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How do you convert a 501(c)(3) nonprofit into a for-profit, such as an LLC?

Converting your 501(c)(3) nonprofit into a for-profit organization may help it obtain loans or connections that allow it to continue to serve the community. Because a non-profit is not owned by individuals, it cannot simply convert into a for-profit business. If you no longer want to operate as a nonprofit, you must dissolve the organization and form a new corporation. Although your 501(c)(3)’s tax exempt status was originally conferred upon it by the IRS, conversion requires five steps.

First, I would encourage you to meet with a tax lawyer so she or he can review your previous returns and analyze your current tax situation. I say this because you would not want to convert your 501(c)(3) only to find out that you would be better off keeping your tax-exempt status.

Second, have the 501(c)(3)’s board of directors meet and vote to dissolve the 501(c)(3) after a meeting in which you all discuss the upsides and downsides of the proposal. Report the vote’s result to employees, members, donors, and partners.

Third, contact your state’s attorney general office, file articles of dissolution, and request other forms or paperwork required to change your organization’s status from non-profit to for-profit at the state level. Every state has different requirements. In the alternative, some state will not require dissolution. If you live in one of these states, send a statement of nonprofit conversion that includes the reason for nonprofit termination, a certified copy of the liquidation plan, the fair market value of the organization, and a list of all asset recipients if assets will be distributed. To convert, your organization only needs to re-organize its tax structure. Send the statement to the IRS, Exempt Organizations Determinations department. Internal Revenue Service Manager Exempt Organizations Determinations PO Box 2508 Cincinnati, OH 45201.

Fourth, file a final nonprofit tax return with the IRS within four months and 15 days from the termination of nonprofit status and pay the organization’s outstanding debts. This is done with the e-Postcard Form 990-N if receipts are less than $25,000; Form 990-EZ are used by organizations with gross receipts less than $1 million and Form 990 is used by all other organizations. Finally, distribute the 501(c)(3)’s assets to another non-profit.

Fifth, file new articles of incorporation with your state’s secretary.

Need assistance dissolving your 501(c)(3)? The corporate attorneys at LawTrades can walk you through the process at an affordable flat rate. Message me for more details. Hope this helps!


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