Presenting a live 110 ‐ minute teleconference with interactive Q&A Tax Challenges for Counsel to Non ‐ Profit Joint Ventures and Alliances Evaluating Tax Consequences of Entity Structure and Activities, Maintaining Tax ‐ Exempt Status THURS DAY, AUGUS T 8, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael I. S Michael I S anders Partner Blank Rome Washington D C anders, Partner, Blank Rome , Washington, D.C. Elka T . S achs, Krokidas & Bluestein , Boston Elizabeth M. Mills, S enior Counsel, Proskauer Rose , Chicago For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to registrants for dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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TAX CHALLENGES FOR TAX CHALLENGES FOR COUNSEL TO NON COUNSEL TO NON PROFIT COUNSEL TO NON COUNSEL TO NON-PROFIT PROFIT PROFIT JOINT VENTURES AND JOINT VENTURES AND ALLIANCES ALLIANCES Mi h Michael I. Sanders, Esq. l I S d E Sanders@BlankRome.com 202 772 5800 202.772.5800 Excerpted from the forthcoming Joint Ventures Involving Tax-Exempt Organizations, Fourth Edition (available September 2013). Used with permission of John Wiley & Sons, Inc.
Introduction: Joint Venture -- Overview Charities are receiving less support from Charities are receiving less support from budget-constrained government agencies and contributions from the private sector. With international natural disasters such as the 2004 i i l l di h h 2004 tsunami in Asia, the 2010 earthquake in Haiti, and the US hurricanes, Hurricane Katrina, and most the US hurricanes, Hurricane Katrina, and most recently in New York and New Jersey, Super Storm Sandy, charities need to develop new avenues and partners to conduct their programs. In some cases, charities have joined forces to accomplish fund- raising or program related goals raising or program related goals. 6
Increasingly, charities are forging g y, g g partnerships with for-profit entities to access otherwise unavailable capabilities, e.g. , low income organizations using the low income g g housing and New Markets Tax Credits programs with for-profit investors to p g p subsidize development, and universities partnering with for-profits p g p to offer distance-learning programs. 7
Over the years the IRS’ position Over the years, the IRS position has evolved from opposition to joint ventures with for-profits to ventures with for profits to acknowledging the various bona fide purposes and establishing fide purposes and establishing guidelines for nonprofits to protect their exempt status while engaged their exempt status while engaged in such partnerships. 8
Pursuant to these guidelines Pursuant to these guidelines, charities will not jeopardize their exemption by participating in a joint exemption by participating in a joint venture so long as the charities have sufficient “control” to ensure that sufficient control to ensure that the venture will further the charity’s exempt purposes and there will be exempt purposes and there will be no impermissible private benefit or inurement inurement. 9
There is no bright line test, although having at least 50% voting control of a having at least 50% voting control of a venture in regard to matters that relate to its charitable goals is a positive to its charitable goals is a positive factor. The IRS considers this to be a facts and circumstances determination facts and circumstances determination and will not issue rulings except in connection with an application for connection with an application for exemption. It is therefore important to have a joint venture policy in place and have a joint venture policy in place and to carefully structure ventures pursuant to these guidelines to these guidelines. 10
• Plumstead (1982): IRS unsuccessfully challenges a d (1982) IRS f ll h ll Pl t §501(c)(3) organization serving as a general partner of a partnership with for-profit partners For-Profit ( (LP) ) 501(c)(3) 501(c)(3) For-Profit (GP) (LP) For Profit For-Profit GP (LP) 11
• Eff Effect of Plumstead : t f Pl t d – Rapid growth in the number of nonprofits and for-profits engaging in joint ventures – In many cases government stimulus now supports the joint venture In many cases, government stimulus now supports the joint venture form previously challenged by the IRS 12
The IRS’ Criteria • The Two Prong Test: ▬ The First Prong: the activities of the partnership g p p must further charitable purposes; AND ▬ The Second Prong: the partnership or joint ventures must be structured in such a way as to: t b t t d i h t • Insulate the exempt organization from potential conflicts between its charitable purposes and its p p general partnership obligations, and minimizes the likelihood that the arrangement will generate private benefit AND private benefit, AND • Protect the exempt organization’s assets from exposure to unnecessary risk for the benefit of the for-profit partners. 13
• Examples of Areas Where Joint p Ventures Occur: ▬ Health care ▬ Health care ▬ Distance learning ▬ Low income housing i h i transactions ▬ New markets tax credits 14
The Challenge in Structuring Joint Ventures Must comply with BOTH: 1. IRS’ general legal requirements for nonprofits participating in joint ventures, AND 2 2. Specific requirements for the particular program Specific requirements for the particular program the venture might be participating in such as: • NMTC • Subsequent to the passage of the PPACA, the specific provision applicable to the operation of nonprofit hospitals of nonprofit hospitals Form 990 revisions contain new reporting requirements for nonprofit venture participants. q p p p 15
Nonetheless . . . Gi en the state of econom and its Given the state of economy and its concomitant fund-raising difficulties joint ventures present difficulties, joint ventures present creative avenues to raise funds for charitable projects charitable projects. 16
JOINT VENTURES TYPES OF JOINT VENTURES WHOLE EXEMPT ONLY INVESTMENT ANCILLARY ANCILLARY TYPE 17
Ancillary Joint Ventures -- E Examples l • Clinical Services – Ambulatory surgery, i imaging i • Nonclinical Projects – Medical Office B ildi Building • Low Income Housing – rental housing, rent restrictions area median gross income restrictions, area median gross income • Distance Learning – educational, university structure structure • Nonprofit News Organizations • New Markets Tax Credit • New Markets Tax Credit – charter schools charter schools 18
Educational Joint Ventures: MOOCs OOC ● Massive Open Online Courses – college courses that are open to millions of people th t t illi f l worldwide through the Internet. ● ● Several major new programs including: Several major new programs, including: ▬ edX, a nonprofit created by M.I.T. and Harvard, with other universities participating , p p g “partners”; ▬ Coursera, a for-profit founded by 2 Stanford University professors with numerous university “partners”; and ▬ Udacity, a for-profit program. Udacity a for profit program 19
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