Q&A: Dissolution of Church’s Personal Property

How can our church be sure that the donated assets from another church are legally transferable?

We were asked to come get the assets (furniture, music equipment, etc) of a church that is closing its doors due to internal conflict. We understand that a nonprofit corporation 501(c)3 must donate their assets to another nonprofit organization upon dissolution, and we can certainly use the items offered.
However, we are not sure what paperwork should be done to make sure there is no conflict with their church members or the IRS. Should we ask for a copy of their Bylaws or a Dissolution Resolution from their minutes? How do we know the Directors have agreed and there will be no conflict with us receiving the donation?
We have never been involved in this type of donation and don’t know if we are to give them a contribution statement or some other type of paperwork. Do they have to file something with the IRS showing the dissolution? Please direct us so we can accomplish this properly.

Any church may accept assets from a dissolving church or other Section 501(c)(3) organization without any governmental filing. Legally, the transfer is a donation from the dissolving church to your church.

As a good business practice, your church should receive a detailed list of the items being donated from the dissolving church. The list should be signed by an officer of the dissolving church and represent that he/she had authority to donate the items on the list to your church. The officer should also represent that all the dissolving church’s debts have been paid prior to making the donation to your church. This list and representations will help establish that proper procedures were followed by the dissolving church if the donation is later challenged.

The dissolving church must abide by state law and its governing documents in making the decision to dissolve. In general, this decision requires approval of the members (if any) and board of the dissolving church. After all assets have been given to other churches, it should file Articles of Dissolution with the state Secretary of State. If the church is concerned about significant unknown tax liabilities, it may file Form 966 with the IRS telling the IRS that it is dissolving before giving its assets away.

If the dissolving church owes creditors more than the value of its assets, it should turnover its assets to creditors instead of trying to give it to another church. Once a church accepts a gift from a dissolving church and that dissolving church has unpaid creditors (including the IRS), the receiving church is liable for the dissolving church’s debts to the extent of the value of the assets it received from the dissolving church.

Frank Sommerville is a both a CPA and attorney, and a longtime Editorial Advisor for Church Law & Tax.

This content is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert assistance is required, the services of a competent professional person should be sought. "From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations." Due to the nature of the U.S. legal system, laws and regulations constantly change. The editors encourage readers to carefully search the site for all content related to the topic of interest and consult qualified local counsel to verify the status of specific statutes, laws, regulations, and precedential court holdings.

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