Last Revised: 03/16/2022
Last Reviewed: 03/16/2022
1. Policy Purpose
The objective of this policy is to protect USC’s tax-exempt status in situations in which USC may enter a Joint Venture with one or more parties. This policy provides guidelines to consider when making decisions about whether USC will enter a Joint Venture, and, if such an arrangement is entered, how it may be structured to protect the USC’s tax-exempt status and, if applicable, any property tax exemptions.
2. Scope and Application
This policy applies to any Joint Venture or similar arrangement between USC and one or more taxable or non-taxable entities. It applies to any joint ownership or contractual arrangement through which there is an agreement to jointly undertake a specific business enterprise, investment, or exempt-purpose activity.
|Joint Venture||For purposes of this policy, a joint venture is any joint ownership or contractual arrangement between USC and one or more parties that are i) not exempt from federal income taxation or ii) are non-profit entities or otherwise exempt from taxes, through which there is an agreement to jointly undertake a specific business enterprise, investment, or exempt-purpose activity. A joint venture does not include arrangements intended primarily to result in the production of income or the appreciation of property, if substantially all the income generated by the arrangement consists of investment income, such as dividends, interest, annuities, royalties, rents, and capital gains.|
|USC||USC includes the University of Southern California, the USC Health System and their respective subsidiaries and affiliates.|
4. Policy Details
When USC is contemplating entering a Joint Venture with one or more parties, USC will consider the implications such a venture could have on its tax-exempt status and, if applicable, any property tax exemptions, will undertake to negotiate terms and safeguards to protect that status and any applicable property tax exemption. Any contracts entered shall be negotiated at arm’s length, or on terms that are even more favorable to USC, and are subject to the prior approval of the President and either (i) the Provost and Senior Vice President, Academic Affairs or the Senior Vice President, Health Affairs, as appropriate, or (ii) the Senior Vice President, Finance and Chief Financial Officer.
All proposed Joint Venture documents, including amendments and renewals, must be reviewed by the Office of the General Counsel (“OGC”) prior to and during negotiations, and approved by University Finance, Office of the Comptroller, to assure that USC’s tax-exempt status is protected, and any other potential issues are considered.
In the negotiation and review of proposed Joint Ventures and Joint Venture documents, USC will evaluate participation in such Joint Ventures under applicable federal tax law and take steps to safeguard the exempt status of USC with respect to such Joint Ventures. USC will negotiate in its Joint Ventures such terms and safeguards adequate to ensure USC’s tax-exempt status is protected. Such safeguards may include:
- Control over the Joint Venture sufficient to ensure the Joint Venture furthers USC’s tax-exempt purposes.
- Requiring that the Joint Venture give priority to tax-exempt purposes over maximizing profits to those participants in the venture who are not exempt from federal income taxation.
- Prohibiting the Joint Venture from engaging in activities that would jeopardize USC’s tax-exempt status and any applicable property tax exemptions.
- Requiring that sufficient operating controls be implemented at the Joint Ventures to assure all contracts and transactions involving USC and the Joint Ventures are at arms-length or more favorable to USC.
- The share of authority, control, revenues, profits, gains, expenses, risk and losses that is allocated to the proprietary member in the venture or arrangement shall be proportional to the contributions made by that proprietary member to the venture or arrangement, so that neither USC nor the venture or arrangement confers or provides an impermissible private benefit. In particular, the proprietary member shall be paid no more than reasonable compensation or fair market value that is proportional to its contributions.
Senior administration for USC in consultation with the OGC will also determine whether any approvals are required from the board or committee of a board of USC.
OGC and University Finance, Office of the Comptroller must be engaged prior to entering into negotiations about a potential Joint Venture agreement. University Finance will defer to HSC Finance as appropriate.
|POSITION or OFFICE||RESPONSIBILITIES|
|Office of the General Counsel||Must review and approve the legal terms of all Joint Venture documents and agreements.|
|University Finance, Office of the Comptroller||Must review and approve the financial terms of all Joint Venture documents and agreements.|
|The President; the Provost and Senior Vice President, Academic Affairs or the Senior Vice President, Health Affairs, as appropriate; the Senior Vice President, Finance and Chief Financial Officer||All Joint Venture documents and agreements are subject to final review and approval by the President and either (i) the Provost and Senior Vice President, Academic Affairs or the Senior Vice President, Health Affairs, as appropriate, or (ii) the Senior Vice President, Finance and Chief Financial Officer.|
8. Related Information
Please direct any questions regarding this policy to:
|Office of the General Counsel||(213) 740-7922||ogc.usc.edu|