Nonprofit Organizations
With one of the most experienced nonprofit practices in the United States, McDermott Will & Emery provides a wide range of legal services to this rapidly growing sector of the U.S. economy. Nonprofit organizations account for 8 percent of the U.S. economy and 10 percent of the workforce, making this one of the fastest growing business sectors in the country. The Firm has provided legal advice to nonprofit clients since its inception in 1934. Our nonprofit organizations practice has lawyers in Boston, Chicago, Los Angeles, New York and Washington, D.C. Our size and experience allow us to provide in-depth service to nonprofits that is not always available from smaller firms.
McDermott frequently serves as counsel to a broad variety of nonprofit organizations, including the following:
- Nonprofit hospitals and other types of tax-exempt health care organizations, such as health maintenance organizations, skilled nursing facilities, home health agencies and their affiliates
- Tax-exempt and governmental colleges and universities
- Trade and professional associations
- Religious organizations
- Company foundations
- Private foundations and other planned-giving vehicles
Our legal services to these organizations include the following areas:
The Firm is recognized U.S.-wide for its experience in the area of nonprofit corporation and charitable trust laws, particularly as these laws apply to corporate structure and material business transactions. The Firm is regularly called upon to advise its nonprofit clients on the application of the law in these areas to matters involving corporate reorganizations, restructurings, mergers and similar major structural endeavors, as well as with respect to institutional management of charitable funds. The Firm’s experience in these areas complements its practice advising nonprofit clients on corporate governance. McDermott lawyers have represented nonprofit industry parties in some of the most prominent nonprofit law litigation of recent years, including Florida v. Intracoastal Health System, and the litigation involving Banner Health System and the attorneys general of New Mexico, South Dakota and North Dakota, respectively. Members of the Firm’s nonprofit practice group serve as advisors to important nonprofit industry policy organizations, such as The Panel on the Nonprofit Sector and the American Law Institute’s “Principles of the Law of Nonprofit Organizations” project.
Nonprofit Corporate Governance
McDermott is a leading legal advisor to nonprofit organizations on matters relating to corporate governance, corporate responsibility and fiduciary duty. In this regard, the Firm counsels individual directors, entire boards of directors, board committees, executive officers, industry oversight groups, donors and, in limited and special circumstances, units of government. Advice is provided on a wide variety of matters, including board composition, structure, policies and practices; exercise of fiduciary duty, generally; board and executive compensation; board oversight obligations in material transactions; fiduciary-duty-related disputes and litigation; corporate compliance programs; internal investigations; and resolution of conflicts of interest/self-dealing controversies.
The Firm is particularly active in advising its nonprofit clients on the application of “corporate responsibility” principles and matters related to transparency, disclosure and board oversight of financial matters, and particular conflicts of interest issues relating to health care and research. The Firm is frequently called upon to advise standing and special board committees (e.g., audit, governance, conflicts, compliance and compensation) on their charter and specific responsibilities.
We provide comprehensive tax planning, compliance and advocacy services to a broad spectrum of tax-exempt organizations.
Tax Counseling, Compliance & Planning
Our federal income tax counseling and planning services deal with all organizational and operational aspects of obtaining and maintaining tax exemption and public charity status, and planning for appropriate taxation of unrelated business activities. We assist our clients in complying with applicable private foundation or intermediate sanctions rules, including structuring physician and executive compensation arrangements. We prepare exemption applications and obtain exemption determinations and private letter rulings from the Internal Revenue Service (IRS). We also provide tax planning and counseling services at the state and local level on state income or franchise tax exemptions, sales and use tax exemptions, and other issues. The Firm has been active in working with hospitals and health systems on charity care and community benefit reporting disclosure of executive compensation, and disclosure of director and officer interests and transactions on the new Form 990.
Tax Audits
We assist exempt organizations in tax audits and examinations, including Team Examination Program audits and special focus audits, such as Executive Compensation audits and audits of private use of tax-exempt bond proceeds. Our representation includes advice on strategies for the defense of audits, dealings with examining agents, obtaining technical advice from IRS headquarters, and representing clients in the administrative appellate process and in litigation. We have represented many nonprofit organizations on a wide range of matters, including proposed revocations of tax-exempt status, proposed terminations or changes of public charity status, issues related to operating affiliated organizations as private foundations and unrelated business income tax issues. We provide similar services at the state and local levels.
Tax Litigation
Exempt organizations are on occasion involved in tax litigation. The dispute may involve a proposed denial of an application for recognition of tax exemption for a new organization, or a proposed revocation of tax-exempt status for an existing organization. Tax litigation may also involve challenging a proposed IRS assessment for unrelated business income, employment or excise taxes. Our tax lawyers have extensive litigation experience in federal courts across the United States, including the U.S. Tax Court, the U.S. Court of Federal Claims, U.S. district courts, all U.S. courts of appeal and the Supreme Court of the United States. For example, we represent teaching hospitals in pursuing refund claims for employment tax (FICA) paid for medical residents. In addition, our tax, trial and health care lawyers have formed an integrated, multi-disciplinary team to assist hospitals and health systems in inquiries and litigation concerning charity care and community benefit.
Property Tax Exemption
State and local governments are focusing more on whether the property, plants and equipment of nonprofit organizations should be exempt from state and local property taxes. We represent organizations across the United States in obtaining property tax exemptions, and defend clients when property tax exemptions are threatened. We assist nonprofit organizations in administrative and judicial appeals related to their property tax-exempt status. We are also actively involved with state and local governments in the development of policies and procedures for granting or removing property tax exemptions.
Executive Compensation
McDermott provides experienced legal advice to tax-exempt organizations on the area of nonprofit executive compensation. Executive compensation has drawn increasing attention from the IRS, which has contacted and will continue to contact nonprofit organizations for detailed information about their executive compensation and benefits. Every tax-exempt organization that provides significant compensation and executive benefits to senior management should be prepared for greater scrutiny, as well as for possible IRS review of the documentation supporting the arrangements.
We advise clients on issues the IRS is likely to consider in its review, including board review of compensation, board members’ degree of independence, proper reporting of compensation and benefits on Form 990, and whether the board has taken the steps necessary to qualify for the “rebuttable presumption of reasonableness” under the intermediate sanctions rules.
Clients also receive advice on key questions to address before IRS contact occurs. These include the preparation and assembly of appropriate documentation to disclose, the valuing and reporting of deferred compensation arrangements, and information that is protected from disclosure by the attorney-client privilege.
Employee Benefit Planning
Our lawyers assist nonprofit organizations in the design and implementation of virtually all forms of qualified and non-qualified retirement and welfare benefit plans available under the law and consistent with intermediate sanctions guidelines. We also assist clients in the design of taxable and non-taxable fringe benefit programs for employees. Our experience includes extensive work on plan qualification issues, including single-employer and multiple-employer settings.
Employment & Excise Taxes
Employment taxes often are an unnoticed potential liability for nonprofit organizations. With increased frequency, issues are raised during audits on the appropriate classification (as employees or independent contractors) of professionals who provide services. Our lawyers, including those who handle employment tax issues, work with organizations to plan for proper job classification in the early stages of a transaction, minimize the incidence of employment tax liability and assist organizations when an employee/independent contractor classification is challenged. We also are involved in administrative and litigation controversies involving assessments of taxes and penalties for failure to withhold and/or pay employment tax liabilities. We have assisted many clients in reducing or abating tax liability through procedural, negotiation or litigation strategies, and through voluntary compliance programs established by the IRS.
Charitable giving presents ever-changing and often-overlooked issues for the donor and recipient. We have advised clients on IRS gift acknowledgment requirements and have had a substantial impact on the development of the IRS regulations in this area.
We advise and assist in the development, maintenance and expansion of charitable giving programs and other fundraising activities. We work closely with charitable organizations in relation to contributions, record-keeping and reporting of capital campaigns, special events, direct mail and annual fund programs, and planned giving.
We assist nonprofit organizations and their development officers on current and deferred charitable giving matters, including gifts of cash, appreciated land or securities, personal residences, and other forms of real and personal property. We also work with clients and donees in planned giving transactions using charitable remainder unitrusts and annuity trusts, charitable lead trusts, pooled income funds, private foundations and other strategies.
Tax-exempt bonds represent an essential source of capital for nonprofit organizations. We represent conduit borrowers in conduit financing transactions (i.e., exempt organizations in Section 501(c)(3) bond transactions). Our services cover the entire range of issues confronting conduit borrowers, from structuring new financings, through assessing the impact of operational changes on existing bonds, to re-fundings. Issues include permissible uses of Section 501(c)(3) bonds (unrelated trade or business issues and allocations), private business use (management contracts), working capital financings, use of reimbursement bonds, changes in use and remedial actions, and re-issuances under the debt modification regulations. We also help conduit borrowers develop and implement plans for monitoring compliance with tax-exempt bond restrictions.
Nonprofit Business Transactions
Cutting-Edge Transactions
Our breadth of experience and client base makes us particularly well suited to represent tax-exempt health care organizations and organizations in other specialized industries. For example, we are frequently involved as counsel in horizontal integrations, conversions and sales of assets and the resulting foundations, joint ventures, physician practice acquisitions, academic medical center relationships with physicians, joint operating arrangements, and captive insurance and other risk management arrangements. We routinely address the special issues arising for tax-exempt organizations in such transactions.
Antitrust
Nonprofit organizations are sometimes involved in transactions that include private antitrust litigation and government antitrust enforcement. Antitrust issues arise in nonprofit mergers, affiliations and joint ventures.
We provide antitrust counseling and litigation services to a wide variety of entities in the nonprofit industry, typically in health care. Our representation covers the full range of antitrust issues, including counseling and representation of clients in investigations and litigation brought by private parties, federal antitrust authorities and state attorneys general. We advise on all antitrust issues associated with mergers and acquisitions and the formation of provider networks. We represent clients in government investigations of hospital mergers, from preparation of Hart-Scott-Rodino Act pre-merger notification filings through successful closing of Federal Trade Commission or U.S. Justice Department Antitrust Division inquiries.
In addition to counseling clients, we represent nonprofit organizations in antitrust litigation. A common source of such litigation is staff privileges decisions, often spawned by exclusive contracts between hospitals and hospital-based physicians, as well as decisions excluding providers from participation in provider networks. We provide a full range of litigation services.
Captive Insurance & Alternative Risk Financing
The Firm has been active in the development of alternative risk financing programs providing coverage for professional liability, errors and omissions liability, general liability, workers compensation, products liability, and directors and officers liability, especially for tax-exempt and health care organizations.
We advise our clients on the structuring and formation of captive insurance companies. We have extensive experience designing and implementing alternatives and supplements to commercial insurance, and have represented clients in hundreds of programs, including captive insurance companies, deductibles and self-insured retentions (SIRs), retro programs, risk retention groups (RRGs) and risk purchasing groups (RPGs), trusts and municipal risk pools in all the facilitating onshore and offshore domiciles.
Legislative & Policy Developments
The combined strengths of our tax and legislative practices make us well suited to represent nonprofit organizations in federal tax policy and legislative matters. Our lawyers have been involved in the IRS’s development of regulations and rulings. We have submitted position papers on various tax issues, commented on proposed regulations on behalf of organizations and participated in policy forums where the interests of the nonprofit industry are considered. Our lawyers were actively involved in all phases of the recent Form 990 redesign by the IRS. Additionally, our tax lawyers have a number of contacts with state and local tax officials.
Much of the policy affecting U.S. nonprofit organizations today and in the future will be developed by the IRS through the promulgation of new regulations, revenue rulings and revenue procedures. It will also develop through the legislative process—for example, by amending Section 501 of the Internal Revenue Code—by modifying rules pertaining to the unrelated business income tax, or by amending state or local tax statutes.
The Firm has been particularly involved in advising clients with respect to legislative developments affecting nonprofits emerging from the Senate Finance Committee, including but not limited to the 2006 Pension Protection Act.
Leadership, Publications & Policy Initiatives
The Firm’s stature in the nonprofit organization field is further enhanced by our leadership and faculty roles in many educational and policy-making activities concerning nonprofit organizations, the health industry and tax exemption issues. Examples include the role of our lawyers in leading public policy groups such as the Panel on the Nonprofit Sector, and in the American Law Institute’s “Principles of the Law of Nonprofit Organizations” treatise project. Additional examples include authorship of a portfolio on 501(c)(3) health care tax issues recently published by The Bureau of National Affairs; a leading health care tax treatise, The Health Care Industry (published by Commerce Clearing House); Taxation of Hospitals and Health Care Organizations (Matthew Bender 2000); and the co-authorship of Taxation of Exempt Organizations (Warren Gorham & Lamont 2002). Our lawyers also hold leadership positions in relevant professional associations (the American Bar Association Exempt Organization Committee, American Bar Association Health Law Section and American Health Lawyers Association Tax and Finance Practice Group) through which they have developed position papers and other input to Congress and the IRS on preparing regulations, revenue rulings, and other guidance and policy initiatives. In addition, our lawyers frequently speak to groups and associations on, and author articles addressing, nonprofit law topics.
Contacts
- Robert C. Louthian III
+1 202 756 8172
Send E-mail - Michael W. Peregrine
+1 312 984 6933
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