Tax-Exempt, Non-Profits and Charities

Tax-Exempt, Nonprofits and Charities

Hunton & Williams LLP counsels a diverse group of tax-exempt and nonprofit clients, including universities and schools; hospitals and healthcare organizations; social service organizations, research institutions and other charities; family trusts; private foundations; trade associations; and lobbying organizations. We also represent individuals in their roles as officers and directors of, and contributors to, tax-exempt organizations.

Nonprofit Formation

We have formed numerous new public charities, private foundations, charter schools, business leagues, employee benefit trusts and other exempt entities and have guided them through the process of obtaining IRS and state recognition of their tax-exempt status.

General Counseling

Congress, the IRS and state attorneys general closely scrutinize the operations of exempt organizations and their transactions with officers, directors and substantial contributors. We regularly counsel exempt clients on:

  • corporate governance and fiduciary duty issues;
  • executive compensation and director fees;
  • acquisitions, dispositions, spin-offs, mergers, for-profit and nonprofit conversions, joint ventures and other transactions;
  • tax audits, litigation, alternative dispute resolution and other controversies;
  • internal investigations and embezzlement;
  • fundraising and charitable solicitation issues;
  • unrelated business taxable income issues, including determining whether income from particular endeavors will be treated as related or unrelated, how to shelter unrelated income from tax, and what degree of unrelated business is permissible without jeopardizing tax-exempt status;
  • new exemption requirements for tax-exempt hospitals;
  • IRS Form 990, Form 990-PF and Form 990-T tax reporting; and
  • private inurement and private benefit issues.

We offer a comprehensive array of tax services to exempt organizations. We also provide a full range of other legal services tailored to our nonprofit clients. Tax-exempt organizations consult us about commercial and tax-exempt bond financing, real estate, litigation, labor and employment (including various issues relating to volunteers and interns), corporate, antitrust, intellectual property, data privacy and other issues. This combination of technical tax knowledge and broad-based support in non-tax areas is essential in the complex – and sometimes hostile – legal environment in which today's exempt organizations must operate.

Reorganizations, Conversions, Joint Ventures and Special Structures

In reorganizing tax-exempt corporations and forming joint ventures with other exempt entities and for-profit investors, we regularly deal with a broad range of issues, including:

  • stock and nonstock corporation and partnership questions;
  • the use of LLCs to limit liability and protect assets;
  • private inurement and executive compensation matters;
  • governance and control concerns;
  • spin-offs;
  • conversions to and from tax-exempt/nonprofit status; and
  • effects of employee- and asset-sharing.

We have formed and obtained IRS approval for exempt and taxable affiliates of major hospitals, educational institutions, preservation groups, trade associations and other tax-exempt clients.
Joint venture arrangements have included both general and limited partnerships, limited liability companies, Delaware series limited liability companies, participating loans, donor-advised funds, fiscal sponsorship agreements and program-related investments.

International Operations

We assist with international matters, including:

  • the formation of "friends of" organizations;
  • foreign grant-making and oversight requirements;
  • compliance with anti-terrorism and foreign asset control regulations;
  • developing international affiliates and operations; and
  • overseas program-related investing by private foundations.

State and Local Taxation

State and local tax issues are of increasing concern to exempt organizations. We advise clients on the full spectrum of state and local legal issues, including:

  • the acquisition and maintenance of property tax exemptions;
  • eligibility for special sales and use tax status;
  • liability for local business license taxes;
  • sales tax on auctioned items;
  • new income tax exemption requirements in states that are departing from the federal exemption system;
  • state efforts to impose user fees or other payments in lieu of taxes; and
  • increasing state regulation of income-producing and fundraising activities.

Lobbying and Political Activities

We advise exempt clients about the permissible scope of their political campaign activities and direct and grassroots lobbying. This includes related issues such as the effect of lobbying on the deductibility of association dues.

Another significant service to our tax-exempt clients is lobbying. Our lawyers represent exempt groups before local, state and national legislative bodies, as well as administrative agencies such as the IRS, the Department of Health and Human Services, state contribution solicitation agencies and local tax assessment offices.

Private Foundations

Avoiding or coping with private foundation status also is a major focus of our practice. Qualifying as a supporting organization or a publicly supported organization may be essential to an exempt entity's operational and fundraising plans. We have assisted numerous clients in obtaining definitive or advance rulings on public charity status and in regaining that status after tentative adverse rulings by the IRS. We also counsel clients concerning the various uses for donor-advised funds. New regulations on supporting organizations and donor-advised funds are sometimes more restrictive than the private foundation rules, and we have assisted several organizations that, as a result, decided to opt into private foundation status or convert from 501(c)(3) to 501(c)(4) status.

We assist private foundations of all sizes in complying with:

  • complex reporting criteria;
  • self-dealing prohibitions (including on co-investing between private foundations and their disqualified persons);
  • income distribution and expenditure responsibility requirements;
  • investment restrictions;
  • expenditure limitations;
  • private foundation status termination guidelines; and
  • the layers of excise taxes used to enforce the private foundation regulations.

We have extensive experience with program-related investments in their myriad forms, and have advised several private foundations in converting their own grant-making procedures and tools into a platform for program-related investing.

Fundraising and Solicitation Regulations

We serve as advisers both to charities and to potential contributors on fundraising and contribution matters. Clients have consulted us on all aspects of charitable giving, including:

  • naming rights agreements;
  • bargain sales;
  • conservation easements;
  • gifts of appreciated property;
  • gifts of real estate and other assets subject to debt (an area fraught with peril for private foundations);
  • deferred giving vehicles such as charitable lead and remainder trusts, pooled income funds, residence remainders and gift annuities;
  • agreements with commercial coventurers and professional fundraisers;
  • state and local charitable solicitation regulations;
  • raffles and other gaming events;
  • gift substantiation, appraisal and disclosure requirements; and
  • guidelines on disclosure of non-deductibility.

Our lawyers and fiduciary accountants prepare annual information returns, tax returns for non-exempt activities, Social Security tax reports, disclosures relating to major charitable gifts and other required IRS filings.

Audits, Examinations, Litigation and Internal Investigations

Administrative dealings and litigation at the federal, state and local levels form another major part of our exempt organizations practice. Exemption applications, requests for rulings and technical advice, assistance on audit and litigation over tax liabilities and tax status are obvious examples. Equally important, however, are other types of litigation such as suits to reform defective charitable trusts, interpret or modify restrictions on charitable gifts, and apply the cy pres doctrine to restricted gifts whose purposes cannot be achieved fully.

We have significant experience in IRS alternative dispute resolution using the Fast Track Settlement Program, an expedited process for the IRS and tax-exempt organizations to resolve disputes before a formal appeal is filed or the parties go to court. The process can provide a significant time and cost savings to exempt organizations.

Our attorneys also have experience with the critical aspects of handling the discovery of embezzlement and other potential criminal concerns, including:

  • the proper conduct and scope of internal investigations;
  • board fiduciary, liability and indemnification issues;
  • director, officer and theft insurance policy claims;
  • employment issues;
  • IRS, attorney general, district attorney and police reporting obligations;
  • asset protection and data security concerns; and
  • major donor and public relations.