Tuesday, December 17, 2013
Rules for Entering a Joint Venture Arrangement with a For-Profit
By Michael Wolf, CPA, Manager at Sikich LLP
1. The joint venture member's participation must further a charitable purpose.
2. The joint venture agreement explicitly provides for the furtherance of the charitable purpose and only incidentally for the benefit of the for-profit owners.
According to various court cases, the proper question is simply who has effective control, regardless of whether it is based on a majority of the governing body or on powers granted in the partnership agreement. Before entering into a joint venture (or general partnership or limited liability company) arrangement with taxable partners, please consult a tax professional to help determine if the joint venture satisfies the requirements of Revenue Ruling 98-15. The non-profit partner could lose its exemption if a private party can control or use the non-profit's activities or assets for the benefit of the private party, unless the benefit is incidental to the accomplishment of exempt purposes. More information on this topic can be found on the Sikich Blog.
Read the full article.