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Richard - Bizlaw
Richard - Bizlaw, Attorney
Category: Business Law
Satisfied Customers: 10640
Experience:  30 years of corporate, litigation and international law
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I have an S corporation that I just got non-profit status for

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I have an S corporation that I just got non-profit status for it plus I formed another non-profit for which I'm pursuing a 501c3. I want to transfer assets to the company with the 501c3. I have 35 employees and 3 contracts with the state of Georgia for CACFP and PreK program. I need to know how to do all of this legally.
What is CACFP? What is the nature of the contracts? Why are you switching to non profit?
Customer: replied 7 years ago.
We are a child care center with over 200 children. CACFP is the federal food program, the same one that provides school lunches. The 2 PreK classes are funded through the state by contract renewed yearly. There are grants and other things available for non profit. The rest of the story is that the mortgage on land and building is in my husband and my name and the S corp name. Right now we have lease agreement for the corp to lease building from us and we pay mortgage and property tax personally. I am trying to keep land out of non profit status. What I want is new 501c3 company to lease building and equipment from us. Also, the S corp has tax lien and I do not want IRS to think we are hiding. Business had a couple low years but is recovering nicely and I don't need government to grab anything. I also want to switch employees to new corp.

Before you can make the switch, you will need to make sure the new corp is not just formed but has tax exempt status. To obtain that status you have to make a filing with the IRS and get a specific approval. This is a fairly extensive filing and I recommend that you have an attorney help you with the preparation.


Once the new entity is formed, you can remove the S Corp. from the deed on the land and building and create a new lease for the non profit. The employees can be moved over to the new company by starting a new payroll. However, if you have employee beneifit plans such as 401K or profit sharing where some employees are not fully vested, you have to effectively merge the old into a new plan to avoid having everyone's plan become 100% vested. Again, you should consult with an attorney on these issues to avoid unintended consequences.


Existing contracts will have to be assigned to the new company. You will need the approval of the contracting agencies to make such an assignment. Before you take any action in this regard you need to discuss your plans with the contracting parties.


With respect to all other assets, you want to contribute them to the new corporation and take a charitable deduction. You also want to be sure that the income from the lease is sufficient to deal with the IRS issues. You need to work out a payment plan with the IRS

to avoid any claim of a fraudulent conveyance.


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This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.

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