What to Expect from Figeroux & Associates in Nonprofit and Charitable Organizations Tax Law

Introduction
Nonprofit and charitable organizations operate under unique tax laws and regulations that provide them with tax-exempt status in exchange for serving a public benefit. This status, however, comes with strict compliance requirements to ensure that organizations meet the legal standards set by the IRS and maintain eligibility for tax exemptions. Figeroux & Associates is a law firm with specialized expertise in nonprofit and charitable tax law, offering comprehensive services to assist these organizations with compliance, income management, charitable giving regulations, and IRS requirements.

This article analyzes the firm’s approach to nonprofit tax law, detailing what clients can expect from Figeroux & Associates in four key areas: maintaining tax-exempt status, managing unrelated business income, ensuring compliance with charitable giving regulations, and navigating complex IRS rules.

1. Ensuring Compliance to Maintain Tax-Exempt Status

One of the most critical aspects of nonprofit and charitable tax law is maintaining tax-exempt status. Losing this status can result in significant financial and operational setbacks, including being subject to income taxes, penalties, and a loss of donor confidence. Figeroux & Associates provides guidance to ensure that nonprofit organizations meet IRS requirements for tax-exempt status, helping them operate within legal boundaries.

Application and Maintenance of 501(c)(3) Status

The majority of tax-exempt organizations fall under Section 501(c)(3) of the Internal Revenue Code, which applies to charities, educational institutions, and other entities that serve a public benefit. Figeroux & Associates assists new organizations with the 501(c)(3) application process and provides ongoing support for maintaining this status.

What Clients Can Expect:

• Thorough Review of Mission and Activities: Figeroux & Associates begins by reviewing the organization’s mission, activities, and goals to confirm that they align with the requirements for tax-exempt status. This includes ensuring that the organization’s operations are primarily charitable, educational, religious, or otherwise beneficial to the public.
• Preparation and Filing of Form 1023: Form 1023 is the primary application for obtaining 501(c)(3) status. The firm assists with preparing and filing this form, which involves detailed documentation of the organization’s purpose, sources of income, planned activities, and governance structure. Figeroux & Associates ensures accuracy and completeness to avoid delays in IRS approval.
• Ongoing Compliance Support: After obtaining tax-exempt status, organizations must adhere to specific rules to maintain it. Figeroux & Associates provides ongoing compliance support, helping organizations monitor their activities, avoid prohibited actions, and ensure adherence to IRS requirements.
• Review of Organizational Documents: Articles of incorporation, bylaws, and conflict-of-interest policies must align with tax-exempt requirements. The firm reviews and, if necessary, updates these documents to reflect the organization’s commitment to its exempt purposes.

Avoiding Private Benefit and Inurement Violations

The IRS strictly prohibits private benefit and inurement within tax-exempt organizations, meaning that the organization’s income and assets cannot unjustly benefit individuals or insiders. Violating these rules can lead to penalties or loss of tax-exempt status.

What Clients Can Expect:

• Advising on Compensation and Benefits: Figeroux & Associates helps nonprofits establish reasonable compensation policies for executives and board members, ensuring that salaries and benefits comply with IRS standards and do not constitute private inurement.
• Guidance on Conflict-of-Interest Policies: To prevent conflicts of interest, the firm advises on policies and practices that ensure board members and executives act in the organization’s best interest, not their own financial gain. This includes drafting and implementing conflict-of-interest policies that the organization’s leadership must adhere to.
• Support with Self-Dealing Rules for Private Foundations: For private foundations, self-dealing rules are particularly stringent. Figeroux & Associates advises on interactions with donors and related parties to ensure compliance and avoid penalties.

Periodic Compliance Checks and Best Practices

Figeroux & Associates emphasizes proactive compliance, conducting periodic checks to ensure that organizations consistently meet IRS requirements. By establishing best practices for governance and operations, the firm helps nonprofits safeguard their tax-exempt status and remain aligned with their mission.

2. Assisting with Managing Unrelated Business Income

Unrelated business income (UBI) refers to revenue generated from activities that are not directly related to a nonprofit’s tax-exempt purpose. While nonprofits are allowed to earn UBI, they must report and potentially pay taxes on this income. Figeroux & Associates helps organizations understand and manage UBI to avoid jeopardizing their tax-exempt status.

Identifying and Classifying Unrelated Business Income

The IRS requires nonprofits to classify income as related or unrelated, depending on whether the activity that generated it is substantially connected to the organization’s mission. Figeroux & Associates assists organizations in distinguishing between the two and provides guidance on reporting UBI.

What Clients Can Expect:

• Comprehensive UBI Assessment: Figeroux & Associates conducts a detailed analysis of the organization’s revenue sources to identify any UBI-generating activities. This includes examining sponsorships, advertising income, merchandise sales, and other activities that may be classified as unrelated business income.
• Guidance on UBI Thresholds and Limits: Too much UBI can risk an organization’s tax-exempt status. The firm provides guidance on UBI thresholds, advising clients on ways to limit UBI activities or structure them to avoid impacting the organization’s tax exemption.
• Tax Reporting for UBI (Form 990-T): Nonprofits with UBI must file Form 990-T to report this income and pay any applicable taxes. Figeroux & Associates assists with preparing and filing Form 990-T, ensuring that UBI is reported accurately to avoid IRS scrutiny.

Strategies for Reducing UBI Tax Liabilities

Figeroux & Associates provides strategies for minimizing tax liabilities on UBI. By structuring activities or using specific exemptions, nonprofits can reduce the tax impact of unrelated business income.

What Clients Can Expect:

• Exploring Exemptions for Passive Income: Certain types of income, such as interest, dividends, and royalties, are generally exempt from UBI tax. The firm advises on strategies to structure activities in a way that classifies revenue as passive income, minimizing tax exposure.
• Establishing Subsidiaries for UBI Activities: For organizations with substantial UBI, creating a for-profit subsidiary can separate these activities from the nonprofit. Figeroux & Associates assists with setting up subsidiaries, allowing nonprofits to manage UBI without risking their tax-exempt status.
• Engaging in Non-Commercial Activities: The firm provides guidance on restructuring UBI activities to align with non-commercial purposes, allowing organizations to retain income from these activities while reducing their tax liability.

Ongoing Monitoring and UBI Management

Figeroux & Associates supports clients with ongoing monitoring of UBI activities, advising on adjustments as the organization grows or introduces new revenue streams. This proactive approach helps nonprofits maintain compliance and minimize tax burdens over time.

3. Ensuring Compliance with Charitable Giving Regulations

Charitable giving regulations ensure that contributions to nonprofits are used for legitimate purposes, offering transparency and accountability for donors. Compliance with these regulations is essential for nonprofits to maintain public trust and avoid penalties. Figeroux & Associates provides guidance on charitable giving compliance, ensuring that organizations follow best practices in fundraising, donor relations, and gift acknowledgment.

Gift Acceptance Policies and Procedures

Nonprofits must establish clear policies for accepting gifts, including restrictions on certain types of donations, to ensure that all contributions align with their mission and regulatory requirements. Figeroux & Associates assists organizations in developing comprehensive gift acceptance policies.

What Clients Can Expect:

• Customized Gift Acceptance Policy Development: The firm works with clients to create gift acceptance policies that outline which types of gifts are permissible, any restrictions, and procedures for evaluating non-cash contributions, such as real estate, stocks, or vehicles.
• Guidance on Restricted and Endowed Gifts: Certain gifts come with restrictions on their use. Figeroux & Associates advises on managing restricted and endowed gifts, helping organizations honor donor intentions and remain compliant with legal obligations.
• Review of Planned Giving Programs: Many nonprofits offer planned giving options, such as bequests, trusts, and annuities. The firm provides guidance on establishing planned giving programs, ensuring that all legal requirements are met and that the organization benefits from these gifts without compromising compliance.

Donor Acknowledgment and Recordkeeping

The IRS requires nonprofits to provide donors with acknowledgment letters for contributions. Figeroux & Associates helps organizations create and maintain systems for donor acknowledgment and recordkeeping.

What Clients Can Expect:

• Drafting of Acknowledgment Letters for Tax Deductibility: Figeroux & Associates assists in drafting acknowledgment letters that meet IRS standards, ensuring donors have the documentation required to claim tax deductions.
• Guidance on Donor Privacy and Data Management: Protecting donor information is essential for maintaining trust. The firm advises on best practices for donor privacy and data management, helping organizations comply with data protection laws.
• Establishing Recordkeeping Systems for Audit Readiness: Figeroux & Associates helps nonprofits set up efficient recordkeeping systems that support audit readiness, ensuring that donation records are readily accessible in case of IRS review.

Compliance with Fundraising Regulations and State Registrations

Nonprofits must often register with state authorities to solicit donations legally. Figeroux & Associates assists with multi-state compliance, ensuring organizations meet fundraising regulations and avoid penalties.

What Clients Can Expect:

• Assistance with State Charity Registrations: The firm helps organizations register with state charity regulators, such as attorney general offices, as required by law for fundraising activities. This includes preparing documentation for multi-state compliance where applicable.
• Guidance on Fundraising Best Practices: Figeroux & Associates advises on ethical and legal fundraising practices, helping nonprofits avoid misleading or deceptive practices that could result in penalties or reputational damage.
• Compliance with Online Fundraising Requirements: Many states have specific rules for online fundraising. The firm provides guidance on compliance with online donation platforms, including requirements for disclaimers, donor disclosures, and data security.

Periodic Compliance Reviews for Charitable Giving

To maintain compliance, Figeroux & Associates conducts periodic reviews of clients’ charitable giving policies and practices, ensuring adherence to legal standards as the organization grows and donor expectations evolve.

4. Ensuring Compliance with Complex IRS Regulations

The IRS imposes strict regulations on nonprofit organizations, including reporting requirements, operational restrictions, and governance standards. Figeroux & Associates provides comprehensive guidance on IRS compliance, helping nonprofits navigate these regulations and reduce the risk of penalties or audits.

IRS Form 990 Preparation and Filing

Nonprofits are required to file Form 990 annually, providing detailed information about their finances, programs, and governance. Figeroux & Associates assists with Form 990 preparation, ensuring accuracy and compliance with IRS requirements.

What Clients Can Expect:

• Preparation and Review of Form 990: The firm assists with completing Form 990, which requires accurate reporting of revenue, expenses, governance policies, and program accomplishments. Figeroux & Associates ensures that Form 990 is completed accurately to avoid IRS scrutiny.
• Guidance on Public Support Test Compliance: For certain public charities, maintaining tax-exempt status depends on meeting a public support test. The firm advises on how to meet this test and ensure ongoing compliance with IRS requirements.
• Addressing Excess Benefit and Intermediate Sanctions: Nonprofits must avoid excess benefit transactions, which occur when insiders receive financial benefits beyond reasonable compensation. Figeroux & Associates helps establish safeguards against excess benefit violations, protecting the organization from penalties.

Internal Controls and Governance Policies

Nonprofits must demonstrate good governance practices to retain tax-exempt status. Figeroux & Associates assists in implementing internal controls and governance policies that align with IRS standards.

What Clients Can Expect:

• Developing Governance Policies: The firm helps organizations establish governance policies, such as conflict-of-interest policies, whistleblower policies, and document retention policies, which demonstrate accountability and transparency.
• Implementing Financial Oversight Procedures: Figeroux & Associates advises on financial oversight procedures, such as regular financial reviews and independent audits, to ensure responsible use of resources and compliance with IRS standards.
• Board Training and Education on Compliance Issues: The firm provides training for board members and executives on their fiduciary responsibilities, IRS requirements, and best practices for nonprofit governance.

Audit Support and IRS Dispute Resolution

If the IRS audits or questions a nonprofit’s activities, Figeroux & Associates provides representation and guidance through the audit process, helping clients resolve disputes effectively.

What Clients Can Expect:

• Audit Preparation and Representation: The firm assists clients in preparing for IRS audits, reviewing documentation, and addressing any compliance concerns. During the audit, Figeroux & Associates represents the organization, responding to IRS inquiries and advocating on its behalf.
• Dispute Resolution and Appeals: In cases where the IRS imposes penalties or challenges the organization’s tax-exempt status, the firm provides support for dispute resolution and appeals, working to achieve a favorable outcome.

Ongoing Compliance Monitoring and Training

Figeroux & Associates offers continuous compliance support, providing training, resources, and updates to help nonprofits stay current with IRS requirements and avoid issues in the future.

Conclusion

Figeroux & Associates offers a full spectrum of legal services in nonprofit and charitable organizations tax law, providing invaluable support to nonprofits seeking to maintain tax-exempt status, manage unrelated business income, ensure compliance with charitable giving regulations, and navigate complex IRS requirements. By partnering with Figeroux & Associates, nonprofit organizations gain access to experienced legal advisors who understand the intricacies of nonprofit tax law and are committed to helping them achieve their mission in compliance with all applicable laws.

For organizations focused on maintaining their tax-exempt status, the firm offers ongoing compliance support, from governance practices to IRS filings. When nonprofits engage in revenue-generating activities, Figeroux & Associates provides guidance on managing unrelated business income to avoid jeopardizing tax-exempt status. The firm also assists with charitable giving regulations, ensuring transparency and accountability for donations and fundraising activities. With expertise in IRS regulations, Figeroux & Associates supports clients through audits, Form 990 preparation, and governance training, providing a strong foundation for regulatory compliance.

Through comprehensive legal services and a proactive approach to compliance, Figeroux & Associates helps nonprofit and charitable organizations thrive, enabling them to focus on their charitable work while navigating the complex landscape of tax law confidently and effectively.