Effective strategies for non-profit entities in a profit-based world
Joint Ventures Involving Tax-Exempt Organizations examines the procedures, rules, and regulations surrounding joint ventures and partnerships, emphasizing tax-exempt status preservation. Revised and updated to align with changes made to numerous tax codes and laws within the last year, this supplement offers expert interpretation and practical guidance to professionals seeking a complete reference, including an analysis of impact of the “siloing” of the UBIT rules, the new Opportunity Zone Funds which will incentivize investors in designated census tracts, inter alia. Sample documents enable quick reference and demonstrate real-world application of new laws and guidelines. The discussion delves into planning strategies that can be applied to joint ventures and partnerships while maintaining tax-exempt status, and which joint ventures are best suited for a particular organization.
Widely accepted business strategies for profit-based entities, joint ventures, partnerships, and alliances are increasingly being used by nonprofits in need of additional financial support in challenging economic environments. This book provides invaluable guidance to appropriate planning and structuring while complying with tax-exemption guidelines.
- Identify the most appropriate transactions for nonprofit organizations
- Recognize potential problems stemming from debt restructuring and asset protection plans
- Reference charitable organization, partnerships, and joint venture taxation guidelines
- Understand which joint venture configurations are best suited to tax-exempt organizations
Joint ventures and partnerships are currently employed by a variety of not-for-profit organizations while maintaining their tax-exempt status. Hospitals, research laboratories, colleges and universities, charter and special-needs schools, low-income housing developments, and many others are reaping the benefits of joint venture participation - but without careful planning and accurate interpretation of current laws, these benefits can be erased by loss of tax-exempt status. Joint Ventures Involving Tax-Exempt Organizations provides practical, up-to-date guidance on realizing the full benefits and avoiding the hazards unique to nonprofit organizations.
Table of Contents
Preface xi
Acknowledgments xv
Chapter 1: Introduction: Joint Ventures Involving Exempt Organizations 1
§ 1.4 University Joint Ventures 1
§ 1.5 Low-Income Housing and New Markets Tax Credit Joint Ventures 1
§ 1.6 Conservation Joint Ventures 2
§ 1.8 Rev. Rul. 98-15 and Joint Venture Structure 2
§ 1.10 Ancillary Joint Ventures: Rev. Rul. 2004-51 2
§ 1.14 The Exempt Organization as a Lender or Ground Lessor 2
§ 1.15 Partnership Taxation 3
§ 1.17 Use of a Subsidiary as a Participant in a Joint Venture 3
§ 1.22 Limitation on Private Foundation’s Activities That Limit Excess Business Holdings 4
§ 1.24 Other Developments 4
Chapter 2: Taxation of Charitable Organizations 5
§ 2.1 Introduction (Revised) 5
§ 2.2 Categories of Exempt Organizations (Revised) 10
§ 2.3 § 501(c)(3) Organizations: Statutory Requirements (Revised) 13
§ 2.4 Charitable Organizations: General Requirements 14
§ 2.6 Application for Exemption 15
§ 2.7 Governance 21
§ 2.8 Form 990: Reporting and Disclosure Requirements (Revised) 22
§ 2.10 The IRS Audit 24
§ 2.11 Charitable Contributions (Revised) 27
Chapter 3: Taxation of Partnerships and Joint Ventures 35
§ 3.1 Scope of Chapter 35
§ 3.3 Classification as a Partnership 38
§ 3.4 Alternatives to Partnerships 38
§ 3.7 Formation of Partnership 38
§ 3.8 Tax Basis in Partnership Interest 39
§ 3.9 Partnership Operations 39
§ 3.11 Sale or Other Disposition of Assets or Interests 40
§ 3.12 Other Tax Issues (Revised) 41
Chapter 4: Overview: Joint Ventures Involving Exempt Organizations 47
§ 4.1 Introduction 47
§ 4.2 Exempt Organization as General Partner: A Historical Perspective 48
§ 4.6 Revenue Ruling 2004-51 and Ancillary Joint Ventures 50
§ 4.9 Conversions from Exempt to For-Profit and from For-Profit to Exempt Entities 50
§ 4.10 Analysis of a Virtual Joint Venture 50
Chapter 5: Private Benefit, Private Inurement, and Excess Benefit Transactions 53
§ 5.1 What Are Private Inurement and Private Benefit? (Revised) 53
§ 5.2 Transactions in Which Private Benefit or Inurement May Occur 55
§ 5.3 Profit-Making Activities as Indicia of Nonexempt Purpose 57
§ 5.4 Intermediate Sanctions (Revised) 57
§ 5.7 State Activity with Respect to Insider Transactions 65
Chapter 6: Engaging in a Joint Venture: The Choices 67
§ 6.1 Introduction 67
§ 6.2 LLCs (Revised) 68
§ 6.3 Use of a For-Profit Subsidiary as Participant in a Joint Venture 69
§ 6.5 Private Foundations and Program-Related Investments 73
§ 6.6 Nonprofits and Bonds (Revised) 77
§ 6.7 Exploring Alternative Structures 79
§ 6.8 Other Approaches 80
Chapter 7: Exempt Organizations as Accommodating Parties in Tax Shelter Transactions 83
§ 7.2 Prevention of Abusive Tax Shelters 83
§ 7.3 Excise Taxes and Penalties 84
Chapter 8: The Unrelated Business Income Tax 85
§ 8.1 Introduction 85
§ 8.3 General Rule 86
§ 8.4 Statutory Exceptions to UBIT (Revised) 87
§ 8.5 Modifications to UBIT (Revised) 87
§ 8.7 Calculation of UBIT (Revised) 88
Chapter 9: Debt-Financed Income 99
§ 9.1 Introduction 99
§ 9.2 Debt-Financed Property 99
§ 9.6 The Final Regulations 100
Chapter 10: Limitation on Excess Business Holdings 103
§ 10.1 Introduction 103
§ 10.2 Excess Business Holdings: General Rules (Revised) 103
§ 10.3 Tax Imposed 105
§ 10.4 Exclusions 105
Chapter 12: Healthcare Entities in Joint Ventures 109
§ 12.1 Overview 109
§ 12.2 Classifications of Joint Ventures 110
§ 12.3 Tax Analysis 110
§ 12.4 Other Healthcare Industry Issues 113
§ 12.5 Preserving the 50/50 Joint Venture 113
§ 12.9 Government Scrutiny 114
§ 12.11 The Patient Protection and Affordable Care Act of 2010: § 501(r) and Other Statutory Changes Impacting Nonprofit Hospitals 114
§ 12.12 The Patient Protection and Affordable Care Act of 2010: ACOs and Co-Ops: New Joint Venture Healthcare Entities 117
Chapter 13: Low-Income Housing, New Markets, Rehabilitation, and Other Tax Credit Programs 119
§ 13.2 Nonprofit-Sponsored LIHTC Project (New) 119
§ 13.3 Low-Income Housing Tax Credit (Revised) 120
§ 13.4 Historic Investment Tax Credit 122
§ 13.6 New Markets Tax Credits (Revised) 126
§ 13.10 The Energy Tax Credits 141
§ 13.11 The Opportunity Zone Funds: New Section 1400Z-1 and Section 1400Z-2 (Revised) 142
Appendix 13B (New) 165
Chapter 14: Joint Ventures with Universities 183
§ 14.1 Introduction 183
§ 14.3 Colleges and Universities IRS Compliance Initiative (New) 188
§ 14.5 Faculty Participation in Research Joint Ventures 189
§ 14.6 Nonresearch Joint Venture Arrangements 189
§ 14.7 Modes of Participation by Universities in Joint Ventures (Revised) 189
Chapter 15: Business Leagues Engaged in Joint Ventures 193
§ 15.1 Overview 193
§ 15.2 The Five-Prong Test 194
§ 15.3 Unrelated Business Income Tax 194
Chapter 16: Conservation Organizations in Joint Ventures 195
§ 16.1 Overview 195
§ 16.2 Conservation and Environmental Protection as a Charitable or Educational Purpose: Public and Private Benefit 195
§ 16.3 Conservation Gifts and § 170(h) Contributions (Revised) 196
§ 16.7 Emerging Issues 210
Chapter 17: International Joint Ventures 211
§ 17.5 General Grantmaking Rules 211
§ 17.11 Application of Foreign Tax Treaties 212
Chapter 19: Debt Restructuring and Asset Protection Issues 215
§ 19.1 Introduction 215
§ 19.2 Overview of Bankruptcy 215
§ 19.3 The Estate and the Automatic Stay 216
§ 19.4 Case Administration 217
§ 19.5 Chapter 11 Plan 217
§ 19.6 Discharge 218
Index 219
