Monticello attorney Jim Fleming never knows who might walk through the door when he hangs out his nonprofit shingle. It might be a high school baseball team looking to organize a fundraiser, or it might be a new group that hopes to establish cold-weather habitat in Minnesota for mosquito-devouring bats.
“It’s a lot of fun,” said Fleming, who works with small nonprofit groups when he’s not busy as an Anoka County public defender. “You never know who’s going to come through the door next. It’s fascinating to sit down with these people and hear what they want to do.”
Fleming is one of a number of attorneys who have made nonprofits a staple of their practice. Nonprofits can be a healthy niche for attorneys who value enthusiastic clients representing causes they believe in. While the profit margins to be seen in representing nonprofits aren’t what they are in a stable of for-profit clients, the payoff can come in other forms.
“The people you work for are generally very grateful for any help you can provide,” said St. Paul attorney Aaron Hall. “That’s why a lot of attorneys who represent nonprofits tend to mix in some pro bono work with the paying work — it’s rewarding to help people out.”
Help with paperwork
Habitat Research Inc. — the Perham, Minn., group that sought funding for bat habitat — is typical of the kinds of groups that come to lawyers such as Fleming for help. Most of the time, he said, they approach him with a good idea, but no expertise in how to coordinate it legally.
Included on the list of legal responsibilities for nonprofits in Minnesota are:
• Filing an annual Form 990 with the IRS and the state Attorney General’s Office’s Charities Division if the organization has more than $25,000 a year in financial activity;
• Reporting any lobbying activities via Form 990, and registering as a lobbyist if required by the Minnesota Ethical Practices Board; and
• Complying with laws that affect all employers (such as ADA, OSHA and
There are also more mundane matters that need attending to, such as making sure groups record meeting minutes and permits for fundraising.
“If a group wants to attract donor dollars from people who will seek to claim those donations on their taxes, they need to be recognized by the IRS as a 501(c)(3) tax-exempt organization,” said Fleming. “It’s that kind of paperwork that people often need guidance with.”
St. Paul attorney Rod Mason, who works with numerous nonprofits both as part of his practice and pro bono, agreed that many nonprofits are run by creative people with little notion of what’s needed from a governance standpoint to remain legitimate.
“If you find the right organization with the right mission, it can be very rewarding to work with nonprofits, but it can be a little frustrating, too,” Mason said. “Often, all they have to work with is the concept of what they want to do, without much feeling for the nuts and bolts of how things need to be organized.”
Exemptions in jeopardy
According to the Minnesota Council of Nonprofits, Minnesota is home to more than 3,500 nonprofit organizations that generate more than $30 billion in revenue every year, making Minnesota one of the friendliest states toward nonprofits.
“The climate for nonprofits here is one of the best in the nation,” said Jeannie Fox, MCN’s deputy public policy director. “There’s a very healthy nonprofit sector in our state, as well as a tradition of supporting public good.”
But that doesn’t mean the state’s nonprofits don’t face stern legal challenges along with ever-present fiscal obstacles. MCN maintains a stable of pro bono attorneys from various firms throughout the state who help it draft legislative language.
Fox said the group’s big push for the new legislative session is to get a bill introduced that would preserve property tax exemptions for nonprofits.
That push is in response to a December Minnesota Supreme Court decision (Under the Rainbow Child Care Center, Inc. v County Of Goodhue) that MCN claims narrowed the definition of “organizations of purely public charity,” limiting sales and property-tax exemptions for nonprofits.
The group says hundreds of nonprofits across the state will be subject to revocation of their property or sales-tax exemptions if legislation can’t undo the court decision.
But despite that challenge, attorneys agree that, from a legal standpoint, Minnesota’s friendliness toward nonprofits makes representing them a growing practice area.
“I think it’s a growing area, especially here,” said Tom Mathews, a St. Cloud attorney whose clients include St. Cloud Hospital, Horizon Health and the College of St. Ben’s. “Our hospitals are nonprofit, most of our institutions of higher learning are, so there’s a lot of revenue that’s generated by these organizations.”
A different structure
Hall said representing nonprofits is a distinctive practice because their administrators face regulatory concerns not often faced by for-profits.
“I had a nonprofit client that wanted to make a sale of an intellectual property asset to a for-profit company,” Hall said. “He was affiliated with the for-profit, so it had to be more of an arm’s-length transaction. You have to be careful about how transactions like that will be perceived by the Attorney General. So while there are generic concerns such as human-resources and trademark issues, there are issues that are unique to nonprofits.”
As Mathews pointed out, another major distinction lies in the objectives of the two types of organizations: In the nonprofit sector, the main thing is the group’s mission, which is often related to a community benefit such as health care or education.
On the other hand, he said, “a for-profit company’s mission is pretty plain — to make a profit. You can do whatever you want as long as the shareholders agree with it and it’s not criminal.”