March 12, 1998 | Read Time: 1 minute
The Internal Revenue Service has released a revenue ruling that describes what non-profit hospitals can do to keep their tax-exempt status when they enter into joint ventures with for-profit corporations. Revenue rulings from the I.R.S. are designed to help charities by stating the service’s official position on aspects of tax law.
In Revenue Ruling 98-15, the I.R.S. describes two detailed, hypothetical situations. In each, a charity that owns and operates a hospital forms a limited liability company with a for-profit corporation. The charity contributes its hospital and all of its other operating assets to the new company, which then operates the hospital.
In the first example, the charity keeps its tax-exempt status. The reason: The deal is structured so that the non-profit organization continues to operate exclusively for a charitable purpose “and only incidentally for the purpose of benefiting the private interests” of the for-profit corporation, which owns and operates a number of hospitals.
The non-profit group in the second example fails to continue to qualify for a tax exemption because it cannot establish that it will be operated exclusively for charitable ends.
The revenue ruling is available on the I.R.S.’s World-Wide Web site at http://www.irs.ustreas.gov/prod/bus_info/tax_pro/adv- notice.html. The guidance is expected to be published in the March 23 Internal Revenue Bulletin 1998-12.
