![]() ![]() Joint venture safeguards that assure the nonprofit exercises sufficient control over and oversight through majority voting or veto power.A requirement that decisions are documented by the board of directors (or other authority in the organization) with a determination that the venture substantially serves the mission based on the facts known (or that the organization agrees to move forward and assume the liability of UBIT with any associated legal risks).Requirements of a joint venture proposal and the decision-making process.A definition of joint venture to include any joint ownership or contractual arrangement with one or more taxable entities through which a joint business enterprise is undertaken.For that reason, an organizational policy on joint venture participation should be adopted before making decisions. Leadership’s full engagement demonstrates that the nonprofit is protecting its tax-exempt status and serving its mission. Understand legal and tax parametersīefore structuring specific joint venture transactions, it is important for leadership and directors to understand the legal and tax parameters of an ancillary joint venture. Regardless, it is critical for the venture to meet the above rules in order to be considered “ancillary” to a charity’s purpose. The nonprofit receives at least proportional profits while not contributing a substantial amount of its assets to the joint venture.Įstablishing such a venture may involve forming a new entity or it may be a contract of collaboration or services with profit sharing.Measures are in place to preserve an arm’s length relationship that sufficiently prevents impermissible private inurement to the private parties and.The nonprofit maintains control over key decisions of the venture to assure it continues to serve the mission.The product, services, or licenses provided through the venture is substantially related to the nonprofit organization’s tax-exempt purpose.A qualifying ancillary joint venture that involves a tax-exempt organization generally has some key features: 2004-51, where the IRS created what is referred to as a “UBIT plus control test” that aligns with but does not need to fully meet the traditional “control” test for joint ventures, and also superimposes the UBIT rules on the activities. When considering an ancillary joint venture, income from the venture can remain exempt from federal unrelated business income tax (UBIT) for tax-exempt organizations if it is carefully organized and operated within specific parameters. However, charities must still be very careful when structuring such relationships because the IRS takes a “facts and circumstances” approach to them. These types of joint ventures are not subject to the same stringent rules as “whole” joint ventures. "Ancillary” joint ventures are joint ventures where not all of the charity’s assets are transferred to the joint venture. ![]() This article will discuss “ancillary” joint ventures as such an option. As nonprofits seek to scale, provide innovative products and services, pursue investment from third parties, or add additional sources of funding, joint ventures with for-profit companies are an option to consider. ![]()
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