Tax-Exempt Organizations

Faced with a challenging landscape, tax-exempt organizations are increasingly looking to collaborate with one another.  We regularly advise clients regarding what we call the “collaboration spectrum”  -- the range of ways in which parties can advance a shared strategic vision, consolidate market share, better assure future sustainability, and take advantage of market shifts to better position themselves 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, particularly in Connecticut, are facing 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.  We regularly speak on this subject given its escalating impact and have an in-depth understanding of the legal landscape.  Recently we assisted one of our trade association clients with drafting statutory amendments in order to create a more comprehensible, uniform and consistent legal framework for the benefit of tax-exempt property holders as well as of municipalities.       

Once a taboo word in the tax-exempt landscape, unrelated business taxable income (UBTI) has gained significant traction.  We have assisted many of our clients in 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 “too much” UBTI is generated, we have assisted clients with spinning-off or proactively forming for-profit subsidiaries.  We have also assisted our clients with structuring joint-ventures with for-profit entities in a manner that preserves the tax-exemption of the income generated and passed through to the tax-exempt participant.

The Tax-Exempt Organizations group regularly obtains from the IRS favorable determination letters as to tax exempt and public charity status, as well as favorable public and private rulings for clients. Intermediate sanction rules, instituted by the IRS in an effort to curtail perceived abuses in compensation and other economic arrangements involving public charities and social welfare organizations and persons with substantial influence over them, reflect the heightened scrutiny of tax exempt entities by the IRS. State and local governments, constantly in search of additional revenue, are aggressively evaluating the exempt status of many organizations. The Tax-Exempt Organizations group assists organizations in satisfying ongoing exemption and legal requirements and avoiding tax liability, including unrelated business income tax liability, excise tax liabilities and intermediate sanction penalties.

New organizations must pay attention to the creation of a workable governance structure, while existing organizations must assure 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 of change in mission, affiliation, merger or even dissolution. Governing documents often must be adjusted to meet new roles or realities.

The Tax-Exempt Organizations group works with organizations to provide a legal framework for dealing with these issues and works efficiently with organizations to ensure that institutional strength and individual energy is not diverted through legal missteps or other corporate non-compliance.

Fundraising is the life blood of most charitable institutions. Competition for charitable donations has become increasingly intense. The Tax-Exempt Organizations group is intimately familiar with the rules governing charitable giving and works with organizations and with individual donors in developing planned giving programs and in facilitating large or complex gifts.

At least once in the life of many organizations, that organization undertakes either a capital project or a program expansion requiring thoughtful and careful legal analysis. 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 the experienced not for profit management team. The Tax-Exempt Organizations group works cooperatively with management to assist in both solving legal issues and managing the expansion process.

• Represented Qualidigm in connection with a two-step collaboration with Maine Quality Counts beginning with a corporate affiliation and ending with a statutory merger.
• Represented District Innovation and Venture Center, Inc. in connection with its contractual collaboration with Holberton School.
• Represented Arc New London County in connection with its merger with Arc Quinebaug Valley.
• Represented three separate religious institutions in connection with statutory mergers.
• Reorganized a health care system, including securing all necessary tax rulings.
• Merged and liquidated one charitable entity into another.
• Issued tax exempt bonds for numerous schools, health care organizations and others.
• Represented charitable organizations before the Public Charities Unit of the Attorney General’s Office.
• Counseled charitable organizations on maximizing income-producing activities in a way which reduces exposure to unrelated business taxable income.
• Advised health care provider on avoiding the intermediate sanctions penalties.
• Developed programs for charitable organization which reduce or eliminate environmental risk for donated real estate.
• Established and secured tax exemption for a private foundation.
• Representation of private foundations regarding formation, governance, ongoing IRS compliance, and IRS approval of various grantmaking policies including equivalency determinations relating to international activities.
• Representation of public charities regarding expenditure responsibility grant arrangements with for-profit socially conscious organizations.