We recently hired “Roger”, who is a partner in a large law firm, to manage our small educational foundation. His company website and LinkedIn indicate that he has a master’s degree in taxation and represents tax-exempt charities and organizations.
Our statutes allow us to send college students majoring in mechanical engineering to a German university for an intensive summer program in addition to improving their German. COVID has made travel impossible and the $ 125,000 in our foundation’s bank account is right there, unused.
So I called Roger and asked if we could donate some of these funds to organizations that help refugees in Afghanistan while maintaining our charitable tax exemptions. We spoke for less than a minute. He said, “Let me do some research on this. “
His bill just came in and we went crazy. He charged $ 85 for that one-minute phone call and nearly $ 800 for himself and his legal assistant for two hours of “research” a day and over an hour to “review” and ” documents ”the same day! “
I Googled our question and found the answer in less than 5 minutes! The senior partner at his firm told me, “Roger said he had to spend this time researching your complicated problem. “
“I asked to receive copies of his research and of the documents he reviewed, but I received nothing.
Shouldn’t a lawyer who claims to work with tax-exempt organizations already know the answer to this question? Also, am I not entitled to copies of his research and documents, if they exist, because they are invoiced to us? What do you think about this?
Should indeed know the answer
I led this question by Los Angeles attorney William M. Ramseyer, whose legal practice focuses on charities. When I told him what Roger said about having to do research, he has answered:
“What research? A lawyer with a master’s degree in taxation who claims to be dealing with tax-exempt cases knows this stuff! We get the same question all the time. He lied to the client and his senior partner. It’s bill padding and it’s illegal.
“Hans should have been immediately told: ‘There is a huge difference between sending students on an educational trip and donating money to refugee organizations. You face legal and accounting fees that could use up a lot of your foundation’s money! Be patient. We can all fly again.
With that in mind, for anyone considering starting a charity or changing your organization’s goals and mission statement, Ramseyer offers recommendations on what needs to be done, starting with your articles of incorporation.
When the articles do not allow other charitable purposes
“Your readers’ articles had a specific and precise purpose. It is one of the most common, preventable, and costly mistakes. If they do not allow funds to be used for other related charitable purposes, the cost of changing organizational goals can be high.
“Re-filing with the IRS and your state agency – such as the attorney general – would most likely be necessary. “
Understand how assets should be used
“Your assets should be dedicated to the specific purpose described in the articles. Any other use is considered a violation of charitable trust, ”he stresses.
So, to avoid problems later:
(1) Describe your charitable purpose broadly enough to cover any related activities you might want to do in the future.
(2) If your articles are too specific, state agencies will likely require that all of your current funds be segregated from new donations and used exclusively for older purposes. Only the newly collected money can be used for the expanded purposes.
(3) You must hire a CPA to set up parallel accounting systems.
(4) A good idea would be to have your books checked every year to prove that you are segregating.
(5) Be aware that the cost can easily reach tens of thousands of dollars. This could consume a large portion of the funds intended for charitable purposes.
“Dennis, an honest lawyer would have at once told this couple to stick to their original goals, because soon we can all fly. Fraudulent billing is a common practice in many large law firms. Your reader’s instinct was right.
Los Angeles-based attorney fees arbitrator Aaron Shechet commented:
“While it is often necessary for lawyers to conduct research in areas of the law they may have doubts about, I would reject all aspects of Roger’s Bill that involved legal research for something he was concerned about. should clearly already know on the basis of his university training and his practice of law which includes tax-exempt organizations. In addition, his client is entitled to this research, and the fact of not providing it is revealing. “
Stan Goldman, professor of legal ethics at Los Angeles-based Loyola Law School, provided this analysis:
“When you ask yourself a simple question that any expert could have answered without doing any research, it is quite wrong to charge for it. It’s bill padding. Obviously, on that brief phone call Roger could have answered the question and charging $ 85 would have been reasonable, but nothing more. ”
Dennis Beaver practices law in Bakersfield and welcomes comments and questions from readers, which can be faxed to (661) 323-7993 or emailed to Lagombeaver1@Gmail.com. Also visit dennisbeaver.com.