Joint Ventures Between Non-Profit and For-Profit Healthcare Providers: Redlands Surgical Services v. Commissioner
Stephen M. Albrecht
In Redlands Surgical Services v. Commissioner, the U.S. Court of Appeals for the Ninth Circuit upheld a Tax Court decision denying section 501(c)(3) tax-exempt status to Redlands Surgical Services (the “taxpayer”). The Tax Court held that even though the taxpayer was a subsidiary of a nonprofit charitable health system, the taxpayer’s participation in a joint venture with a for-profit entity ceded control to the for-profit partner and disqualified the taxpayer from tax-exempt status.
Part I of this Note summarizes the tax treatment of joint ventures between nonprofit and for-profit entities and reviews the facts of the Redlands case. Part II explains the decisions of the Tax Court and Ninth Circuit. Part III analyzes the Redlands decisions and discusses the implications for nonprofit health service providers. This part concludes that while the decision is correct, the standard established in Redlands will make it difficult for charitable health service providers to attain the benefits of joint ventures.