During the life cycle of any nonprofit organization, it may be necessary to consider an affiliation, reorganization, joint venture or asset transfer to expand activities and further exempt purposes. In some cases, an organization may even decide to merge with another nonprofit organization or dissolve its operations. Any fundamental change in operations or movement of assets must be carefully considered and executed as there are significant implications for the organization, its Board of Directors, staff, and funders.
We work with clients to evaluate and structure affiliations, corporate and tax reorganizations, joint ventures, and asset transfers. Our corporate, tax, and finance experience enables us to help clients secure funding and understand the legal and financial implications of these transactions. In cases where operations are no longer feasible we represent clients through the merger or dissolution process, working with Federal and state agencies, funders, and, where required, the Office of the Attorney General and the court system.
Tax-exempt organizations rely on gifts, grants, and contributions from private foundations, corporations, government agencies, and the general public to fund their charitable activities. An organization’s fundraising activities are subject, however, to Federal tax and state charitable solicitation laws and regulations and specific donor restrictions.
We advise our clients regarding the Federal requirements for properly accepting and documenting charitable gifts, including gifts of cash or property, quid pro quo payments and corporate sponsorships. We also advise clients regarding registration, exemption, and disclosure requirements under state charitable solicitation laws and the proper structuring of commercial co-venture or “cause related marketing” relationships.
We work with our clients and their donors to draft gift agreements and gift-acceptance policies, and advise our clients regarding compliance with donor-imposed gift restrictions and grant reporting requirements. Where necessary, we work with the Attorney General’s Office or seek court approval to modify gift restrictions. We also help clients identify fiscal sponsors and establish donor-advised funds, when these options best further the clients’ philanthropic goals.
Nonprofit corporate governance, transparency, accountability, and fiduciary duties have increasingly become a focus and concern for donors, policymakers, the media, the Internal Revenue Service, and state charity regulators. An organization that adopts and follows corporate policies and other best practices is more likely to obey Federal, state, and local laws, safeguard charitable assets, and serve charitable interests than one that lacks appropriate policies or has lax corporate governance.
Corporate policies guide directors, officers, staff and members of the organization and help minimize liability to them and to the organization. However, these policies must be compliant with Federal, state, and local laws and regulations and, in many cases, specific funder requirements.
We educate and train Boards about fiduciary obligations and corporate governance best practices. We work with clients to prepare, adopt, and interpret corporate policies and best practices that are tailored to their specific structure and compliance requirements. We also advise directors and officers about their fiduciary duties under state law, Prudent Investor Acts and other applicable regulations related to the management and investment of charitable assets.
Tax-exempt organizations receive many benefits of tax-exempt status under Federal, state, and local laws and regulations but they are also subject to strict requirements. Failure to maintain compliance can result in fines, penalties, jeopardy to tax-exempt status, and even criminal sanctions.
We closely track and advise clients on legislative and regulatory developments. We also educate the nonprofit community about best practices by speaking to professional and community groups and writing articles.
We monitor and evaluate new and existing activities and operations, so that your organization can receive all of the benefits of exemption. We also counsel organizations when new registrations and reporting are needed. Accountants seek our advice and review in connection with their preparation of IRS Forms 990 and reviewed and audited financial statements. We collaborate with financial advisors and other consultants and professionals to properly structure contractual relationships and monitor investment practices.
“Friends of” and other nonprofit organizations that make grants or operate programs internationally must comply with additional and increasingly complex regulatory requirements. We advise these organizations on compliance with the laws and regulations that apply to international philanthropy – including the U.S. Patriot Act, Treasury Department Anti-Terrorism Guidelines, and the Sanctions Program of the Office of Foreign Assets Control.
We form U.S.-based “friends of” organizations and advise international grant-making organizations on grant procedures, expenditure responsibility, and foreign equivalency determinations. We also advise organizations based abroad regarding fundraising in the U.S. and provide the legal advice needed to properly structure relationships between U.S.-based organizations and their foreign affiliates.
Federal income tax laws and regulations restrict lobbying and, in some cases, prohibit certain exempt organizations from conducting political activities. Failure to comply with these rules can result in imposition of excise tax or loss of exemption. However, with the proper legal advice, charities can adopt a lobbying strategy that effectively supports their charitable mission.
We advise our charitable clients regarding permissible ways they can advocate for social change. We counsel clients regarding Federal limits on lobbying and the Section 501(h) lobbying expenditure election, as well as state lobbying rules and registration and reporting requirements.
We also advise nonprofit organizations classified under other sections of the Internal Revenue Code, such as 501(c)(4) social welfare organizations and 501(c)(6) trade associations, that are permitted to conduct lobbying and political activities, regarding permitted methods and amounts of these activities.
Choosing and implementing the proper structure for your new nonprofit organization is crucial if you want to receive and maintain Federal tax-exemption, as well as state tax benefits available to nonprofit organizations. We have helped numerous organizations in the Mid-Atlantic region and around the country incorporate and obtain Federal tax-exemption, from small grassroots charities working with a volunteer base, to larger charities and private foundations with significant budgets and staff. All of these organizations benefit at the outset from our focus on and dedication to the specific needs and charitable goals of nonprofit organizations, and our careful planning to further these goals.
We advise and counsel clients during the all-important first steps of formation and incorporation, including drafting of articles, bylaws, and conflict of interest and other corporate policies. We work closely with new organizations to confirm that nonprofit status is appropriate, and provide further guidance regarding the correct nonprofit designation for the organization – 501(c)(3) or another 501(c) classification. We continue our work with newly formed organizations, and also work with existing nonprofit organizations and charitable trusts, to apply for and obtain Federal tax exemption from the Internal Revenue Service (“IRS”), where our knowledge of Federal tax law and familiarity with IRS procedures helps guide our clients through the scrutiny of the exemption process.
Outside, General Counsel Services
We bring our deep commitment to the nonprofit sector and broad experience to our work, to best serve our clients’ legal needs.
• Start-Up Planning
• Day-to-Day Operations
• Staff and Board Training
• New Programs Launch
• Facility Acquisition or Expansion
• Corporate Reorganization, Subsidary Formation
• Joint Ventures and other Collaborations
Start Up Planning
We help clients who plan to form a new organization consider the choices of operating as a fiscally sponsored project, donor-advised fund, or independent tax-exempt entity by considering the advantages and disadvantages of each option. We also advise clients on the proper choice of entity, whether nonprofit or for-profit. We then prepare the documents needed to obtain and maintain tax-exempt status, and provide the corporate and tax advice needed to properly structure the relationship between the new entity and any existing organizations. Click here to learn more about our services for new, start up nonprofits.
Day to Day Operations
We support the daily operations of our clients and help to further our clients’ charitable missions by providing much-needed corporate and tax advice. Our corporate counsel services include drafting and negotiating contracts, including asset transfer agreements, agreements of sale, leases, employment agreements, grant agreements, vendor contracts, and financing documents. We attend client Board meetings as requested, prepare resolutions, minutes, and policies, and counsel clients on corporate best practices. Our tax counsel services include advice on the proper classification of workers as employees or independent contractors, and preparation of employee handbooks, contractor, separation, confidentiality, and indemnification agreements. We draft and/or review program-related materials, such as applications, release forms, and license agreements, and also advise clients and provide documents needed for fundraising activities. We also craft endowment and investment policies, and advise clients on state laws that affect endowment asset management and spending.
As our clients grow and evolve, we advise them when notice to the IRS, state Attorneys General, or state regulators is needed, and we prepare necessary amendments to organizational documents. We also analyze and advise clients when public charity reclassification is needed or other tax-exemptions may be available.
Staff and Board Training
We train our clients’ staffs and Boards on a wide range of issues, including: corporate best practices; social venture and social enterprise; risk management and liability; unrelated business income tax; fiduciary obligations; lobbying and advocacy; and IRS Form 990 changes.
New Programs Launch
When a client is considering the launch of a new program we help to determine the proper corporate and tax structure for that program, and advise the client on the tax treatment of its revenue. When needed, we form a subsidiary or joint venture entity and obtain the proper tax-exemption determination. We also work with the client to obtain any licensure needed to operate the program.
Facility Acquisition or Expansion
When a client is considering a facility acquisition or improvement, we advise the client on the proper choice of entity and then implement that choice. We also help clients properly structure facility financings, with combinations of tax-exempt bonds, conventional financing, new market tax credits, and grant funds, and we assist with all real estate issues, including zoning and other permits needed for property use, occupancy, and renovation.
Corporate Reorganization, Subsidiary Formation
Corporate reorganizations are sometimes needed when, for example, a parent organization operates with a group tax-exemption and grassroots affiliates, or an organization merges subsidiaries to simplify its existing structure. We help clients to evaluate and design corporate and tax reorganizations and properly structure subsidiaries or implement mergers, where needed.
Joint Ventures and other Collaborations
Our clients often collaborate with other nonprofits by forming joint ventures and other affiliations. Sometimes these collaborations are driven by funders or outside stakeholders, and at other times by the organizations themselves, in furtherance of their charitable missions or to achieve greater efficiencies. We help clients to determine the proper form for collaborations, evaluate the likely benefits and limitations, and provide the proper documentation to implement their plan.
In cases where operations are no longer feasible or desirable, we advise clients on the best course of action by evaluating the choices of merger, dissolution, or asset transfer. We then represent clients through the merger or dissolution process and negotiate and document asset transfers, working with Federal and state agencies, funders, and, where required, state Attorneys General and the court system. Click here to learn more about our services to organizations that are merging or dissolving.
Private foundations are typically closely-controlled organizations that receive funding from only a few sources. Many private foundations focus primarily on grantmaking, although some private foundations, known as private operating foundations, conduct their own charitable activities and programs. Private foundations are highly regulated by Federal and state laws and regulations, which impose excise taxes and other restrictions and requirements on foundation operations, including the management and investment of their funds.
We review the programmatic and investment activities of our private foundation clients to help them operate in full compliance with the private foundation rules. We counsel foundation clients regarding prevention of self-dealing between the organization and its substantial contributors, directors, officers, and other disqualified persons, avoidance of Jeopardy Investments, and compliance with minimum annual payout requirements.
We advise our clients regarding grantmaking issues applicable to private foundations, including selection of permissible charitable grantees and preparation of the required grant agreements, reports, and records necessary to monitor grants. We also provide guidance to existing private foundations that wish to become reclassified as private operating foundations, and in situations in which a foundation determines that it must cease operations, we assist with the termination process and transfer of foundation assets to another appropriate charitable organization.
Social enterprise, also known as social venturing, is becoming increasingly important as nonprofits move toward greater financial sustainability and away from the vulnerability created by reliance on gifts, grants, contributions, and investment returns. Social enterprise can make your organization more resilient by generating increased and more diverse revenue sources, which help to foster independence and sustainability and protect against the fluctuations of the financial markets.
Legal advice and analysis is critical before embarking on any new social enterprise. A new activity could create unrelated business income tax (“UBIT”) liability if the activity is unrelated to your organization’s mission and, in cases where a significant amount of UBIT is generated, your organization’s tax-exempt status may be threatened.
We work with clients to determine whether the Internal Revenue Service would consider a proposed activity “related” to their charitable missions. This analysis gives clients the tools to evaluate and minimize potential UBIT liability and avoid jeopardy to tax-exempt status. We also provide tax and corporate advice on corporate reorganization and nonprofit and for-profit subsidiary formation to help shield nonprofit organizations from UBIT and preserve tax-exempt status.
We have worked with many clients victimized by embezzlement and other diversions of charitable funds. In these situations, we assist in: internal investigations; Form 990 and Audit reporting; insurance claims; crisis communications; restitution efforts; and reports to government authorities, including the FBI, U.S. Attorneys Office, and Pennsylvania Office of Attorney General, Charitable Trusts and Organizations Section. Our successful efforts have resulted in restitution, indictments, and significant insurance awards.
LS&A attorneys have backgrounds in trusts and estates and are experienced in matters before the Orphans’ Courts. Our work includes frequent and successful petitions for cy pres, trust accountings and petitions for adjudication, Trustee changes, and approval of mergers, asset transfers, and change of control transactions. In one case, we obtained the approval of two Orphans’ Courts to consolidate the management of thousands of separate endowment funds, allowing a client to administer its charitable assets more efficiently and effectively. In another, we obtained Orphans’ Court approval for the sale of a client’s largest asset, unique and historic real estate, demonstrating the client’s evolving mission to serve its constituents’ changing needs most meaningfully.