Joint Ventures Involving Tax–Exempt Organizations 4e

<p>Preface xxv</p>
<p>Acknowledgments xxix</p>
<p>About the Author xxxi</p>
<p>Chapter 1: Introduction: Joint Ventures Involving Exempt Organizations 1</p>
<p>1.1 Introduction 1</p>
<p>1.2 Joint Ventures in General 3</p>
<p>1.3 Healthcare Joint Ventures 6</p>
<p>1.4 University Joint Ventures 8</p>
<p>1.5 Low–Income Housing and New Market Tax Credit Joint Ventures 11</p>
<p>1.6 Conservation Joint Ventures 14</p>
<p>1.7 Joint Ventures as Accomodating Parties to Impermissible Tax Shelters 15</p>
<p>1.8 Rev. Rul. 98–15 and Joint Venture Structure 16</p>
<p>1.9 Form 990 and Good Governance 20</p>
<p>1.10 Ancillary Joint Ventures: Rev. Rul. 2004–51 21</p>
<p>1.11 Engaging in a Joint Venture: The Structural Choices and Role of the Charity 21</p>
<p>1.12 Partnerships with Other Exempt Organizations 24</p>
<p>1.13 Transfer of Control of Supporting Organization to Another Tax–Exempt Organization 25</p>
<p>1.14 The Exempt Organization as a Lender or Ground Lessor 26</p>
<p>1.15 Partnership Taxation 28</p>
<p>1.16 UBIT Implications from Partnership Activities 31</p>
<p>1.17 Use of a Subsidiary as Participant in a Joint Venture 33</p>
<p>1.18 Limitation on Preferred Returns 35</p>
<p>1.19 Sharing Staff and/or Facilities: Shared Services Agreement 38</p>
<p>1.20 Intangibles Licensed by Nonprofit to For–Profit Subsidiary or Joint Venture 39</p>
<p>1.21 Private Inurement and Private Benefit 40</p>
<p>1.22 Limitation on Private Foundation s Activities that Limit Excess Business Holdings 44</p>
<p>1.23 International Joint Ventures 45</p>
<p>1.24 Other Developments 46</p>
<p>Chapter 2: Taxation of Charitable Organizations 49</p>
<p>2.1 Introduction 50</p>
<p>2.2 Categories of Exempt Organizations 52</p>
<p>2.3 &sect;501(c)(3) Organizations: Statutory Requirements 54</p>
<p>2.4 Charitable Organizations: General Requirements 97</p>
<p>2.5 Categories of Charitable Organizations 100</p>
<p>2.6 Application for Exemption 118</p>
<p>2.7 Governance 124</p>
<p>2.8 Form 990: Reporting and Disclosure Requirements 132</p>
<p>2.9 Redesigned Form 990 138</p>
<p>2.10 The IRS Audit 178</p>
<p>2.11 Charitable Contributions 183</p>
<p>2.12 State Laws 190</p>
<p>Chapter 3: Taxation of Partnerships and Joint Ventures 193</p>
<p>3.1 Scope of Chapter 194</p>
<p>3.2 Qualifying As a Partnership 195</p>
<p>3.3 Classification As a Partnership 198</p>
<p>3.4 Alternatives to Partnerships 216</p>
<p>3.5 Pass–Through Regime: The Conduit Concept 219</p>
<p>3.6 Allocation of Profits, Losses, and Credits 220</p>
<p>3.7 Formation of Partnership 226</p>
<p>3.8 Tax Basis in Partnership Interests 233</p>
<p>3.9 Partnership Operations 242</p>
<p>3.10 Partnership Distributions to Partners 250</p>
<p>3.11 Sale or Other Disposition of Assets or Interests 255</p>
<p>3.12 Other Tax Issues 263</p>
<p>3.13 Guarantees, Penalties, and Capital Calls 280</p>
<p>Chapter 4: Overview: Joint Ventures Involving Exempt Organizations 291</p>
<p>4.1 Introduction 292</p>
<p>4.2 Exempt Organization as General Partner: A Historical Perspective 294</p>
<p>4.3 Exempt Organizations as Limited Partner or LLC Nonmanaging Member 366</p>
<p>4.4 Joint Ventures with Other Exempt Organizations 369</p>
<p>4.5 New Scheme for Analyzing Joint Ventures 371</p>
<p>4.6 Revenue Ruling 2004–51 and Ancillary Joint Ventures 374</p>
<p>4.7 UBIT Implications From Joint Venture Activities 388</p>
<p>4.8 Good Governance and the IRS Audit 391</p>
<p>4.9 Conversions from Exempt to For–Profit and from For–Profit to Exempt Entities 395</p>
<p>Appendix 4A: Joint Venture Checklist 398</p>
<p>Appendix 4B: Model Joint Venture Participation Policy 405</p>
<p>Chapter 5: Private Benefit, Private Inurement, and Excess Benefit Transactions 409</p>
<p>5.1 What are Private Inurement and Private Benefit? 409</p>
<p>5.2 Transactions in Which Private Benefit or Inurement May Occur 421</p>
<p>5.3 Profit–Making Activities as Indicia of Nonexempt Purpose 454</p>
<p>5.4 Intermediate Sanctions 458</p>
<p>5.5 Case Law 482</p>
<p>5.6 Planning 484</p>
<p>5.7 State Activity with Respect to Insider Transactions 487</p>
<p>Chapter 6: Engaging in a Joint Venture: The Choices 489</p>
<p>6.1 Introduction 490</p>
<p>6.2 LLCs 491</p>
<p>6.3 Use of a For–Profit Subsidiary as Participant in a Joint Venture 506</p>
<p>6.4 Supporting Organizations 528</p>
<p>6.5 Private Foundations and Program–Related Investments 535</p>
<p>6.6 Nonprofits and Bonds 545</p>
<p>6.7 Exploring Alternative Structures 546</p>
<p>6.8 Other Approaches 552</p>
<p>Chapter 7: Exempt Organizations as Accommodating Parties in Tax Shelter Transactions 561</p>
<p>7.1 Introduction 561</p>
<p>7.2 Prevention of Abusive Tax Shelters 562</p>
<p>7.3 Excise Taxes and Penalties 570</p>
<p>7.4 Settlement Initiatives 574</p>
<p>7.5 Abusive Shelters and Tax Credit Programs 575</p>
<p>Chapter 8: The Unrelated Business Income Tax 577</p>
<p>8.1 Introduction 578</p>
<p>8.2 Historical and Legislative Background of UBIT 579</p>
<p>8.3 General Rule 583</p>
<p>8.4 Statutory Exceptions to UBIT 603</p>
<p>8.5 Modifications to UBIT 615</p>
<p>8.6 Income from Partnerships 656</p>
<p>8.7 Calculation of UBIT 659</p>
<p>8.8 Governmental Scrutiny 663</p>
<p>Chapter 9: Debt–Financed Income 669</p>
<p>9.1 Introduction 669</p>
<p>9.2 Debt–Financed Property 670</p>
<p>9.3 The &sect;514(c)(9) Exception 679</p>
<p>9.4 Partnership Rules 681</p>
<p>9.5 The Fractions Rule 682</p>
<p>9.6 The Final Regulation 682</p>
<p>9.7 The Fractions Rule: A Trap for the Unwary 695</p>
<p>Chapter 10: Limitation on Excess Business Holdings 697</p>
<p>10.1 Introduction 697</p>
<p>10.2 Excess Business Holdings: General Rules 698</p>
<p>10.3 Tax Imposed 705</p>
<p>10.4 Exclusions 706</p>
<p>Chapter 11: Impact on Taxable Joint Ventures: Tax–Exempt Entity Leasing Rules 709</p>
<p>11.1 Introduction 709</p>
<p>11.2 Types of Transactions Covered By 1984 ACT Rules 710</p>
<p>11.3 Internal Revenue Code &sect;168(h) 712</p>
<p>11.4 Tax–Exempt Use Property 713</p>
<p>11.5 Restrictions on Tax–Exempt Use Property 715</p>
<p>11.6 Partnership Rules 719</p>
<p>Chapter 12: Healthcare Entities in Joint Ventures 729</p>
<p>12.1 Overview 730</p>
<p>12.2 Classifications of Joint Ventures 734</p>
<p>12.3 Tax Analysis 738</p>
<p>12.4 Other Healthcare Industry Issues 806</p>
<p>12.5 Preserving the 50/50 Joint Venture 851</p>
<p>12.6 Valuation 860</p>
<p>12.7 Joint Operating Agreements 868</p>
<p>12.8 UBIT Implications of Hospital Joint Ventures 876</p>
<p>12.9 Government Scrutiny 880</p>
<p>12.10 Redesigned Form 990 888</p>
<p>12.11 The Patient Protection and Affordable Care Act of 2010: &sect;501(r) and Other Statutory Changes Impacting Nonprofit Hospitals 889</p>
<p>12.12 The Patient Protection and Affordable Care Act of 2010: ACOs and CO–OPs: New Joint Venture Healthcare Entities 914</p>
<p>12.13 Precautionary Steps: A Road Map 926</p>
<p>12.14 Conclusion 928</p>
<p>Appendix 12A: Sample Conflicts of Interest Policy 929</p>
<p>Appendix 12B: Model Joint Venture Participation Policy 934</p>
<p>Chapter 13: Low–Income Housing, New Markets, Rehabilitation, and Other Tax Credit Programs 939</p>
<p>13.1 Relationships between Nonprofits and For–Profits in Affordable Housing: A Basic Business Typology 941</p>
<p>13.2 Nonprofit–Sponsored LIHTC Project 943</p>
<p>13.3 Low–Income Housing Tax Credit 946</p>
<p>13.4 Historic Investment Tax Credit 1003</p>
<p>13.5 Empowerment Zone Tax Incentives 1012</p>
<p>13.6 New Markets Tax Credits 1020</p>
<p>13.7 Recent IRS Guidance Regarding Guarantees and Indemnifications 1075</p>
<p>13.8 Reportable LIHTC/NMTC Transactions 1088</p>
<p>13.9 Gulf Zone Opportunity ACT of 2005 1090</p>
<p>13.10 The Energy Tax Credits 1093</p>
<p>Appendix 13A: New Markets Tax Credits Project Compliance/Qualification/Accounting Projections Checklist 1098</p>
<p>Chapter 14: Joint Ventures with Universities 1101</p>
<p>14.1 Introduction 1101</p>
<p>14.2 Redesigned Form 990: Annual Information Reporting Requirements for Colleges and Universities 1111</p>
<p>14.3 Colleges and Universities IRS Compliance Initiative 1114</p>
<p>14.4 Research Joint Ventures 1119</p>
<p>14.5 Faculty Participation in Research Joint Ventures 1130</p>
<p>14.6 Nonresearch Joint Venture Arrangements 1133</p>
<p>14.7 Modes of Participation by Universities in Joint Ventures 1152</p>
<p>14.8 Incentives Available to Taxable Joint Venturers 1167</p>
<p>14.9 Conclusion 1168</p>
<p>Chapter 15: Business Leagues Engaged in Joint Ventures 1171</p>
<p>15.1 Overview 1171</p>
<p>15.2 The Five–Prong Test 1179</p>
<p>15.3 Unrelated Business Income Tax 1190</p>
<p>Chapter 16: Conservation Organizations in Joint Ventures 1199</p>
<p>16.1 Overview 1199</p>
<p>16.2 Conservation and Environmental Protection as a Charitable or Educational Purpose: Public and Private Benefit 1200</p>
<p>16.3 Conservation Gifts and &sect;170(h) Contributions 1208</p>
<p>16.4 Unrelated Business Income Tax Issues 1223</p>
<p>16.5 Joint Ventures Involving Conservation 1226</p>
<p>16.6 Senate Finance Committee Investigation of The Nature Conservancy (TNC) 1228</p>
<p>16.7 Emerging Issues 1229</p>
<p>16.8 Conclusion 1233</p>
<p>Chapter 17: International Joint Ventures 1235</p>
<p>17.1 Overview 1236</p>
<p>17.2 Domestic Charities Expending Funds Abroad 1239</p>
<p>17.3 Potential for Abuse: The Use of Charities as Accommodating Parties in International Terrorist Activities 1244</p>
<p>17.4 Guidelines for U.S.–Based Charities Engaging in International Aid and International Charities 1256</p>
<p>17.5 General Grantmaking Rules 1259</p>
<p>17.6 Foreign Organizations Recognized by the IRS as &sect;501(c)(3) Organizations 1263</p>
<p>17.7 Public Charity Equivalency Test 1266</p>
<p>17.8 Expenditure Responsibility 1267</p>
<p>17.9 Domestic Charities Entering into Joint Ventures with Foreign Organizations 1269</p>
<p>17.10 Application of Foreign Laws in Operating a Joint Venture in a Foreign Country 1275</p>
<p>17.11 Application of Foreign Tax Treaties 1276</p>
<p>17.12 Current Developments 1285</p>
<p>17.13 Conclusions and Forecast 1289</p>
<p>Chapter 18: The Exempt Organization as Lender or Ground Lessor 1291</p>
<p>18.1 Overview 1292</p>
<p>18.2 Participation as a Lender or Ground Lessor 1293</p>
<p>18.3 Types of Real Estate Loans 1296</p>
<p>18.4 Participating Loans 1299</p>
<p>18.5 Ground Lease with Leasehold Mortgage 1312</p>
<p>18.6 Sale of Undeveloped Land 1322</p>
<p>18.7 Guarantees 1330</p>
<p>18.8 Conclusion 1334</p>
<p>Chapter 19: Debt Restructuring and Asset Protection Issues 1335</p>
<p>19.1 Introduction 1336</p>
<p>19.2 Overview of Bankruptcy 1343</p>
<p>19.3 The Estate and the Automatic Stay 1358</p>
<p>19.4 Case Administration 1372</p>
<p>19.5 Chapter 11 Plan 1377</p>
<p>19.6 Discharge 1392</p>
<p>19.7 Special Issues: Consequences of Debt Reduction 1393</p>
<p>Business Debt 1397</p>
<p>Index 1399</p>