Sometimes the right decision is to close. The mission is done, the money is gone, or another organization can do the work better. A nonprofit corporation does not end when its doors close: it ends when the board has dissolved it under the bylaws and state law, its debts are settled, its remaining assets have gone where its articles say they must, and the state and the IRS have been told. Directors who skip a step can stay exposed to the organization's debts, and the IRS keeps expecting a return.

This guide is educational, not legal advice. State law decides much of this, and it differs from state to state. Have the organization's attorney review the plan before the board votes.

1. Read the bylaws and the articles first

The bylaws say who must approve a dissolution (the board alone, or the members too), how much notice a meeting needs, and what vote it takes. The articles of incorporation carry the dissolution clause the IRS required when the organization was recognized: on dissolution, remaining assets must go to one or more organizations exempt under section 501(c)(3), or to a government for a public purpose. That clause, not the board's preference, decides where the assets go.

2. The board votes on a resolution to dissolve

Call a board meeting with the notice the bylaws require, put the resolution to dissolve on the agenda, and record the vote in the minutes. If the bylaws give members a vote, hold the members' vote as well. The resolution usually adopts a plan of dissolution, names the person who will wind up the organization's affairs, and authorizes the officers to make the filings.

3. Adopt a written plan of dissolution

The plan is the checklist the board approves: who is in charge of winding up, the timeline, the list of known creditors and how each will be paid, how restricted gifts and grants will be handled, which 501(c)(3) receives what is left, and who keeps the records. The IRS asks for a copy of it with the final return.

4. Tell the state attorney general where the law requires it

Many states expect the attorney general, as the regulator of charitable assets, to be told before assets are distributed, and some require the attorney general's approval of the plan or a court order. Check your state's rule before any money moves.

5. Notify creditors and settle every debt

Send written notice to everyone the organization owes, with a deadline for claims. Pay or make provision for every known debt and liability, including final payroll and taxes, before anything is distributed. Assets given away while debts are unpaid can be clawed back, and directors can be held responsible.

6. Honor restricted gifts and grants

Money given for a purpose stays tied to that purpose. Contact each funder and donor of restricted money still unspent: return it, or redirect it to an organization that will carry out the same purpose, with their written consent or as a court or the attorney general directs.

7. Close out staff, contracts and insurance

Give employees notice and their final pay, file the final payroll returns, and end leases, contracts and subscriptions. Keep the liability insurance in force until winding up is finished, and ask the broker about coverage for claims made after the organization is gone.

8. Tell the people you serve, and stop fundraising

Tell clients, members, volunteers and donors what is happening and, where you can, where they can turn next. Stop asking for gifts, and close the charitable solicitation registrations in each state where the organization is registered.

9. Distribute what remains to another 501(c)(3)

Once debts are settled and restricted money is handled, the board approves the distribution of the remaining assets to the organization named in the plan, as the articles require. Keep a record of each asset, its fair market value, the date it was given and who received it; the final return asks for all of it.

10. File the articles of dissolution with the state

The secretary of state (or the state's corporations office) has a form, often called articles or a certificate of dissolution. Some states also ask for a tax clearance first. Once it is filed, the corporation is legally dissolved.

11. File the final return with the IRS

The IRS is told through the organization's last annual return, not a separate letter. On Form 990 or 990-EZ, check the "Final return/terminated" box, answer the question about liquidation, termination or dissolution, and complete Schedule N, which describes the assets, their fair market value, the dates of distribution and who received them. Attach a certified copy of the articles of dissolution and of the plan and resolutions. The final Form 990 or 990-EZ is generally due by the 15th day of the fifth month after the termination date. An organization that files the Form 990-N answers yes to the question about terminating, and files that final notice after the start of what would have been its next tax year.

12. Final state returns, accounts and records

File any final state charitable and tax returns, close the bank accounts after the last payment clears, and decide who keeps the books and records, and for how long.

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Source for the IRS steps: https://www.irs.gov/charities-non-profits/termination-of-an-exempt-organization