Caveat Emptor – Legal Document Preparers

Form 1023

In my practice representing nonprofit and tax-exempt organizations, there are often themes that emerge. Over the last few weeks, I have had a spate of calls from would-be nonprofits that paid either a nonprofit start-up consultant or a document preparation company to form their nonprofit and handle their IRS filings.

In each case, the work product that made it to my office required substantially more work to fix than it would have taken to do properly the first time around.

Typical legal document preparer mistakes include:

  • overly specific enabling language in the governing documents (activities to be carried out in Tucson Arizona,  under a full moon, when the cacti are in full bloom . . . etc.).
  • mangled boilerplate that ensures the organization will not qualify for 501(c) status.
  • an entity formed under a name that is an obvious trademark violation.
  • a purpose clause that does not state a tax-exempt purpose (e.g., forming a church and failing to list “religious” as a purpose).

I am all for increasing access to legal assistance for nonprofits but legal document preparer services are only increasing access to malpractice. Only lawyers (or paralegals under a lawyer’s supervision) are licensed to represent and advise clients with respect to the preparation of articles, bylaws, and other legal documents. Lawyers, Certified Public Accountants, and Enrolled Agents are authorized to represent and advise clients with respect to tax matters and frequently prepare applications for exemption and other tax documentation.

Legal document preparers, on the other hand, are authorized to do no more than sell a form and help you fill it in. They are not giving legal advice and usually say so in the fine print. They typically do not understand the why behind the various clauses or the impact of altering them. They do not understand what the form may be missing or what should not be there. They cannot adapt the documents to the operations of a specific organization or anticipate the governance issues that may need to be addressed in the structure. A typical disclaimer is as follows:

Disclaimer: Not-A-Lawyer, Inc. is not a law firm, and the employees of Not-A-Lawyer, Inc. are not acting as your attorney. Not-A-Lawyer, Inc. cannot provide legal advice and can only provide self-help services at your specific direction.  Not-A-Lawyer, Inc. is prohibited from providing any kind of advice, explanation, opinion, or recommendation to a consumer about possible legal rights, remedies, defenses, options, selection of forms or strategies. Instead, you are representing yourself in any legal matter you undertake through Not-A-Lawyer, Inc.’s legal document service. Not-A-Lawyer, Inc. provides documents to individuals who choose to prepare their own legal documents. To that extent, Not-A-Lawyer, Inc. publishes general information on legal issues commonly encountered. Not-A-Lawyer, Inc. reviews your answers for completeness, spelling and grammar, as well as internal consistency of names, addresses and the like. At no time do we review your answers for legal sufficiency, draw legal conclusions, provide legal advice or apply the law to the facts of your particular situation.

In addition, once the initial forms were prepared, badly, these advisors disappeared into the night with the would-be 501(c)(3)’s money (or stopped returning phone calls). All the promises to be there until they received their exemption were false.  

Sadly, the would-be 501(c)(3)s paid about what a qualified attorney might have charged them to help them get started. Lawyers charge more when they take responsibility for the entire process, but many will offer “unbundled” legal services such as preparing the governing documents and reviewing and commenting on a self-prepared application for exemption for about the same amount that the document preparation companies charge.

The difference?  Real nonprofit lawyers actually know what the form means, what might be missing or not belong there, the impact of altering it, and how to change it to suit a particular client’s situation.

You get what you pay for, and sometimes, you pay dearly for what you get.  Before hiring someone to help you with the legal and tax aspects of starting a nonprofit, make sure they are licensed to provide the type of assistance they are offering, have specific experience representing nonprofits, and are in fact representing you rather than helping you to commit malpractice on yourself.

Ellis Carter is a nonprofit lawyer with Caritas Law Group, P.C. Ellis advises nonprofit and socially responsible businesses on corporate, tax, and fundraising regulations.  Ellis is licensed to practice in Washington and Arizona and advises nonprofits on federal tax and fundraising regulations nationwide. Ellis also advises donors with regard to major gifts. To schedule a consultation with Ellis, call 602-456-0071 or email us through our contact form.

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  1. Pingback: New Nonprofit Corporations: Beware of Legal Document Preparers | KEYTLaw

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