Can a 501(c)(3) organization be sold?

Question

A Christian ministry wishes to acquire another Christian ministry. Both are 501(c)(3) organizations. The acquired ministry is to become a division of the acquiring ministry and the Founder of the acquired ministry will be made an employee of that division. Can the Founder of the acquired ministry legally "sell" his ministry to the other, rather than just being acquired by contract and merging it in as a new division? My accountant thinks not, but I'd like a second opinion. If a 501(c)(3) were sold then obviously someone would have to pocket the proceeds. My accountant says that would be a violation of the 501(c)(3) prohibitions on personal inurement. True or no?

Answer 1

"Sell" is not exactly the right word, but so long as the "acquiring" 501(c)(3) has the same charitable purpose as the one which is being "acquired", the organization being "acquired" can dissolve and pay over its assets to the surviving 501(c)(3). The key is that the proceeds of the dissolution cannot "inure to the benefit" of any private individual -- in other words, the leader of the ministry that is being "acquired" cannot have assets of his 501(c)(3) paid to his personal benefit.

If the salary being paid by the new organization to the minister who formerly headed the "acquired" organization is reasonable, and customary for the type of work being done, it would not seem to pose any problem. However, if the minister of the "acquired" organization gets a very large "salary" from the surviving organization, that in reality amounts to payments to that minister based on a liquidation of the assets of the acquired organization, THAT would be a problem, based on the "private inurement" principles, and it could cause the surviving organization to lose its 501(c)(3) status.

So, bottom line, one can transfer the assets of a 501(c)(3) to another 501(c)(3) organization of the same type, but it cannot be "sold" with proceeds of the sale going to a private individual, including one who formed and/or headed the organization. Essentially, your accountant is correct.

Answer 2

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RE:
Can a 501(c)(3) organization be sold?
A Christian ministry wishes to acquire another Christian ministry. Both are 501(c)(3) organizations. The acquired ministry is to become a division of the acquiring ministry and the Founder of the acquired ministry will be made an employee of that division. Can the Founder of the acquired ministry...

Answer 3

Yes, true. However, (try to follow me on this) if you were to create a NEW 501(c) that owned your first 501(c) your NEW 501c could sell your old 501(c) to the other 501(c). Because you wouldn't show a personal profit. Tahhh dahh.

Slainte,

-D

Answer 4

Your accountant is completely correct. You're paying an expert for his advice. Take that advice and ignore anyone who says otherwise.

And ignore the above advice. You still can't pocket the proceeds. The IRS loves shady deals like that and will happily go after you for fraud or tax evasion.

Answer 5

501c3 For Sale