To qualify for Internal Revenue Code section 501(c)(3) status, organizations must ensure that, upon dissolution, any remaining assets are distributed to exempt purposes, as opposed to individual beneficiaries. Organizations can either establish a qualifying plan of distribution in their controlling documents or rely on the operation of state law to meet federal requirements. The assets of an organization shall be considered dedicated to an exempt purpose if, after dissolution, such assets are distributed: (1) to one or more exempt purposes, (2) to the federal government, (3) to a state or local government , (4) for public purposes, or (5) by a court to another organization for general purposes of the dissolving organization.

The Internal Revenue Service reiterated this crucial point in the 2024-2022 Revenue Procedure. Previous instructions, Rev. Proc. 82-2, were based on state law and provided a summary of different results based on different state laws. However, as state laws changed, Rev. Proc. 82-2 was becoming obsolete and ineffective. The new revenue procedure revokes previous guidance, emphasizes the importance of compliance, and provides resources for properly drafting control documents without all the state-by-state examples. If relying on applicable state law instead of creating a qualifying distribution plan, each organization must verify that the requirements are met.