Exempt Organizations

The economic outlook for exempt organizations has never been brighter. There are approximately 1.6 million tax-exempt organizations described in the twenty-eight categories listed in Internal Revenue Code section 501(c); and according to Forbes, in 2006 the 200 largest reported annual gifts totaling $198 million, up 20 percent from the previous year. Currently, the assets of section 501(c)(3) organizations exceed $2.5 trillion, with annual revenues of nearly $1.2 trillion. Section 501(c)(3) organizations spend approximately $900 billion on program services, and they continue to grow each year with more than 350,000 organizations granted tax-exempt status since 1997. Assets at the largest foundations increased 7.7 percent in 2006 (according to a 2007 survey by The Chronicle of Philanthropy), with a combined value of $185.4 billion. But with growth and media attention comes added scrutiny from Congress and government agencies. According to former IRS Commissioner Mark Everson, 7,079 non-profit organizations were audited in the 2006 fiscal year, a 40 percent increase over 2005.

All of this suggests that exempt organizations and their boards will continue to rely on the sound judgment and expertise of outside legal counsel. For some, this means finding a counselor who can act as general counsel on a consistent and regular basis. For others, specific projects that raise novel and complex issues will require a deeper expertise. Steptoe’s clients benefit from our multi-disciplinary approach through both time saved, and questions answered “right the first time.” We guide our clients through the complex web of regulations from an organization’s inception and development, through to its growth and maturity.

Our lawyers are at the forefront of business and legislative developments affecting tax-exempt organizations and are frequent speakers and authors on topics that impact our clients. We stay abreast of industry developments, listen closely to our clients, and provide legal services adapted to the nonprofit world. Our goal is to help each tax-exempt client achieve its mission, be it educational, business, or public service oriented.

Suzanne Ross McDowell and Catherine W. Wilkinson co-lead our Exempt Organizations team. Ms. McDowell—with extensive experience as a private practitioner, as a senior legal and business executive at National Geographic Society, and a senior government official in the Office of Tax Policy, US Treasury Department—brings to her work a unique blend of pragmatism, sharp analytical skills, and an understanding of tax policy. Together with co-leader Ms. Wilkinson, a certified public accountant with an M.B.A. in accounting and taxation, the Steptoe team is uniquely qualified to support exempt organizations of all sizes and shapes, with a suite of services ranging from hands-on support as your “general counsel,” to planning, counseling, and litigation.

Array of Legal Services
We provide the full array of legal services required by exempt organizations and serve as the outside General Counsel for many of our exempt organization clients, either through our General Counseling roles, or directly. These services include:

Appellate Litigation—Charles G. Cole, Bruce C. Bishop
Antitrust—Kenneth P. Ewing
Corporate—Scott H. Katzman, Susan A. Wolf
E-Commerce & Media—Michael A. Vatis
ERISA, Employee Benefits & Executive Compensation—Anne E. Moran, Ellen Kohn, Donald E. Wellington, Catherine W. Wilkinson
Employment Law—Morgan D. Hodgson, Paul F. Mickey, Jr.
Government Investigations & Audits—Catherine W. Wilkinson, Suzanne Ross McDowell, Matthew J. Herrington
Government Relations & Public Policy—R. Timothy Columbus, Scott A. Sinder
Government Contracts & Grants—Thomas P. Barletta
Intellectual Property Protection & Transactions—Savery M. Gradoville, Harold H. Fox, William G. Pecau
International Regulation & Compliance—Susan G. Esserman, Edward J. Krauland
Privacy & Data Security—Michael A. Vatis
Tax—Suzanne Ross McDowell, Catherine W. Wilkinson, Randal T. Evans, Gregory N. Kidder, Elinor Ramey
Transactions—Scott H. Katzman, Caroline H.B. Gaudet, Suzanne Ross McDowell, Savery M. Gradoville, Susan A. Wolf

Our Clients
We represent a diverse group of organizations including:

advocacy, lobbying, and political organizations
charitable entities and social welfare organizations
colleges, universities, and other educational institutions
federal and state agencies and instrumentalities
healthcare and medical research organizations
private foundations
professional and trade associations
religious groups
scientific societies and research organizations
veterans and other membership groups

Corporations that participate in commercial ventures with tax-exempt organization also seek our advice.

The Exempt Environment
Transactional Issues. Exempt organizations face the same complex legal issues as for-profit businesses in a broad array of regulatory mandates that fall under the heading of transactional, such as:

commercial transactions and investments
corporate reorganizations, mergers and acquisitions
development and acquisition of information technology assets and services
intellectual property, protection and transactions
international business activities, grants, and contracts
joint ventures, for-profit subsidiaries and other affiliated entities
real estate transactions
structuring transactions to minimize UBIT
tax-exempt bond financing

Regulatory Issues. Also facing our exempt clients are some of the same regulatory issues as for-profit businesses, for example:

antitrust
employment law
ERISA, executive compensation, and employee benefits
export controls, technology acquisition and transfer
government grants and contracts
legislative and political campaign activities
privacy and data security
tax

Issues for Charities, Foundations, and Social Welfare Organizations
We serve our exempt organizations’ business, legal and tax needs across the spectrum. Our clients have called on us to represent them before the IRS, Congress and the courts. Special issues for charitable organizations include:

affinity cards
charitable trusts, gift annuities, and pooled income funds
conservation easements and in-kind giving
corporate governance best practices
corporate sponsorships
donor-advised funds and supporting organizations
executive compensation
fundraising programs and recordkeeping
internet transactions, email, and web-based solicitations
IRS audits, Congressional or internal investigations
postal rates for non-profits
private inurement and private benefit
tax-exempt status
unrelated business income (UBIT) reporting

Issues for Educational and Research Organizations
Medical and research institutions often seek to commercialize their inventions and research breakthroughs while preserving publication rights. If successful, the result is an opportunity to pursue downstream research, receive a royalty-stream, or an equity stake in additional research. To achieve these goals with our clients, we advise, draft, and negotiate agreements, including:

collaboration agreements with commercial entities and government agencies
grant agreements
material transfer arrangements
patent, copyright and trade secret licenses and transfers
sponsored research agreements

Issues for Trade and Professional Associations
There are more than 86,054 trade and professional associations which play an important role in our society through publishing educational materials, offering classes or conferences, and organizing networking and charitable events. We assist our association clients in managing the business aspects of their missions, and are often called upon to:

account for and report unrelated business income (UBIT)
advise on compliance with antitrust laws
advise on peer review and publication of professional journals
draft amicus briefs for litigation in the US Supreme Court and other courts
draft member benefits plans
lobby Congress and the IRS
provide legal support in organizing trade shows
structure affinity programs

As a service to the exempt community, we publish the e-newsletter Exempt Organizations Advisory as developments in this area of law warrant. Many of our nonprofit clients also subscribe to Steptoe’s Daily Tax Update, an up-to-the minute electronic advisory. Click here to sign up for these or other Steptoe advisories.

Select News & Events