If you want to set up your new church for official IRS 501c3 nonprofit recognition, know they’ll be looking for your church plant dissolution clause.
What’s the Problem?
Anything donated to a church is to be used for its nonprofit purposes. The IRS gets pretty picky about donations being ‘laundered’ through a nonprofit that is intended to benefit someone directly. “Here is a $5,000 donation, but it must be used to create a scholarship for my daughter.” Wrong. Bad.
Likewise, it would be easy for the leadership to divvy up the physical assets of a church that is closing its doors. “It was a good run, but now we have to get rid of everything. Why don’t you take the computer; I could really use that 16-foot trailer.” Wrong. Bad.
The IRS wants to know that you have a plan for where all the church’s donated assets will go so that kind of thing doesn’t happen when you have to close up shop. All of it has to go to another 501c3 nonprofit. They ask very specifically on the exemption application about where they can find the dissolution clause in your formative documents:
Section 501(c)(3) requires that upon dissolution of your organization, your remaining assets must be used exclusively for exempt purposes, such as charitable, religious, educational, and/or scientific purposes… specify the location of your dissolution clause (Page, Article, and Paragraph).
[Part III, Questions 2a & 2b]
Not having a dissolution clause included in your incorporation paperwork will probably cause the IRS to delay or reject your application.
The Church Plant Dissolution Clause
Samples abound on the internet. Here is sample language thanks to the State of CA:
Upon the dissolution or winding up of this corporation, its assets remaining after payment, or provision for payment, of all debts and liabilities of this corporation shall be distributed to a nonprofit fund, foundation or corporation which is organized and operated exclusively for charitable, educational and/or religious purposes and which has established its tax-exempt status under Internal Revenue Code section 501(c)(3).
It’s OK to name a specific successor organization (that is a 501c3, of course). It’s probably a good idea for that to be your sponsoring church or church planting organization as a way to honor them and insure that your church plant’s assets remain in the church planting world.
And may the day of dissolution never find you. Next week: shutting down church plants.