Ancillary Joint Ventures and the Unanswered Questions after Revenue Ruling 2004-51

Ever since the Internal Revenue Service (the Service ) issued Revenue Ruling 98-15… in which it emphasized control as a critical factor in determining whether a tax-exempt hospital that enters into a whole-hospital joint venture with a for-profit entity would continue to maintain its tax-exemption, practitioners and scholars alike have sought guidance from the Service regarding whether such control would also be required of an exempt organization that enters into an ancillary joint venture with a for-profit entity. In response, the Service issued Revenue Ruling 2004-51 on May 6, 2004. … In Revenue Ruling 2004-51, the Service enunciated that a tax-exempt university that formed a joint venture with a for-profit entity by contributing a portion of its assets to, and conducting a portion of its activities through, the joint venture would neither lose its tax exemption nor be subject to unrelated business income tax (UBIT) on its share of income from the joint venture because (the facts state that) the tax-exempt university\u27s activities conducted through the joint venture are not a substantial part of … [the tax-exempt university\u27s] activities within the meaning of § 501(c)(3) and § 1.501(c)(3)-1(c)(1) … and the activities of the joint venture are substantially related to the university\u27s exempt purpose. … Regrettably, however, the Service failed to provide any guidance on how it determined that the assets and activities of the exempt university conducted through the joint venture are not a substantial part of the exempt university\u27s activities. … Such a conclusive disposition of a key element of determining tax exemption within the ancillary joint venture context is puzzling, and fans the embers of ambiguity, because it fails to provide any quantitative or qualitative guidance, or safe harbor tests, for determining when the assets and activities of a tax-exempt organization that are transferred to, and conducted through, a joint venture are considered not a substantial part of the exempt organization\u27s activities within the meaning of I.R.C. §501(c)(3) and Treas. Reg. §1.501(c)(3)-1(c)(1) so as not to jeopardize the organization\u27s continued tax exemption… … Moreover, the Service\u27s conclusion that based on all the facts and circumstances, the tax-exempt university\u27s participation in the joint venture taken alone, will not affect its continued qualification for tax exemption is not unequivocal in many respects. … The phrase taken alone could be interpreted as suggesting that ancillary joint venture activities of an exempt organization which may not ordinarily result in the loss of tax exemption (because such activities are not considered a substantial part of the organization\u27s activities when viewed separately) may indeed impair tax exemption if, in the aggregate, such activities constitute a substantial part of the exempt organization\u27s activities. … To provide clarity to the rules of federal tax exemption within the context of ancillary joint ventures, the Service needs to issue a new ruling clarifying revenue ruling 2004-51 and establishing safe harbor provisions for determining when the assets transferred to, and activities conducted through, a joint venture by a tax-exempt organization would be presumed not a substantial part of the exempt organization\u27s assets and activities so as not to jeopardize its tax exemption within the meaning of I.R.C. §501(c)(3) and Treas. Reg. § 1.501(c)(3)-1(c)(1)

Challenges to Federal Income Tax Exemption of the Clergy and Government Support of Sectarian Schools Through Tax Credits Device and the Unresolved Questions After Arizona v. Winn: Is the U.S. Supreme Court Standing in the Way of Taxpayer Standing to Seek Meritorious Redress?

Part II of the article begins with a critical examination of the parsonage exemption Act as was originally conceived at inception, the expansion and modification of the Act over the years, and the current statutory framework of the exemption under the Internal Revenue Code ( Code ). Part III evaluates who is considered a minister of the gospel within the meaning of the Code, and whether a minister of the gospel may obtain a parsonage exemption for more than one home at a time. Part IV discusses the various attempts to rid the Code of the parsonage exemption. In this part, the article analyzes the Federal District Court\u27s ruling in FFRF v. Geithner allowing taxpayers standing to challenge the constitutionality of the parsonage exemption and the subsequent U.S. Supreme Court decision in Arizona that led to the voluntary dismissal by stipulation of FFRF v. Geithner. Part V scrutinizes the underpinnings of the U.S. Supreme Court\u27s ruling in Arizona and queries, among others, whether Arizonians really spend their own money when they contribute to STOs and receive state tax credits in exchange for their contributions. The article contends that the premise of the ruling is superficial, flawed, incorrect, not logical or principled, and the author sides with the dissent that taxpayers should have been accorded standing under Flast to pursue their claims on the merits. Part VI examines the recurring question of whether the parsonage exemption violates the Establishment Clause of the First Amendment to the U.S. Constitution under the Lemon enunciation, and argues that it does. Part VII concludes that the U.S. Supreme Court is resolved to standing in the way of taxpayer standing to seek meritorious redress of alleged government support of religion through tax devices by holding that (1) when a government expends resources or declines to impose a tax, its budget does not necessarily suffer to confer Article III standing upon taxpayer, and (2) that because respondents challenge a tax credit as opposed to government expenditure, they lack Article III standing under Flast v. Cohen

The Nonprofit Hospital: A Call for New National Guidance Requiring Minimum Annual Charity Care to Qualify for Federal Tax Exemption

This article begins with an examination of the origin of the federal tax exemption of the tax-exempt hospital, the current statutory frame-work for federal tax exemption, and the community benefits standard. Next, the article discusses the rationale for the exemption and the regulatory changes in the standards of exemption that paved the way for the current movement away from charity care by the tax-exempt hospital and the need for new national guidance. Thereafter, the article discusses some state initiatives aimed at making the tax-exempt hospital more accountable. Finally, the article recommends that the Internal Revenue Service (the Service ) issue a new revenue ruling requiring the tax-exempt hospital to provide minimum annual levels of qualitative and quantitative charity care as part of the community benefit standard

The Nonprofit Hospital: A Call for New National Guidance Requiring Minimum Annual Charity Care to Qualify for Federal Tax Exemption

This article begins with an examination of the origin of the federal tax exemption of the tax-exempt hospital, the current statutory frame-work for federal tax exemption, and the community benefits standard. Next, the article discusses the rationale for the exemption and the regulatory changes in the standards of exemption that paved the way for the current movement away from charity care by the tax-exempt hospital and the need for new national guidance. Thereafter, the article discusses some state initiatives aimed at making the tax-exempt hospital more accountable. Finally, the article recommends that the Internal Revenue Service (the Service ) issue a new revenue ruling requiring the tax-exempt hospital to provide minimum annual levels of qualitative and quantitative charity care as part of the community benefit standard