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Exempt/Non-Exempt Joint Ventures: Furthering Exempt Purpose Through Partnerships With For-Profit Companies

Protecting Exempt Status, Avoiding UBTI, Structuring Considerations and JV Alternatives

Recording of a 110-minute CPE video webinar with Q&A

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Conducted on Tuesday, August 23, 2022

Recorded event now available

This course will give nonprofit advisers and tax professionals a practical guide to the rules governing joint ventures between tax-exempt organizations and for-profit entities. The panel will discuss the control requirements for determining the tax treatment of joint venture proceeds, detail the UBTI rules as they apply to joint ventures, and offer valuable tools for helping exempt organizations avoid IRS sanctions for prohibited activities.

Description

Joint ventures between tax-exempt organizations and for-profit entities have long been a feature of many health organizations and continue to increase in popularity among broader segments of the nonprofit sector. The Internal Revenue Code permits these joint ventures under certain conditions. Failure to abide by the joint venture rules could lead to the exempt organization being subject to tax on UBTI or even the loss of exempt status.

Tax-exempt entities engaged in joint activities with for-profit companies generally must be able to meet two criteria for any income from the joint venture to be treated as exempt. First, the joint venture must serve primarily to further the charitable purpose of the exempt organization. The second requirement is that the operating agreement must explicitly provide that the primary goal of the joint venture is the advancement of the tax-exempt mission and only incidentally for the benefit of the for-profit partner or subsidiary and must be structured to ensure that the primary goal can be fulfilled.

Tax advisers and nonprofit officers must have a practical grasp of available joint venture structures and their possible advantages and risks to avoid costly tax consequences.

Listen as our experienced panel provides a practical guide to joint venture structures' operational and tax impact between exempt organizations and for-profit companies.

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Outline

  1. The IRS position on exempt/non-exempt joint ventures
  2. Criteria for documenting exempt organization control over joint venture operations
  3. Available structures for exempt/non-exempt joint ventures
  4. Alternative approaches to affiliation
  5. UBTI rules as applied to joint ventures and other affiliations
  6. Structuring suggestions

Benefits

The panel will discuss these and other relevant topics:

  • Necessary elements of a joint venture agreement between an exempt organization and a for-profit company to avoid risk to the nonprofit entity
  • Risks beyond UBTI for an exempt organization operating a joint venture
  • Alternatives to a formal joint venture that an exempt organization may consider in partnering with for-profit entities
  • Avoiding UBTI and excess benefit issues in exempt/non-exempt joint ventures

Faculty

Oberly, Ryan
Ryan Oberly
Partner
Wagenmaker & Oberly

Mr. Oberly is a partner in the firm and represents a diverse group of tax-exempt organizations, including public...  |  Read More

Sachs, Elka
Elka T. Sachs
Partner
Krokidas & Bluestein

Ms. Sachs concentrates her practice on the corporate, transactional and tax needs of the firm’s clients. She...  |  Read More