Many attorneys who work in the nonprofit and exempt organizations (“NEO”) practice area never knew this was a distinct area of law around which they could build a practice. I published a post 12 years ago about my journey and work as an attorney for nonprofits (now in need of a refresh) which included some examples of the types of work I did. But for those interested in this area of law, there is much more to say.
When talking to curious law students and young attorneys, I often describe the NEO practice area as a blend of nonprofit corporate, tax-exemption, and charitable trust laws. And it overlaps with many other areas of law for which a NEO attorney may need to be familiar in order to provide their client with effective representation.
Nonprofit Corporations Law
The NEO practice area requires strong knowledge of state corporate laws. For California nonprofit corporations, among the pertinent laws are the California Nonprofit Public Benefit Corporation Law, Nonprofit Mutual Benefit Corporation Law, Nonprofit Religious Corporation Law, and general provisions of the Nonprofit Corporation Law. From these laws, we’ll find requirements, default provisions, safe harbors, rights, penalties, and definitions regarding:
- Incorporation
- Articles of incorporation
- Bylaws
- Members
- Membership rights
- Membership meetings and actions
- Boards and directors, including fiduciary duties and nonprofit governance provisions
- Director responsibilities, powers, and rights
- Director liabilities
- Committees
- Officers
- Indemnification
- Reporting
- Mergers
- Dissolutions
Tax-Exemption Law
The NEO practice also requires strong knowledge of certain tax laws, including (among many other) the following sections from the Internal Revenue Code (IRC) and related regulations:
- Section 170 – charitable, etc., contributions and gifts and deductibility
- Section 501 – classifications for federal income tax-exemption, including 501(c)(3), 501(c)(4), 501(c)(6)
- Section 502 –feeder organizations
- Section 503 – revocation of 501(c)(3) for substantial lobbying or political campaign intervention and prohibition of 501(c)(4) exemption thereafter
- Section 506 –notification requirements of a 501(c)(4) organization
- Section 507 – termination of private foundation status
- Section 508 – special rules for 501(c)(3) organizations
- Section 509 – private foundation (and public charities) defined
- Sections 511-514 – unrelated business income tax laws
- Section 527 – political organizations
- Section 2055 –estate tax exemption
- Section 2522 –gift tax exemption
- Sections 4940-4946 – private foundation laws, including regarding excise tax on investment income, self-dealing, minimum distribution requirement, excess business holdings, jeopardizing investments, and taxable expenditures
- Section 4955 – political expenditures of 501(c)(3) organizations
- Section 4958 – excess benefit transactions
- Sections 4959-4960 – failures by certain charitable organizations to meet certain qualification requirements
- Sections 4961-4963 – abatement of certain taxes in certain cases
- Sections 4966-4967 – donor advised fund laws
- Section 4968 – excise tax based on investment income of private colleges and universities
Charitable Trust Law
The third main area of the NEO practice is state charitable trust laws. In California, these laws are found in the Government Code’s Supervision of Trustees and Fundraisers for Charitable Purposes Act. They cover the following areas:
- Executive compensation
- Diversions or misuses of charitable assets
- Fundraising and charitable solicitations
- Registration and reporting
- Audit requirements
- Penalties applicable to directors and managers
- Commercial fundraisers
- Fundraising counsel
- Commercial coventures
- Charitable fundraising platforms
- Platform charities
Other Areas of Law
Other laws that frequently arise within a typical NEO law practitioner are related to:
- Contract laws (among some areas involving contracts that may have critically important NEO law implications: fiscal sponsorship, grantmaking, collaborations, affiliations, resource-sharing, mergers, joint ventures, service provision, investments)
- Employment-related laws (there may be significant intersections with NEO laws, including with respect to employee compensation, worker classification, shared employees, director risks, and organizational structuring)
- Trust laws (in California and 48 other states, NEO lawyers must be familiar with the applicable state’s version of the Uniform Prudent Management of Institutional Funds Act or UPMIFA, which provides requirements for the managing and investing of institutional funds held for charitable purposes and the spending of endowment funds)
- Intellectual property laws (recognition of IP issues may be very important in ensuring organizations receive knowledgeable counsel on name and content creation and protection, use of other parties’ IP, and transfers of assets including IP)
- Real property laws (recognition of real property issues may be very important in ensuring organizations receive knowledgeable counsel on purchases and sales, leasing, property tax exemption, and transfer taxes)
- Privacy laws (recognition of privacy issues may be very important in ensuring organizations receive knowledgeable counsel on data protection, data sharing, data destruction, privacy rights)
There may be overlap between any of the laws above and NEO law issues relating to fiduciary duties, prohibited private benefits under IRC Section 501(c)(3), and diversions of charitable assets.
Career as a NEO Attorney
I’ve long felt that NEO law attorneys are among those happiest in their legal careers. Many of us feel privileged and honored to work with nonprofits that are doing critically important work to benefit communities and preserve the environment. Among their myriad activities, they relieve suffering, cure diseases, advance science, educate the public, promote spirituality, support creativity and the arts, and further civil and human rights.
The NEO practice area also may open up opportunities for writing, public speaking, teaching, and board service much sooner than might be likely with other more popular practice areas. There may also be more opportunities for working in different settings outside of a firm, including as in-house counsel of private foundations or bigger charities, staffers of governmental agencies, or executive level leaders.
Because this niche of the law is not particularly well-known, it seems few law students have aspired to become NEO law attorneys. Without a more traditional legal career pipeline, the NEO practice area appears to be short of well-experienced attorneys. And while there seems to be great interest in the practice area among young lawyers, it may be difficult to break in .
Most big law firms do not have formal NEO (more commonly called EO) practice groups, and most smaller firms with NEO practices (including ours) are looking for attorneys with at least a few years of relevant experience. But NEO law attorneys have all found a way to practice in this incredibly rich and rewarding area. I would encourage those who deeply desire to practice in the area to invest in exploring it further.