Legal services for the Nonprofit sector
“Nonprofits need lawyers?”
That was the question of a surprised employee of a local nonprofit organization whose mission is to serve other nonprofit organizations when she heard that we practice nonprofit law. And that is sometimes the sentiment of nonprofit leaders.
Do nonprofit organizations really need attorneys? Should they be using their charitable dollars paying for legal services when instead they could be spending those funds on more services? Does the board of directors really need legal help to understand their roles, responsibilities, and risks?
The answer to all of the questions above is a resounding Yes!
At Daryl Reese Law PC, we understand the conflict between paying for legal services and providing more services to your clients. Your objective is to maximize your mission. And that is exactly why nonprofits need lawyers.
Whether you are looking to start a nonprofit organization and obtain tax-exempt status or have been operating for years with highly sophisticated systems in place, there are times you will need an attorney to help you maximize your mission. Sometimes that help directly helps do that, such as having a well-drafted contract between your organization and a grantor or service provider. Other times, the legal help you need is indirect, such as training your board in understanding and using the bylaws. But all of it helps to maximize your mission.
With decades of experience in the nonprofit sector, we are here to come alongside you to provide the legal services you need so that you can better come alongside those you serve.
To read more about our Nonprofit Legal Services, click the links below:
The first step for nearly every nonprofit organization is formation. Some nonprofit organizations operate as unincorporated associations, which means they provide services but never incorporate with the State. Even as an unincorporated association, the Corporations Code and the IRS have requirements for which unincorporated associations need to comply. We can help you understand the rules and ensure you are following them.
Typically, nonprofit organizations will incorporate with the Secretary of State as one of three different types of nonprofit corporations—Public Benefit, Mutual Benefit, or Religious. Knowing which is best for your organization is not always clear and the laws governing each type are different. At Daryl Reese Law, we work with you to determine which type of nonprofit corporation is best for your mission. But we don’t stop there. We do all of the work necessary to prepare and file articles of incorporation, obtain your IRS tax identification number, prepare your bylaws, file other pertinent filings with the State of California.
But we don’t just prepare and file documents for you, along the way, we educate you regarding how nonprofit governance works. And that is critical. We have seen far too many times clients who have used inexpensive online filing services only to have no idea what to do moving forward. And many times, the work that was done was incomplete, requiring that they now spend more of their charitable funds to get the things they need.
A key part of our formation service is conducting your initial board of directors meeting. We walk you and your board through passing nearly 20 different resolutions to provide the authorizations needed to begin operating. We also spend time walking through the corporation’s bylaws so that everyone understands their importance and how they work.
There is no point in forming a nonprofit corporation without obtaining tax-exempt status even if your tax-exemption will not be as a charitable organization. But being a nonprofit corporation is not synonymous with being tax-exempt. Being a nonprofit corporation is only about your corporate status. It’s really about establishing which part of the Corporations Code your corporation is going to be subjected to regarding governance
Tax-exemption is not about corporate status but rather about, well, your taxable status as an entity. Typically, net income from entities is taxable and payable to both the IRS and the Franchise Tax Board. However, tax laws both at the federal and state levels provide for some exemptions. At the federal level, many people are familiar with Internal Revenue Code section 501(c)(3). There are actually several 501(c)-somethings that provide for tax-exemptions. An organization obtaining a 501(c)(3) designation has the additional benefit of being deemed a charitable organization that can provide donors with the opportunity to receive a charitable deduction on their personal tax returns for their gifts to those organizations.
To obtain tax-exempt status, organizations must apply to both the IRS, and in California, to the Franchise Tax Board. The applications can be overwhelming, confusing, and incredibly time-consuming. At Daryl Reese Law, we specialize in preparing and submitting tax-exemption applications and are committed to staying with the application all the way through the process until tax-exempt status has been attained. We have had the IRS or FTB come back with questions for clarification, but we have never had an application denied. We know what the taxing authorities are looking for and we are here to make sure your organization receives the exemption it needs.
Property Tax Exemption
In California, charitable tax-exempt organizations are eligible to receive property tax exemptions from having to pay taxes on their real property—even if the organization is renting. There are three types of property tax exemptions which include a Church Exemption, Religious Exemption, and Welfare Exemption. Different rules apply to each type or application, but all require exclusive use of the property for charitable purposes. However, even for qualifying organizations that utilize or rent out their space for non-charitable purposes, the portion of the property that is for exclusive use qualifies for the exemption.
Depending upon which exemption you are seeking, there might be a requirement for an Organizational Clearance Certificate from the California Board of Equalization, and then an application to the County Assessor’s Office. Each California county has their own application. That said, it is difficult to obtain and easy to lose your property tax exemption.
We have helped several nonprofits either keep or obtain property tax exemptions and have worked directly with County Assessor’s offices to ensure the organizations we serve are able to save tens of thousands of dollars that they can instead use to accomplish their charitable objectives.
Board of Directors Training
Building a nonprofit requires more than just a great idea and fundraising objectives. In order to make sure that you’re prepared, it’s important to make sure your board of directors understands their legal roles and responsibilities within your organization.
If you’re starting a new nonprofit, one of your first duties as a founding member is to be trained on how to properly establish your goals and objectives through assigning and training a board of directors. Board members must know what their responsibilities are, and there’s no better way to learn than from our expert nonprofit legal team on your side. If you have an idea of what it means to be on a nonprofit board, but want clarification on exactly what your duties are, you’ll want to team up with an attorney specializing in nonprofit law.
That’s where we come in. If you’re in the beginning stages, or even are part of a long standing nonprofit board, a nonprofit attorney can help you. Whether your nonprofit is considering restructuring its charitable giving, making big changes through a merger and dissolution, or updating your bylaws, our team can help guide you through these changes to ensure that your nonprofit does not put itself at risk.
You might be considering applying for a 501(c)(3) designation, which would allow you to receive tax-deductible charitable contributions. But is your organization ready? As part of our extensive business law services for nonprofits, we can help guide you through every step of the process—starting with determining whether or not your cause is qualified for tax-exempt status.
The IRS defines charitable contributions as voluntary and without benefit to you personally. A 501(c)(3) nonprofit organization is provided to nonprofit organizations that can accept charitable donations. While other nonprofit organizations may receive tax-exempt status, only charitable organizations receive a 501(c)(3) determination.
Charitable giving is an important part of running a successful nonprofit. And legal help with charitable giving from an experienced and established nonprofit law attorney can make all the difference when it comes to keeping your organization compliant with all applicable rules and regulations, as well as ensuring you’re able to give back in a meaningful way. Allow our team to guide you through the legal processes to ensure your nonprofit is up to par in all things related to your charitable giving and community outreach.
Fiscal Sponsorship Agreements
Fiscal sponsorship refers to the practice of non-profit organizations offering their legal and tax-exempt status to groups—typically projects—engaged in activities related to the sponsoring organization’s mission. It typically involves a fee-based contractual arrangement between a project and an established non-profit.
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Mergers and Dissolutions
A merger agreement outlines a situation where two separate nonprofit entities want to join forces and share resources, assets, liabilities and sometimes employees. A nonprofit organization might choose to merge with another nonprofit for many reasons. Our legal team will work out how the organizations will work together in the process and what the resulting merger will look like.
Sometimes, nonprofit organizations determine that instead of merging, dissolving the entity is the right thing to do. Dissolutions require a lot of legal work to ensure the dissolving organization has met the legal requirements set forth by the California Attorney General, the Secretary of State, and the Franchise Tax Board. Dissolving organizations must get approval from the Attorney General for the distribution of their remaining assets, which requires selecting other qualified nonprofit entities to receive those assets.
It can be difficult to contemplate merging your organization with another or choosing to dissolve, especially since there are so many factors at play. It’s not as simple as just saying yes or no. There are many legalities and intricacies involved that often make it an overwhelming decision. This is why consulting with an experienced attorney is highly recommended. Our team of nonprofit law experts will assist you in each step of the process from decision making and research, to implementing the merger or dissolution process.
Suspension, Revocation, and Forfeiture of Corporate and Exempt Status
The corporate powers, rights, and privileges of an exempt nonprofit corporation may be forfeited or suspended (except amending its articles of incorporation to change its name), and its exempt status may be revoked, if it fails to file a required information return or unrelated business income tax return, or pay tax that is due, on or before the last day of the 12th month following the close its taxable year. Rev & T C §§23775, 23777(a).
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A membership organization is any organization that allows people or entities to subscribe, and often requires them to pay a membership fee or “subscription”
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IRC 501(c)(3) provides that an organization organized and operated exclusively for “charitable” purposes may qualify for exemption from federal income tax. The Service has recognized as charities certain types of organizations that engage in litigation. The purpose of this topic is to discuss the basic types of litigating organizations that apply for recognition of exemption under IRC 501(c)(3): (1) legal aid organizations; (2) human and civil rights defense organizations; (3) public interest law firms; and, (4) organizations that attempt to achieve charitable goals through the institution of litigation as a plaintiff.
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Our firm serves clients in California
3843 Brickway Blvd. Ste 204
Santa Rosa, CA 95403