Achieving tax-exempt status is a critical milestone for nonprofit organizations. Our lawyers regularly obtain from the Internal Revenue Service (IRS) favorable determination letters for tax- exempt and public charity status, as well as favorable public and private rulings for clients.

Once an organization is recognized, maintaining tax-exempt status is also a critical task. The IRS has heightened scrutiny for tax-exempt organizations, as well as persons with substantial influence over them, in an effort to curtail perceived abuses in compensation and other economic arrangements, and may impose intermediate sanctions if these issues are not navigated appropriately. In addition, state and local governments, in their oversight of charitable funds, play a significant role in monitoring many tax-exempt organizations.

Attorneys in our Tax-Exempt Organizations and Nonprofits Practice Group assist organizations in satisfying ongoing exemption and legal requirements and understanding and avoiding tax liability, including unrelated business income tax liability, excise tax liabilities and intermediate sanction penalties.

New organizations must develop a workable governance structure, while existing organizations must ensure compliance with governing instruments. State attorneys general have become more aggressive in monitoring the operations of charitable entities. Further, in this time of ever accelerating change, organizations often face issues related to change in mission, affiliation, merger or even dissolution. Governing documents often must be adjusted to meet new roles or realities. 

Our attorneys work with organizations to provide a legal framework for dealing with these issues and work efficiently with organizations to ensure that institutional strength and individual energy is not diverted through legal missteps or other corporate non-compliance. 

We help you determine whether to form a nonprofit corporation, trust, unincorporated association or another entity; draft and file articles of incorporation and other necessary legal documents; create bylaws and other governing documents that comply with state laws and best practices; advise boards of directors on fiduciary duties and responsibilities; draft and review board policies, conflict-of-interest policies and other governance documents; conduct board training; and provide ongoing legal support to ensure compliance with governance standards.

Tax-exempt and nonprofit organizations must adhere to a myriad of regulations at the local, state and federal level to preserve tax-exempt status and operate their business. Our attorneys have deep knowledge of the IRS tax rules, including intermediate sanctions and excess benefit transactions, lobbying and political activity regulation, private inurement and private benefit prohibitions, and special rules related to private foundations and supporting organizations. We also advise on general business requirements, such as those related to employment, charitable solicitation laws, ethics regulations and many of the other regulatory requirements impacting tax-exempt organizations.   

An independent, outside perspective without preconceived impressions of an organization can provide valuable insight. Our experienced team helps organizations develop and implement compliance programs by conducting a risk assessment of the existing programs. Not only does it help the organization stay in compliance, but if the organization does become the subject of an inquiry, it is better positioned to demonstrate adherence to best practices and good intentions for compliance.

We create handbooks or corporate governance guidelines for organizations, addressing areas such as roles and responsibilities of the board and management, dealing with conflicts of interest, requirements for committees, definitions of executive roles, executive compensation structure, board composition and terms, voting practices and procedures for evaluation. Our services also include helping develop and implement effective training programs and codes of ethics.

Faced with a challenging financial landscape and the opportunities that can be gained from thinking strategically, tax-exempt organizations increasingly collaborate with one another. We regularly advise clients regarding what we call the “collaboration spectrum” — the range of ways to advance a shared strategic vision, consolidate market share, better assure future sustainability, and take advantage of market shifts to better position each organization for future growth. 

Depending on the parties’ goals, vision and needs, collaboration can range from preserving the continued independence of the parties to a complete merger and integration. As we regularly counsel clients in this area, we have developed checklists and other tools to better ensure a smooth and efficient process.

Tax-exempt organizations and nonprofits occasionally undertake a capital project or a program expansion. Whether that expansion is provided through operating revenues, fund-raising, grants, loans or, in some cases, the issuance of tax-exempt revenue bonds, the process can often be daunting and overwhelming even for an experienced management team. Our attorneys work cooperatively and provide thoughtful analysis and guidance to overcome legal hurdles and successfully manage the expansion process.

Fundraising is the life blood of many charitable institutions, and competition for charitable donations is increasingly intense. A donation to a tax-exempt organization is an investment in that organization’s good name and deeds. Maintaining compliance and good governance is the surest way an organization can safeguard its brand and reputation to ensure ongoing contributions essential to good work.

Our attorneys are very familiar with the rules governing charitable giving, as well as tax implications, and regularly work with organizations and individual donors in developing planned giving programs and in facilitating large or complex gifts. We are also experienced in assisting tax-exempt organizations in navigating restricted gifts, including filing petitions for cy pres and equitable deviation.  

As more nonprofits think innovatively about revenue generation, the development and creation of social enterprises has gained significant traction. We assist tax-exempt organizations in evaluating and implementing an appropriate structure for their social enterprise. We also assist tax-exempt organizations in assessing opportunities that may create unrelated business taxable income (UBTI) and structuring UBTI-generating activities in a manner that does not endanger their tax-exempt status but produces new capital to invest into their tax-exempt missions. When necessary or advantageous, we assist you with spinning-off or proactively forming for-profit subsidiaries. We also assist with structuring joint ventures with for-profit entities in a manner that preserves the tax-exemption of the income generated and is passed through to the tax-exempt participant.

Tax-exempt organizations, particularly in Connecticut, face significant challenges to their property tax exemption status. We advise our clients how to proactively preserve their exemption, as well as how to defend their exemption if challenged by an assessor. Our attorneys are recognized as thought leaders on this subject and regularly speak to trade organizations and associations on best practices. We’ve even helped draft statutory amendments in order to create a more comprehensive, uniform and consistent legal framework for the benefit of tax-exempt property holders, as well as of municipalities.