Client Services / Health / Tax Exemption

Tax Exemption

McDermott Will & Emery was founded in 1934 as a tax firm. Today, we are recognized as the largest tax law practice in the United States. Through our Health Law, Tax, Employee Benefits, and Estate Planning departments, we provide comprehensive tax planning, compliance and advocacy services to a broad spectrum of tax-exempt organizations, including, 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 associations; religious organizations; company foundations; and private foundations and other planned giving vehicles.

TAX COUNSELING, COMPLIANCE AND 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 compliance with applicable private foundation or intermediate sanctions rules, including structuring compensation arrangements to comply with the proposed intermediate sanctions regulations. We prepare exemption applications and obtain advance 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.

TAX AUDITS
We assist exempt organizations in tax audits and examinations, including the more rigorous Comprehensive Examination Program audits now being conducted by the IRS for hospitals and universities. Our representation includes advice on strategies for the defense of audits, dealings with examining agents, obtaining technical advice from the 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 business income tax issues. We provide similar services at the state and local levels.

EMPLOYEE BENEFIT PLANNING
McDermott Will & Emery’s Employee Benefits Department is among the largest and most experienced in the United States. We 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. We also provide advice on affiliated service groups, employee leasing, and related issues.

EMPLOYMENT AND EXCISE TAXES
Employment taxes often are an unnoticed 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, such as physicians, nurses, physical and occupational therapists, and social workers. Our lawyers, including those who specialize in 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.

CUTTING-EDGE ISSUES FOR HEALTH CARE ORGANIZATIONS AND OTHER SPECIALIZED INDUSTRIES
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 transactions such as joint operating arrangements, horizontal integrations, conversions and sales of assets and the resulting foundations, joint ventures, physician practice acquisitions, academic medical center relationships with physicians, and captive insurance and other risk management arrangements. We routinely address the special issues arising for tax-exempt organizations in such transactions.

PROPERTY TAX EXEMPTION 
State and local governments are focusing more frequently on whether the property, plant, and equipment of nonprofit organizations should be exempt from state and local property taxes. We represent organizations across the country to obtain property tax exemptions and to 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. Our involvement includes the development of position papers, the provision of written comments on proposed regulations, and the submission of testimony in the policy development and regulatory process.

FEDERAL TAX POLICY
Much of the tax policy affecting 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, such as 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 combined strengths of our tax and legislative practices make us particularly well-suited to represent individual nonprofit organizations or associations in federal tax policy and legislative matters. Several of our lawyers have had extensive involvement 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 individual organizations or associations, and participated with IRS and Treasury Department representatives in policy forums where the interests of the nonprofit industry are considered. Our state and local tax lawyers have good contacts with state and local tax officials around the country.

FEDERAL, STATE AND LOCAL 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 country, including the U.S. Tax Court, the U.S. Claims Court, the U.S. Court of Appeals, and the Supreme Court of the United States. Recently, we served as litigation counsel in Redlands Surgical Services v. Commission, an important case involving the impact of joint venture participation on tax-exempt status.

FUNDRAISING / DONOR-RELATED SERVICES
Charitable giving presents ever-changing and often-overlooked issues for the donor and recipient. We have advised clients on IRS gift acknowledgment requirements, and had a substantial impact on the development of the IRS regulations in this area. 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 prospective donees in planned giving transactions using charitable remainder unitrusts and annuity trusts, charitable lead trusts, pooled income funds, and other strategies.

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McDermott Will & Emery

McDermott Will and Emery