Joint Ventures Involving Tax-Exempt Organizations (4^th Ed.) 2017 Cumulative Supplement

Joint Ventures Involving Tax-Exempt Organizations explores the laws, rules, and policies surrounding increasing collaborations between the nonprofit and for-profit sectors. Comprehensive, authoritative, and focused on the practical, this resource has been fully updated to reflect the latest rulings and regulatory changes pertaining to tax-exempt organizations. Countless footnotes, numerous citations to case law, Internal Revenue Code sections, and other relevant authority are provided, along with a host of useful sample forms.

In an era of challenging economic forces, budgetary constraints and potential tax legislation, nonprofits and for-profits are partnering in creative arrangements to achieve mutual financial and tax-exempt goals. Improper structuring and inadequate safeguards can jeopardize an organization's tax-exempt status; careful planning is critical. Thorough examination of relevant laws and rulings guides practitioners and participants so that both the non-profit and for-profit partners will understand the requirements for maintaining tax-exemption:

• Analyze the various joint venture configurations that will protect tax-exempt status, including the new partnership audit rules
• Propose solutions to common challenges such as debt restructuring, use of tax credit financing, and asset protection issues
• Identify the structures best suited to achieve various goals based on applicable legal factors

Partnering with for-profit businesses has brought both successes and unforeseen challenges to universities, research institutions, hospitals, low-income housing developments, and many more. As the charitable funding environment continues to face stresses, alternative avenues to generate revenue, such as joint ventures, will only become more prevalent. Joint Ventures Involving Tax-Exempt Organizations provides an invaluable resource for lawyers and nonprofits alike, putting the critical information you need at your fingertips.

Preface xi

Acknowledgments xiv

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 (Revised) 1

§ 1.6 Conservation Joint Ventures 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 (Revised) 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 (New) 3

§ 1.24 Other Developments 4

Chapter 2: Taxation of Charitable Organizations 5

§ 2.1 Introduction 5

§ 2.2 Categories of Exempt Organizations 5

§ 2.3 §501(c)(3) Organizations: Statutory Requirements (Revised) 5

§ 2.6 Application for Exemption (Revised) 6

§ 2.7 Governance (Revised) 12

§ 2.8 Form 990: Reporting and Disclosure Requirements 13

§ 2.10 The IRS Audit (New) 14

§ 2.11 Charitable Contributions (Revised) 17

Chapter 3: Taxation of Partnerships and Joint Ventures 25

§ 3.3 Classification as a Partnership 25

§ 3.4 Alternatives to Partnerships 25

§ 3.8 Tax Basis in Partnership Interest 26

§ 3.9 Partnership Operations 26

§ 3.11 Sale or Other Disposition of Assets or Interests (Revised) 27

§ 3.12 Other Tax Issues (Revised) 27

Chapter 4: Overview: Joint Ventures Involving Exempt Organizations 31

§ 4.2 Exempt Organization as General Partner: A Historical Perspective 31

§ 4.6 Revenue Ruling 2004-51 and Ancillary Joint Ventures (New) 32

§ 4.9 Conversions from Exempt to For-Profit and from For-Profit to Exempt Entities (New) 32

§ 4.10 Analysis of a Virtual Joint Venture 33

Chapter 5: Private Benefit, Private Inurement, and Excess Benefit Transactions 35

§ 5.1 What Are Private Inurement and Private Benefit? (Revised) 35

§ 5.2 Transactions in Which Private Benefit or Inurement May Occur 36

§ 5.3 Profit-Making Activities as Indicia of Nonexempt Purpose 37

§ 5.4 Intermediate Sanctions (Revised) 37

§ 5.7 State Activity with Respect to Insider Transactions 38

Chapter 6: Engaging in a Joint Venture: The Choices 41

§ 6.2 LLCs 41

§ 6.3 Use of a For-Profit Subsidiary as Participant in a Joint Venture (Revised) 41

§ 6.5 Private Foundations and Program-Related Investments (Revised) 45

§ 6.6 Nonprofits and Bonds 50

§ 6.7 Exploring Alternative Structures 52

§ 6.8 Other Approaches (Revised) 52

Chapter 7: Exempt Organizations as Accommodating Parties in Tax Shelter Transactions 55

§ 7.2 Prevention of Abusive Tax Shelters (Revised) 55

§ 7.3 Excise Taxes and Penalties 56

Chapter 8: The Unrelated Business Income Tax 57

§ 8.1 Introduction 57

§ 8.3 General Rule (Revised) 58

Chapter 9: Debt-Financed Income 59

§ 9.1 Introduction 59

§ 9.2 Debt-Financed Property 59

§ 9.6 The Final Regulations (New) 59

Chapter 10: Limitation on Excess Business Holdings 63

§ 10.1 Introduction 63

§ 10.2 Excess Business Holdings: General Rules (Revised) 63

§ 10.3 Tax Imposed 63

§ 10.4 Exclusions (Revised) 63

Chapter 12: Healthcare Entities in Joint Ventures 67

§ 12.2 Classifications of Joint Ventures 67

§ 12.3 Tax Analysis 67

§ 12.4 Other Healthcare Industry Issues 68

§ 12.5 Preserving the 50/50 Joint Venture 68

§ 12.9 Government Scrutiny 69

§ 12.11 The Patient Protection and Affordable Care Act of 2010: §501(r) and Other Statutory Changes Impacting Nonprofit Hospitals 69

§ 12.12 The Patient Protection and Affordable Care Act of 2010: ACOs and Co-Ops: New Joint Venture Healthcare Entities 72

Chapter 13: Low-Income Housing, New Markets, Rehabilitation, and Other Tax Credit Programs 75

§ 13.3 Low-Income Housing Tax Credit 75

§ 13.4 Historic Investment Tax Credit 76

§ 13.6 New Markets Tax Credits (Revised) 80

§ 13.10 The Energy Tax Credits (Revised) 94

Chapter 14: Joint Ventures with Universities 97

§ 14.5 Faculty Participation in Research Joint Ventures 97

§ 14.6 Nonresearch Joint Venture Arrangements 97

§ 14.7 Modes of Participation by Universities in Joint Ventures 98

Chapter 15: Business Leagues Engaged in Joint Ventures 101

§ 15.1 Overview 101

§ 15.2 The Five-Prong Test 102

§ 15.3 Unrelated Business Income Tax 102

Chapter 16: Conservation Organizations in Joint Ventures 103

§ 16.1 Overview 103

§ 16.2 Conservation and Environmental Protection as a Charitable or Educational Purpose: Public and Private Benefit 103

§ 16.3 Conservation Gifts and §170(h) Contributions (Revised) 104

§ 16.7 Emerging Issues 114

Chapter 17: International Joint Ventures 117

§ 17.5 General Grantmaking Rules (New) 117

§ 17.11 Application of Foreign Tax Treaties (Revised) 118

Chapter 19: Debt Restructuring and Asset Protection Issues 121

§ 19.2 Overview of Bankruptcy (Revised) 121

§ 19.3 The Estate and the Automatic Stay (Revised) 121

§ 19.4 Case Administration (New) 122

§ 19.5 Chapter 11 Plan (Revised) 122

Index 125