TAX NEWS - DECEMber 2009

IRS Tax: IRS Reporting Requirements for Merging or Terminating exempt Organizations

Tax-exempt organizations, like other parts of the economy, are going through tough financial times. Some organizations are merging activities or assets with other organizations, while others are forced to shut down permanently.

Organizations going out of existence or disposing of more than 25 percent of net assets must report to the IRS their change in status and show how the organization distributed its assets. In these situations, the IRS is concerned in the value of any remaining assets and the disposal of the assets.


How to Report

Most organizations will notify the IRS of the changes through their annual Form 990, Form 990-EZ or the e-Postcard (Form 990-N). Which form an organization uses depends on gross income or assets. Both Form 990 and 990-EZ have a termination check box at the top of the first page of the Form, and specific questions about termination or asset transfer.

In cases of disposal of more than 25 percent of net assets, completion of a Schedule N, Continuation of Liquidation, Termination or Dissolution, is mandatory. This schedule requires detailed information about the disposition of assets and must be sent with the appropriate Form 990.

Private foundations will notify the IRS of termina-tion through their annual Form 990-PF. In addition, pri-vate foundations must also consider the special rules that apply to termination of private foundation status.


When to File

If an organization is terminating or effectively going out of business by merging with another organization, its final Form 990, 990-EZ, or 990-PF is due four months and 15 days after the date of the organization's termination. A final e-Postcard is due four months and 15 days after the close of the tax year.