The Internal Revenue Service has approved a tax exemption that it previously rejected for an ancillary-services joint venture involving not-for-profit and for-profit partners. The case is unique because the IRS doesn't usually grant tax-exempt status to joint ventures in which the not-for-profit partner does not have governance control. In this case, however, the joint venture -- the John Gabriel Ryan Association, Seattle -- was able to convince the IRS that controls embedded in the joint venture agreement would protect the not-for-profit's charitable purchase, said healthcare tax attorney T.J. Sullivan, who represented the association. U.S. Tax Court must approve the agreement, which resolves the association's appeal of the IRS' earlier rejection. A decision by the court is expected later this month. The case may signal that the IRS "is becoming a little more realistic" in applying tax law to joint ventures, said Sullivan, who works in the Washington office of Gardner, Carton & Douglas. The association, established in 1985, involves Providence Health System, Seattle, and physicians and other partners throughout the West Coast. Its only activity is owning and operating medical office buildings and imaging centers. After a reorganization, the association applied for tax-exempt status in 1998. -- by Mark Taylor
Joint venture wins tax-exempt status in rare case
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