I am the treasurer of a 501(c)(3) community center. We are thinking of closing the Center. What happens to the exempt status? Does it also cease? Can it be held in the hope of reopening the Center, or can it be transferred to another entity?
It is not unusual for a small nonprofit to shut down operations for a period of time to reorganize and gain enough funding to reopen the program. The exempt status will not be lost immediately. Although the IRS could revoke your exemption for failure to conduct a charitable program, it almost never happens. Under the Pension Protection Act, however, you are now required to report your continued existence to the IRS even if you don’t have the $25,000 of gross receipts to require filing a Form 990. If you fail to report for three state years, you will lose your exempt status. (See Ready Reference Page: “Small Nonprofits Must File E-Postcard to Retain Exemption.”)
You could lose your public charity status if you do not meet the public support test because you have had no income for five years. (See Ready Reference Pages: “Calculating Public Support Percentage.”) The one thing you can’t do is transfer the exempt status to another entity.
Monday, June 1, 2009