According to a report published by the UW Evans School of Public Affairs and the Washington Nonprofits
there were about 58,500 nonprofits in Washington in 2013. Of those, 32,500 were federally recognized exempt organizations but only 26,000 had filed an IRS tax return in the last two years. So what happened to the 6,500 that didn't file?
Some organizations just forget to file and only get three strikes before they are out but some organizations choose, for various reasons, to dissolve.
Dissolution, while a challenging decision itself, is not an easy task to complete. The single most important point to remember about closing an organization is the amount of time required because it can, literally, take years: years when there still needs to be some variation of continued operations as well as regular board meetings to complete the closing process. And, if your organization is on the receiving end of a dissolving organization's assets, the transfer of assets will not be immediate.
The Formal Process
For an organization with members, the Board must pass a resolution recommending dissolution to members. The members must approve by a 2/3 majority vote. If the organization has no members, dissolution must be approved by a majority of the Board of Directors. Upon approval, operations cease, other than those necessary to wind up affairs. Notice of proposed dissolution must be sent to all known creditors, the Attorney General regarding charitable assets, and the Department of Revenue.
Plan of Distribution
The Board must agree to a plan of what to do with assets. The proposed plan must be submitted to the Attorney General by certified mail at least 20 days prior to a meeting when the plan will be presented for a vote. Any plan to distribute assets (identifying a recipient organization(s) and a designated purpose) requires 2/3 majority membership vote or a majority vote of the Board.
Liabilities and Obligations
All liabilities and obligations must be paid. Then, all remaining assets must be transferred according to the (approved) plan of distribution.
Certificate of Clearance
An application for a Certificate of Clearance must be signed by a board officer and filed with the Department of Revenue. The Certificate of Clearance guarantees payment of any state taxes owed.
Articles of Dissolution
Once a Certificate of Clearance has been received (approximately 10 business-days after filing), and all assets have been transferred, Articles of Dissolution must be filed with the Secretary of State and then about four weeks later, a Certificate of Dissolution will be issued.
If your organization was registered with the Washington State Charities Program, some sort of written notice should be sent 30 days prior to dissolution.
Notify the IRS
When the final IRS form
is filed, a
for liquidation, termination, and dissolution of assets should be included.
The Informal Process
While the list above outlines the formal steps to dissolve an organization, there is great need and responsibility to communicate with your constituents and stakeholders. The reasons for and justifications of dissolution should be carefully crafted to ensure your long-time supporters understand the decisions leading up to such a critical move. Stakeholders should be alerted to the timeline and steps they expect to see the organization go through.
Note: This is the current Dissolution Process specifically for the state of Washington. It is subject to change and may differ state to state.