Issued: 06/18/2009
Last Revised: 06/14/2024
Last Reviewed: 06/14/2024
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, ensuring compliance with tax regulations and preserving USC’s nonprofit status. This policy provides guidelines to consider when making decisions about whether USC will enter a Joint Venture. If USC decides to enter a Joint Venture, this policy outlines how it should be structured to protect 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.
3. Definitions
| Term | Definition |
| 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 (i) are 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 carefully evaluate the potential impact on its tax-exempt status and, if applicable, any property tax exemptions, and 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, which may be delegated to either (i) the Provost and Senior Vice President, Academic Affairs or the Senior Vice President, Health Affairs, for Joint Ventures related to USC Health System and its subsidiaries and affiliates, 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 OGC will also determine whether any approvals are required from an appropriate board or committee of the University or USC Health System or its subsidiaries and affiliates.
5. Procedures
OGC and University Finance, Office of the Comptroller or the Health System Finance Office, as appropriate, must be engaged prior to entering into negotiations about a potential Joint Venture agreement.
6. Forms
N/A
7. Responsibilities
| 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; Provost and Senior Vice President, Academic Affairs Senior Vice President, Health Affairs Senior Vice President, Finance and Chief Financial Officer | All Joint Venture documents and agreements are subject to final review and approval by the President, which may be delegated to either (i) the Provost and Senior Vice President, Academic Affairs or the Senior Vice President, Health Affairs, for Joint Ventures related to USC Health System and its subsidiaries and affiliates, or (ii) the Senior Vice President, Finance and Chief Financial Officer. |
8. Related Information
N/A
9. Contacts
Please direct any questions regarding this policy to:
| OFFICE | PHONE | |
| Office of the General Counsel | (213) 740-7922 | gcoffice@usc.edu |