Tax Exempt Organizations

Tax Exempt OrganizationsAttorney Michael Smith began working with tax exempt organizations when, as in-house counsel at Eli Lilly and Company, he organized a pro bono program for the Lilly Law Division. Through a partnership between the Law Division and the Community Law Development Center, Mr. Smith and other Lilly lawyers provided legal services to nonprofit organizations working in low income communities. His work was recognized in 2004 with the Heartland Pro Bono Award. After he started the practice that is now Smith Rayl Law Office, LLC, he again worked with the Community Law Development Center, supervising six law students from the Indiana University Robert H. McKinney School of Law in a nonprofit externship program. Since then, he has represented numerous nonprofit organizations, both new and established.

While business corporations and nonprofit corporations share many of the same organizational characteristics, there are differences in taxation, formation, and other areas. Not every business lawyer or corporate lawyer has the knowledge or experience to serve tax exempt organizations. Our experience can help your organization acquire and maintain its tax exempt status.

Categories of Tax Exempt Organizations

When most people speak of nonprofit or tax exempt organizations, they are probably thinking about those that are exempt under Section 501(c)(3) of the Internal Revenue Code. Sometimes known as charitable organizations, they must be organized and operated for religious, scientific, educational, or charitable purposes. While all tax exempt organizations are exempt from paying income tax, Section 501(c)(3) organizations have the additional benefit that people who make donations to them generally receive a deduction from their own taxable income.

There are two separate subcategories of Section 501(c)(3) organizations: public charities and private foundations. The difference between the two is the source of revenue. Public charities receive a specified minimum amount of their income from public sources, which include broad-based contributions from individuals, grants from other public charities, or grants from governmental bodies. In addition, some organizations qualify as public charities by virtue of being a supporting organization to a public charity. If a 501(c)(3) organization does not qualify as a public charity, it is categorized as a private foundation and subject to more stringent regulations and requirements. Smith Rayl provides legal services to both public charities and private foundations.

There are a number of other types of tax exempt organizations, including:

  • Section 501(c)(4), Civic leagues and social welfare organizations
  • Section 501(c)(6), Business leagues and chambers of commerce
  • Section 501(c)(7), Social and recreational clubs

Smith Rayl represents clients in all of the above categories.

Services provided

Smith Rayl provides a wide range of services that are required by tax exempt organizations. We represent new organizations, including the formation of nonprofit corporations (including articles of incorporation, bylaws, and organizational meetings and resolutions of the board of directors) and in obtaining recognition of tax exempt status through Form 1023 or Form 1024. We also advise established organizations in complying with tax regulations to maintain tax exempt status. In addition, tax exempt organizations require many of the same business law and commercial transaction services that we provide to business organizations, as well as corporate law services such as outsourced general counsel, outsourced corporate secretary, and registered agent.