A Framework for Analyzing Exemption and UBIT Effects of Joint Ventures
John D. Colombo
University of Illinois College of Law
Exempt Organization Tax Review, Vol. 34, No. 2, November 2001
This article proposes an overall framework for analyzing the tax-exemption and unrelated business income tax (UBIT) effects of joint ventures (partnerships) between exempt charities and for-profit entities. The article suggests that joint venture activities should be analyzed simply as if the exempt organization was directly conducting a commercial activity. Given the overall relationship between Code Section 501(c)(3) and the UBIT, the article suggests that joint venture activities should fall within one of four possible categories: (1) the activity itself could be charitable, in which case it would have no effect on the exempt status of the charitable partner nor would be subject to the UBIT; (2) the activity itself is not charitable but is "substantially related" to the exempt partner's charitable purpose, in which case the federal tax consequences would be the same as category (1), although state property tax consequences could vary; (3) the activity could be noncharitable and unrelated to the exempt partner's charitable purpose, but not substantial in relation to other charitable activities, in which case the activity should have no effect on exempt status, but revenue from the activity would be taxed under the UBIT; or (4) the activity could be both unrelated and substantial, in which case exempt status should be denied to the charitable partner under the "primary purpose" test and "commerciality doctrine." Using variations on the facts of Redlands Surgical Services v. Commissioner, the article illustrates the application of the framework and critiques current IRS positions regarding joint venture activities by health care providers.
Accepted Paper Series
Date posted: November 29, 2001
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