The Firm has a long history of forming and representing nonprofit organizations including churches. We have routinely assisted clients in obtaining tax exempt status recognized by the Internal Revenue Service. As such, these entities are exempt from paying taxes on their income and contributions to these organizations are tax deductible to the donors. This tax exempt status gives these clients an advantage in raising funds and sheltering those funds from tax collectors.
Many nonprofit organizations are entitled to a semi-annual refund of sales and use taxes paid, if they meet certain guidelines. For example, in North Carolina, a nonprofit entity is allowed a semiannual refund of sales and use taxes paid by it on direct purchases of tangible personal property and services for use in carrying on the work of the nonprofit entity. Sales and use tax liability indirectly incurred by a nonprofit entity on building materials, supplies, fixtures, and equipment that become a part of or annexed to any building or structure that is owned or leased by the nonprofit entity and is being erected, altered, or repaired for use by the nonprofit entity for carrying on its nonprofit activities is considered a sales or use tax liability incurred on direct purchases by the nonprofit entity. The Firm has been successful in obtaining a private letter ruling providing that a limited liability company affiliate owned by a non-profit organization, which in turn, is owned by a public housing authority, will be entitled to a semi-annual sales tax refund for the purchase of building materials used to construct an apartment complex, a significant savings for the project.
In addition, the Firm has experience converting for profit low-income housing tax credit entities to non-profit entities after the 15-year tax credit compliance period. For example, the Housing Authority of the City of Durham developed two low-income housing tax credit properties, Edgemont Elms Apartments and Preiss Steele Place Apartments. Edgemont Elms is a fifty-eight (58) unit affordable housing development located in Durham, North Carolina. The ownership entity was Edgemont Elms Limited Partnership, whose partners included a non-profit instrumentality of the housing authority as the general partner and a tax credit investor as the limited partner. Preiss-Steele Place is a one hundred and two (102) unit elderly affordable housing development located as in Durham, North Carolina. The ownership entity was Oxford Commons Limited Partnership, whose partners also included a non-profit instrumentality of the housing authority as the general partner and a tax credit investor as the limited partner.
Both entities reached the end of their respective 15-year tax credit compliance period. As is customary, the limited partners exited the partnerships by selling their interests to the remaining housing authority affiliated general partners. Although the housing authority obtained complete control of these entities, the for-profit status of these entities contributed to high operating costs, directly impacting the partnerships’ ability to make capital improvements and repairs.
The Firm counseled the client through an innovative solution of converting the North Carolina limited partnerships to North Carolina non-profit corporations. The purpose of the conversion was to enable the ownership entities of the apartment complex to achieve North Carolina ad valorem tax-exemption designation, thereby resulting in reduced operating costs.