Dissolution of a 501(c)(4) - Spidell

Dissolution of a 501(c)(4)

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Message Board Dissolution of a 501(c)(4)

This topic contains 4 replies, has 4 voices, and was last updated by Ward Pynn 2 months, 4 weeks ago.

  • Author
  • #175455
    Paul Cheatham

    I have a non-profit social welfare organization client that is exempt under IRC Sec. 501(c)(4). Over the years the membership has declined. The organization has been dormant for several years. They currently have only eight board members. There are no other members. They are selling their property for $1.2 million. Can the board members each take 1/8th. of the proceeds? There is no dissolution provision in their Articles of Incorporation.

    I called the IRS TEGE Taxpayer Service number in Cincinnati and spoke with a knowledgeable representative specializing in exempt organization matters. After some discussion, we concluded that there was no problem distributing proceeds to the current Board members. I realize the answer would be different if this was a IRC Sec. 501(c)(3) organization. The property they are selling was purchased with membership funds in 1959. No charitable contributions have ever been solicited or received.

    Will any State agencies object to distributing proceeds to current members?



  • #175535
    Lynn Freer

    I’m not sure. But I think in this case I would hire the services of an attorney who specializes in nonprofits. There could be severe tax consequences if they don’t do this correctly. Also, is the income taxable to the members? I would think the answer would be yes.

  • #175565
    Paul Cheatham

    Thank you Lynn.

  • #176300
    James McGowan

    This situation happened to me several years ago.  After the property is sold, the proceeds are distributed to the members/board as liquidating distributions from the non-profit. The members would treat the liquidating distribution as a capital gain. The basis consists of any initiation fee and any member contributions for capital improvements over the years.

  • #176460
    Ward Pynn

    Keep in mind that some 501(c)(4) organizations have charitable assets that fall under the jurisdiction of the Attorney General.  If this a relatively dormant (c)(4), then you ought to check to see if the Registry of Charitable Trusts has a file on them.

    Ward Pynn