Legal counsel for charities, non-profits, and tax-exempt entities, covering formation, governance, and the ongoing compliance that obtains tax-exempt recognition and keeps it intact through the way the organization is run.
A determination letter is a start, not a shield. An organization that fails to file its Form 990 series return for three consecutive years loses its exemption automatically under section 6033(j), with no notice of deficiency and no appeal, and the IRS publishes the list.
Status also turns on arithmetic. A public charity must draw at least one third of its support from the public over a rolling five-year period or pass a ten percent facts-and-circumstances test; fail both for two consecutive years and it becomes a private foundation, with a tax on investment income, a five percent annual payout and a self-dealing regime that reaches ordinary dealings with its own board. A director who sells property to the foundation owes an excise tax on the amount involved even if the price was fair.
We form the entity for the classification it will actually hold, draft the compensation procedures that earn the rebuttable presumption of reasonableness under section 4958, and read the Form 990 before it is filed, because the examiner reads it afterward. When the matter is before the IRS, we represent the organization in it.
Structuring a charitable or tax-exempt entity from the ground up, with the organizational documents, exempt purpose, and governance framework needed to qualify under the Internal Revenue Code and applicable state law.
Guidance on fundraising activities and the rules governing charitable contributions, so the organization and its donors are properly positioned and the funds raised support exempt operations.
Support for restructuring an existing organization, including changes to structure, purpose, or affiliations, handled so exempt status and operational continuity survive the transition.
Structuring joint ventures, including arrangements with taxable parties, in a way that advances the organization's mission without jeopardizing its exempt status.
Addressing the federal and state tax issues that arise across an exempt organization's life cycle, from recognition through ongoing operations and reporting obligations.
Representation in disputes and controversies affecting the organization, with an emphasis on resolving issues in a way that protects exempt status and the organization's assets.
Counsel on tax-exempt bond matters, covering the requirements that apply to exempt financing and the compliance obligations that follow.
Filing for IRS recognition of exemption, building the compliance and recordkeeping practices that keep status intact, and supporting the organization through IRS inquiries and audits.
Section 6033(j) revokes exemption automatically when an organization fails to file its Form 990, 990-EZ or 990-N for three consecutive years. There is no notice before it happens and no appeal after. Reinstatement means a new application and a user fee, and retroactive reinstatement is available only on a timetable with its own filing deadline.
The IRS examines the Form 990: Schedule L for insider transactions, Part VII for compensation, Schedule A for the public-support arithmetic. The state attorney general supervises charitable assets separately, and in Illinois an organization must register with the Attorney General before it solicits a dollar and file an annual report after.
The organizational test is mechanical: the purpose clause must confine the entity to exempt purposes and the dissolution clause must dedicate its assets to another exempt organization or government. Miss either and Form 1023 is denied before anyone reads the narrative. Small organizations may file Form 1023-EZ under its receipts and asset ceilings.
Pay to an officer or major donor is presumed reasonable under section 4958 only if an independent body approved it in advance on comparability data and documented it by the later of its next meeting or 60 days. Otherwise an excess benefit costs the insider a 25 percent excise tax, and 200 percent if uncorrected.
A private foundation pays tax on investment income and must distribute five percent of its assets yearly. A non-functionally integrated Type III supporting organization has its own payout and attentiveness tests. A 501(c)(4) may lobby freely but must notify the IRS on Form 8976 within 60 days of formation, and its donors deduct nothing.
Income from a regularly carried on trade or business unrelated to the exempt purpose is taxed at the corporate rate, computed separately for each activity under section 512(a)(6), and reported on Form 990-T once gross unrelated income reaches $1,000. Rent from debt-financed property counts; royalties, qualified sponsorship payments and volunteer-run activities do not.
We translate the founder's intent into an entity that can qualify for exemption: nonprofit corporation or charitable trust, purpose clause, dissolution provisions, and a board composition that anticipates private foundation versus public charity treatment before a single dollar moves.
Form 1023 is an argument dressed as a form. We draft the narrative of activities, the budgets, and the conflict-of-interest policy to answer the IRS examiner's questions before they are asked, and we manage the determination process through to the letter.
With status secured, we structure how money enters and exits: charitable remainder and lead trusts, donor-advised fund policies, and gift acceptance for closely held stock and real estate, each vehicle mapped to the donor's deduction limits and the charity's public-support test.
Exemption has to be maintained every year, so we review the annual Form 990, analyze unrelated business income on every joint venture, screen insider transactions for excess benefit, and represent the organization directly if the IRS or a state attorney general examines the file.
A determination letter is where the argument begins, and annual operation is where it is won.
Two tests, one application. The organizational test looks only at the charter: a purpose clause confined to exempt purposes and a dissolution clause that sends the assets to another exempt organization or to government. The operational test looks at what the entity actually does, and it fails if more than an insubstantial part of its activities serve a non-exempt purpose, if any earnings benefit an insider, or if it intervenes in a political campaign at all. Recognition comes by filing Form 1023, or the shorter Form 1023-EZ for small organizations under its receipts and asset ceilings, within 27 months of formation for exemption to run back to the formation date. State law adds its own steps, in Illinois a registration with the Attorney General before any solicitation.
By filing, by arithmetic and by restraint. The annual Form 990 series return is due the fifteenth day of the fifth month after year end, and three consecutive missed filings revoke exemption automatically under section 6033(j). A public charity must keep passing its public-support test on Schedule A, measured over a rolling five-year period, or it slides into private foundation status with the excise taxes that follow. And the absolute rules stay absolute: no campaign intervention, no private inurement, lobbying held to an insubstantial part unless the organization elects the expenditure test under section 501(h) and lives within its dollar limits. The governance questions on the Form 990 itself, on conflict policies and compensation review, are not legally required, but an examiner reads a column of answers marked no as an invitation.
It usually begins with a letter asking for records rather than an agent at the door, and what the letter asks for tells you what the examiner already suspects: board minutes and a conflict-of-interest policy point to insider transactions, contracts and invoices point to unrelated business income, donor lists and solicitation materials point to fundraising. The outcomes range from a no-change letter, to a closing agreement with corrective action and excise taxes, to revocation, which can be made retroactive to the year the organization stopped qualifying. The parallel risk is the state attorney general, who can seek removal of directors and restitution of charitable assets under state law. We represent the organization before the IRS and manage the production, so the examiner receives a complete and consistent file rather than a drawer.
Hart David Carson LLP advises public charities, private foundations, private operating foundations, employer-sponsored charities, Type I, Type II, and Type III supporting organizations, social-welfare entities, and health-care entities. Each category carries its own organizational, governance, and compliance considerations, and the structure and ongoing practices follow the type of entity involved.
Both, with mechanics attached. In a joint venture with a for-profit, the IRS looks at control: if the exempt partner can require that the venture put charitable purpose ahead of profit, through board control or a reserved power in the venture agreement, the activity remains related; if the for-profit controls, the charity's share of income is unrelated business income at best and a threat to exemption at worst. On the contribution side, a donor claiming any gift of $250 or more needs a contemporaneous written acknowledgment from the charity stating what, if anything, was received in return; a payment above $75 that is partly a purchase needs a written quid-pro-quo disclosure; and a non-cash gift over $5,000 needs a qualified appraisal with Form 8283, which the charity signs. The charity that gets those documents wrong costs its donors their deductions.
Through vehicles with fixed arithmetic. A charitable remainder trust must pay its non-charitable beneficiary between 5 and 50 percent of value each year and leave a remainder worth at least 10 percent of what went in, measured at funding; it converts a low-basis asset into a lifetime income stream without an immediate gain on the sale, and the charitable deduction is taken up front. A charitable lead trust runs the other way, paying the charity first and passing what remains to heirs at a discounted gift value. A private foundation keeps a family's giving under its own governance, at the price of the payout and self-dealing rules. As for protection, assets given to a charity are beyond the donor's creditors because they are no longer the donor's, subject to the same fraudulent-transfer law as any other transfer, so timing and solvency are documented at the gift as carefully as anywhere else.
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Explore →Reviewed by Jonathan D. Herpy, Sr., Senior Partner · Last updated October 2026 · Educational overview · Not legal advice
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