Nonprofit hospitals have increasingly found that it is to their advantage to enter into joint ventures with for‐profit entities as a means of raising capital and/or obtaining expertise. A number of IRS letter rulings, revenue rulings, and court cases have addressed the issue of the types of joint ventures between nonprofit hospitals and for‐profit entities that are within the hospital's charitable mission and those joint ventures that cross the line and would cause the hospital to lose its status as a tax‐exempt entity under I.R.C. §501(c)(3). An examination of this literature suggests that nonprofit hospitals can avoid jeopardizing their charitable status when entering into joint ventures with for‐profit entities by (1) requiring the joint venture operating entity to provide care to a broad segment of the community; (2) maintaining control over the joint venture, preferably by controlling a majority of the positions on the operating entity's board of directors; and (3) crafting joint venture agreements such that they place primary importance on the venture's charitable mission.
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1 December 2003
