An Internal Revenue Service ruling involving a university has implications for hospital-physician joint ventures, possibly removing one barrier to such deals.
The revenue ruling offers a template for how hospitals can protect their tax-exempt status and avoid paying unrelated-business income taxes in joint ventures with physicians.
The tax-exempt university asked for IRS guidance on its plan to provide training programs for schoolteachers. The university would team up with a for-profit company in a 50-50 joint venture, with each partner naming three board members. The governance agreement would prohibit activities contrary to the university's tax-exempt status, would require the university to remain at arm's length in contract negotiations and would establish fair market value as a benchmark for prices. The IRS said those stipulations would protect the university's tax-exempt status, and there would be no unrelated-business income taxes because the venture was an extension of the university's educational mission.
The ruling "shows (hospitals) that if you have ground-level input into how the joint venture is structured ... it's possible to establish ancillary joint ventures without paying (unrelated-business income taxes)," said Gerald Griffith, a lawyer with Honigman Miller Schwartz and Cohn.