If you were part of a restructuring team for a nonprofit in the past, then you understand the process consisted of several complex steps. Revenue Procedure 2018-5 issued by the IRS a few years back has made nonprofit restructuring an easier process to complete. Nonetheless, a broker dealer audit can help your nonprofit find a different niche by restructuring your organization.
What Are the Common Types of Nonprofit Restructurings?
Restructuring your nonprofit offers you an effective way to partner with another organization to maximize revenue while minimizing costs. With nonprofits operating with much tighter budgets than the budgets followed by for-profit organizations, consolidating resources by working with another organization can be beneficial to both parties.
There are five common types of nonprofit restructurings.
Merger
One organization assumes control over a second organization. The organization acquired stops operating as a separate unit. The controlling organization’s financial statements become the basis for operations.
Acquisition
The organization taking over another organization has the option to acquire the assets it wants without assuming certain financial liabilities.
Consolidation
Two organizations form a third different organization, which means the first two organizations stop operating as separate entities. The new organization must follow the same guidelines any new nonprofit must follow to register as a nonprofit organization.
Separation
One organization ceases its business arrangement with a second organization.
Knowing the tax implications of each of the five types of nonprofit restructurings can help you decide which one makes the most financial sense for your nonprofit.
The New and Improved Restructuring Model for Nonprofits
The IRS streamlined the restructuring process by allowing nonprofits to file one convenient form to report changes to an organization’s structure. You might qualify to submit Form 990 if you meet every condition required by the IRS.
Your nonprofit must be tax exempt as a 501(c)(3) entity, a United States corporation or an unincorporated association, and in the proper legal standing where your nonprofit received its articles of incorporation.
The remaining organization must operate with the same tax-exempt purposes the original organization did after the restructuring process. The new articles of incorporation must meet the standards created by the IRS for continuing with the designation of tax exempt. Your new nonprofit must have a limited mission statement, as well as use its assets for just tax exempt purposes.
The Value of a Broker Dealer Audit
Although the process has become easier, restructuring a nonprofit requires the professional services of a tax and accounting professional. You have to follow due diligence principles, review all laws pertaining to your restructuring, submit fiscal and legal documents, and negotiate agreements that finalize the charter of the new organization.
California nonprofit audit services can help you take advantage of the new IRS guidelines, while meeting every tax and accounting standard required to form a new organization.