The Rapides Foundation

“The rapides foundation entered into an agreement in september 2014 with the city of alexandria to act as an intermediary for the city in order to meet certain matching provisions required by the louisiana community and technical college system (lctcs) preparatory to the construction of central louisiana technical community college in alexandria (cltcc). Under the terms of the agreement, the city transferred to the foundation $2,600,000 to be used as matching funds for the acquisition of property on which cltcc is to be built, together with options, title opinions, and appraisals necessary to facilitate the acquisition. The foundation is obligated under this agreement to exercise the options and purchase the property upon the joint written instruction of the city and lctcs; and, upon additional written instruction from the city, to transfer the property to the state of louisiana for the benefit of lctcs. This transaction is accounted for by the foundation as a liability, as it has no variance power over the assets subject to the agreement.”

“The foundation and its subsidiaries are nonprofit organizations and are exempt from federal income taxes under section 501(c)(3) of the internal revenue code. Therefore, no provision for income taxes has been made in the consolidated financial statements, but each entity is required to file an annual information tax return. They are also required to review various tax positions they have taken with respect to their exempt status and determine whether in fact they are tax exempt entities. The foundation and its subsidiaries must also consider whether they have nexus in jurisdictions in which they have income and whether a tax return is required in those jurisdictions. In addition, as tax exempt entities, each entity must assess whether it has any tax positions associated with unrelated business income subject to income tax. The entities do not expect their positions to change significantly over the next twelve months. Any penalties related to late filing or other requirements would be recognized as expense in the entities' accounting records. The foundation and its subsidiaries each file u.s. Federal form 990 for informational purposes. Their federal income tax returns for the tax years 2011 and beyond remain subject to examination by the internal revenue service. Since its initial incorporation in 1924, the foundation has been exempt from federal and state income tax under section 501(c)(3) of the internal revenue code as a public charity operating a hospital. Due to its contribution of its hospital operations to the partnership and its new grant making activities, it requested a private letter ruling from the internal revenue service to confirm the continuation of its public charity status. The service declined to issue such a ruling due to the number of similar transactions and issued a revenue ruling (rev. Rul. 98-15) defining the requirements for whole hospital joint ventures such as rapides health services, llc. The service declined the foundation's request to examine its operations and enter into a closing agreement. After rev. Rul. 98-15, two court cases focused on the control issue identified by the ruling as determinative of whether the joint venture jeopardized the exempt status of the exempt organization. One of these, st. David's health care system, inc. V. United states, involved facts very similar to those present in the foundation's ownership of the llc, and was a victory for the exempt organization whose status had been challenged. Counsel for the foundation has been at all relevant times and remains of the opinion that any challenge to the foundation's exempt status would be similarly decided. This opinion is bolstered by rev. Rul. 2004-51, which, while addressing ancillary activity joint ventures, represents an acknowledgment by the service that sufficient control may be maintained by the exempt partner in such a venture even though ownership and governance were shared 50-50 with the for-profit venturer. It should be noted that even if the foundation's public charity status should not continue, the foundation believes that it would continue to be exempt from income tax under section 501(c)(3) of the code as a private foundation. Private foundations are subject to more restrictions under the code than are public charities. These restrictions include statutory prohibitions against self-dealing, excess business holdings, jeopardy investments, and taxable expenditures. In addition, private foundations are subject to an excise tax on their net investment income and are required to make annual distributions of five percent (5%) of the average market value of their non-charitable-use assets for charitable, educational, scientific, and similar purposes. Non-charitable-use assets are assets that are not used or held for use directly in carrying on the organization's exempt purpose; they include assets held for investment and the production of investment income. Private foundations are required to publish a notice that”