operations

Determine how the board will communicate with employees, volunteers, the community, and other stakeholders (including donors)

  • balance transparency with respecting confidentiality
  • be transparent in the winding down process
  • respect the confidential nature of financial and personal elements
  • consider naming a spokesperson
  • establish key agreed-upon talking points
  • keep communications from the organization consistent.

Drafting the Plan of Dissolution

  • create a written plan for distributing remaining assets
  • the plan should include all the assets and liabilities
  • address all remaining liabilities
  • describe how liabilities will be satisfied
  • prepare a “certificate” or “articles of dissolution”
  • file dissolution papers with the state registration agency
  • notify the state of incorporation of plans to dissolve
  • prepare to notify the IRS via Schedule N, of the IRS Form 990, about the intent to Liquidate, Terminate, or the Dissolution, or Significant Disposition of Assets
  • determine which nonprofits will receive the remaining assets
  • determine the fair market value of those assets
    • document the description of the assets
    • fair market value of the assets
    • date of distribution
    • information about the recipients

Know your state laws: some states require a nonprofit to petition the court or attorney general for dissolution approval. After filing the “certificate” or “articles of dissolution” with the state, the state stamps the it as “filed,” and returns the official document to the address of record

Create a Plan to Pay the Nonprofit’s Liabilities

  • Identify liabilities, including taxes
  • review how future contractual obligations will be handled
  • create a plan for paying off current debts
  • terminate recurring or future liabilities
  • the final financial statements should be planned out to reflect no remaining liabilities, or assets

Create a Plan to Distribute Organization Assets

  • assets must be transferred to another tax-exempt organization or to the government. (review incorporation articles and bylaws
  • Review Schedule N of the IRS Form 990 for asset distribution
  • determine which assets will be transferred or contributed
  • determine which assets will be sold, and “fair market value.”
  • determine which assets may require external value appraisals
  • determine if trademark registration is a potential asset
  • document all transfers and sales
  • insure the transfer of assets are made to 501(c)(3) entities or to federal, state, tribal, or local government.

Address Other Legal Considerations

  • leases and other contracts
  • financial management (nonprofit’s auditor)
  • human resources (independent contractors and consultants
  • address employee unemployment compensation issues
  • address employment transitions
  • inform donors, sponsors, and vendors about dissolution
  • provide all donors with gift acknowledgements

Notify Pertinent State and Federal Agencies

  • Attorney General
  • state charity official for charitable solicitation registration
  • state taxation office
  • state department of labor
  • state licensing authorities
  • department of health or human services
  • WARN laws (Worker Adjustment and Retraining Notification)
  • the IRS by filing the final IRS Form 990 (and 990-T if applicable)
  • Submit Schedule N, for documenting the nonprofit(s) to which your organization transferred its remaining assets
  • for non tax exempt organizations with an “EIN” (employer identification number), provide a letter to the IRS requesting “termination of the EIN account.