[FORM 1023 LEGAL SERVICES]

Transcription

1 Proposal [FORM 1023 LEGAL SERVICES] Review, File and Obtain Federal Tax-Exempt Status for Start-up Nonprofits, Trusts and Associations Wayne B. Henry, Partner August 29, 2012 The choice of a lawyer

2 Introduction Stinson Morrison Hecker LLP is providing the following proposed legal services fee schedule for the federal exemption (Form 1023) process. First, some preliminary comments regarding the scope of this proposal. The scope of this proposal addresses start-up organizations seeking legal assistance with the application for exemption, and not existing nonprofit organizations. As you know, prior to filing an application for tax-exempt status, an organization has to be formed as either a nonprofit corporation, a trust or an association. Most tax-exempt organizations are nonprofit corporations. Stinson forms many nonprofit corporations, but this proposal does not include forming the nonprofit organization. We are assuming, for purposes of this proposal, that all of the steps necessary to create the organizations have been completed, including filing articles of incorporation and preparing bylaws. Also, there are a number of governing requirements and policies that the IRS will generally require of taxexempt organizations, and we also assume that those have been established by the organization. Most of these requirements and policies are set forth on the Form 990. We can outline those items upon your request. Furthermore, we assume that you will prepare all of the financial information that is required in the application process (e.g., three years of financial information, plus a balance sheet for the organization). If you review this proposal and decide that you would like our assistance with preparing and processing the Form 1023, and obtaining federal tax-exempt status for the organization, we will review all of the above-described background information and the documentation. After a review of the documentation, we will do our due diligence and make an independent decision as to whether to accept the engagement or not, including checking whether we might have a conflict of interest. We will make the determination on whether to accept the engagement within one week, or less, from the time we have received the information and have had an opportunity to visit with you. We can shorten the acceptance time if necessary in certain cases. Upon acceptance of the organization as our client, we will prepare and provide our standard engagement letter, which will outline the scope of the services to be provided and the cost for those services. The organization will have the opportunity to review this engagement letter and accept it or not accept it. In other words, the organization does not have to engage us as its attorney if it so chooses, just as we will have the right to not accept the engagement. In certain cases, it is our firm's practice to ask for a retainer up front before we start work on a matter. All requirements for the engagement, including costs, will be clearly outlined in the engagement letter, which the organization will have a chance to review before hiring us as counsel. Once the engagement letter has been signed by the organization, we will begin work on obtaining federal tax exempt status for the organization. In summary, we assume for purposes of this proposal that all requirements necessary for completing the Form 1023 have been attended to by the organization, and that all of the background material for use in the Form 1023 will have been provided to us. Stinson.com Kansas City St. Louis Jefferson City Overland Park Wichita Omaha Washington, D.C. Phoenix Page 1

3 Scope of Services Provided in the 1023 Process The following is an outline of what Stinson will do to assist the organization with obtaining federal tax exempt status: 1. Stinson will obtain the EIN for the organization if one has not been obtained by the entity. 2. Based upon our review of the material furnished, we will request additional information in order to complete the Form 1023, if additional information is needed. 3. We will review the mission statement and purposes of the organization and determine what section (or subsection) of the Internal Revenue Code would most likely apply and allow for federal tax exemption. We assume that most will be seeking federal tax-exemption status under Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. 4. There are many activities under Section 501(c)(3) of the Code that will qualify for tax exemption, including education, religious, health care, elderly care, affordable housing, lessening governmental burden, and many other charitable activities. We will determine which of the subsections may apply and what will be required for exemption under Section 501(c)(3) for these activities. 5. We will review the policies and governance issues for the organizations and provide comments and suggestions that are appropriate for tax-exempt purposes. 6. We will complete the Form 1023, together with exhibits if necessary, and provide a copy to the organization for review. 7. Once the Form 1023 has been reviewed by the organization and approved, we will file the Form 1023 with the IRS for approval. 8. With the Form 1023, we will file a Power of Attorney, so that we may deal with the IRS on behalf of the organization if there are any questions from the IRS. 9. Should time be of the essence for the organization, we can request expedited handling of the Form 1023 by the IRS. It is a rare situation in which the IRS will grant expedited treatment, but in the right case it can be obtained. 10. We will continue to monitor the processing of the Form 1023 by the IRS. 11. We will handle all questions and requests from the IRS during the processing of the Form It is not uncommon for the IRS to request additional information after the Form 1023 is filed. 12. In extremely rare cases, the IRS can refer the Form 1023 to the IRS National Office in Washington, D.C., for review. If the case is referred to the National Office, it may take more than one year to resolve the matter. 13. Since we cannot predict with certainty how much additional detail the IRS may request in a particular case, we will limit our involvement in the 1023 process after the Form 1023 is filed. We will include three hours of follow-up with the IRS at no additional charge to the organization, in addition to all time needed to file the Form 1023 listed above. However, once we exceed three hours of follow-up dealing with the IRS, we will then charge on an hourly basis for time to negotiate and satisfy the IRS requests, if any, at a rate of $250/hour. 14. We do not expect to exceed three hours of follow-up in most cases, but when dealing with the IRS, there is no guarantee that it will not happen. The additional three hours of work that we will provide under this proposal is, in effect, a credit to the organization of $750. In other words, the organization will not have to pay any more than the fixed amount listed below to get its taxexempt status, unless the IRS asks for more information and it takes us more than three hours to answer the IRS questions or concerns. 15. Upon obtaining the federal tax-exempt status, we will provide a copy of such Determination Letter to the organization and provide a cover letter outlining any restrictions that may have been imposed by the IRS, including what federal tax returns are required to be filed, if any. Stinson.com Kansas City St. Louis Jefferson City Overland Park Wichita Omaha Washington, D.C. Phoenix Page 2

4 Fee Schedule Processing Form 1023 Services [Not all services may be required] Filing and Obtaining Tax-Exempt Status For all of the services described in this proposal for filing the Form 1023 and obtaining the federal tax-exempt status for the organizations, we will charge a flat fee of $3,500 per organization. Potential Fee $3,500 If the structure of the organization or the facts are unusual or complicated, we will discuss any modifications to the fee schedule that would be appropriate. No organization will be required to use us for the 1023 process, nor are we required to accept any organization as a client, as noted on page 1. IRS Follow-up Beyond Three Hours Should the follow-up with the IRS after the filing of the Form 1023 exceed three hours of time, we will charge $250 per hour for any time in excess of three hours spent dealing with the IRS on this application. $250/hour The three hours does not begin until after the Form 1023 is filed with the IRS. In other words, no matter how long it takes to file the Form 1023, the cost for filing the 1023 will be $3,500. However, once it is filed, we will record all time dealing with the IRS, and if that time exceeds three hours, we will notify the organization and charge for any time over three hours. The organization will receive an itemized bill of all of our time spent on this matter after the Form 1023 is filed with the IRS, so they can keep track of when we might be reaching three hours. This proposal, in effect, gives the organization a $750 credit for us to work with and resolve all IRS issues. IRS User Fee In addition to our fee schedule above, the IRS charges a user fee for filing applications for exemptions (Form 1023). The current IRS user fees are as follows: $400 for organizations with gross receipts that do not exceed $10,000 or less annually over a four-year period. $850 for organizations with gross receipts that exceed $10,000 annually over a four-year period.* $400 or $850 per application *Assuming the IRS user fee is $850, the total cost of filing, processing and obtaining tax-exemption from the IRS would be $4,350 per organization, assuming that it does not take more than three hours of followup with the IRS. Users' fees are subject to change by the IRS at any time. Our fees for processing Forms 1023 are also subject to change without notice at any time for new clients. Stinson.com Kansas City St. Louis Jefferson City Overland Park Wichita Omaha Washington, D.C. Phoenix Page 3

5 Experience Nonprofit Tax-Exempt Area Stinson is a national law firm with more than 300 attorneys in eight offices across the country. Its Nonprofit Tax-Exempt Practice Group focuses on nonprofit tax-exempt organizations, and has represented or assisted more than 400 nonprofit tax-exempt organizations regarding various legal matters. The Chair of the nonprofit group, Wayne Henry, was formerly with the Office of the Chief Counsel of the Internal Revenue Service in Washington, D.C., where he focused on tax-exempt organizations under Section 501(c)(3) for the IRS. He was also the Chair of the Great Lakes Tax Exempt/Government Entities (TE/GE) Council, a 10-state regional council with a primary focus on exempt organizations and employee plans. Wayne is a former adjunct Professor of Law at Creighton University School of Law. As a national expert in the tax-exempt area, Wayne has been interviewed and quoted in USA Today, CBS Sports, Orlando Sentinel, Modern Healthcare, Health Leaders, the St. Louis Business Journal and the Midlands Business Journal on a number of tax-exempt issues. Wayne is currently outside special counsel to the American Optometric Association. IRS Tax-Exempt Contacts Based upon Wayne Henry s background in the Chief Counsel s Office of the IRS, and being Chair of the Great Lakes TE/GE Council, he has close connections with various people in the exempt organizations sections of the IRS. In particular, he has given numerous presentations with IRS personnel who are involved with processing Forms If and when necessary, these contacts are often beneficial for organizations. Because of these contacts, it is unlikely that it will take more than three hours to resolve any issues with the IRS if they have questions related to the Form However, as noted in this proposal, there can be no guarantees when dealing with the IRS. Increased Scrutiny of Nonprofit Tax-Exempt Sector Record deficits have placed increased scrutiny on nonprofit tax-exempt organizations, which comprise a significant portion of the economy. At the federal level, Congress is proposing legislative changes that will affect these organizations. States (including State Attorneys General) are also focused on tax-exempt organizations, and the IRS has begun an aggressive review and enforcement program aimed at the taxexempt community (part of its five-year strategic plan). The Commissioner of the IRS has stated: Transparency is a lynchpin of compliance with the tax-exempt sector, and the industry is responding. Exempt organizations cannot remain static in today s environment, but must be innovative as they further their missions and goals. Processing applications for exemptions (Form 1023) has become more time consuming and complicated based upon the increased focus by the IRS on the nonprofit tax-exempt sector, including the redesigned and expanded Form 990. The tax-exempt sector is an area that we are very familiar with, and the combination of our experience and contacts with the IRS should be beneficial and helpful for organizations seeking tax-exempt status. I look forward to discussing this proposal in more detail and working with you. Contact [Wayne B. Henry whenry@stinson.com] Stinson.com Kansas City St. Louis Jefferson City Overland Park Wichita Omaha Washington, D.C. Phoenix Page 4

6 About Us Stinson Morrison Hecker LLP Stinson Morrison Hecker LLP provides sophisticated corporate, transaction and litigation legal services to clients ranging from Fortune 500 corporations and privately held companies to emerging for-profit and nonprofit businesses. We combine national reach and depth of expertise with a cost-effective approach to advise regional, national and international clients on critical legal issues. The firm's more than 300 attorneys are located in eight key markets, including Kansas City, Mo., St. Louis and Jefferson City, Mo; Overland Park and Wichita, Kan.; Omaha, Neb.; Phoenix, Ariz.; and Washington, D.C. Practices Banking & Financial Services Bankruptcy & Creditors' Rights Business Litigation Corporate Finance Employment & Labor Law Energy & Environment General Business Government Solutions Nonprofit Tax-Exempt Immigration Insurance Intellectual Property Products Liability Real Estate Tax Representative Clients American Academy of Family Physicians American Optometric Association Arkansas Public Service Commission Bank of America Bank of the West Bashas' Grocery Stores BMO Harris Bank (M&I Bank) CenturyLink Cerner Cessna City of South Daytona, Florida Entertainment Properties Trust Euronet Worldwide Ewing Marion Kauffman Foundation First National Bank Garmin International, Inc. H&R Block, Inc. Hallmark Industries Agribusiness Animal Health & Nutrition Aviation & Aerospace Banking & Financial Services Biosciences/Commercialization Construction Energy & Environment Health Care Media & Advertising Pharmaceuticals Real Estate Sports Telecom Hostess Brands, Inc. KU Center for Technology Commercialization Layne Christensen Metropolitan Community College Foundation, Omaha National Association of Insurance Commissioners NIC Inc. ONEOK, Inc. Peabody Energy PNC/Midland Loan Services Rawlings Sporting Goods Sacramento Municipal Utility District State of Arizona University of Kansas U.S. Bank Verizon Voices for Children Stinson.com Kansas City St. Louis Jefferson City Overland Park Wichita Omaha Washington, D.C. Phoenix Page 5