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partner to fulfill a specific project or goal; and comprehensive, where organizations
partner to fulfill a comprehensive set of shared goals. In either of these cases,
there may be risks to the organization’s tax exemption.

In order for an organization to qualify for tax exemption under Code
section 501(c)(3), it must be organized and operated exclusively (generally
interpreted to mean “substantially”) for charitable purposes. Where a collaboration
is with a for-profit entity, the concern is that the participation of a private partner in
a venture with a tax-exempt entity significantly increases the likelihood that the
venture will undertake activities that are outside of the organization’s charitable
purpose (and that the tax-exempt may lack sufficient control over the venture to
prevent such activities). It is also critical to section 501(c)(3) qualification that no
part of the tax-exempt organization’s earnings inure to the benefit of a private
individual and that such organization serve a public interest rather than a private
interest, which is more difficult to do when operations and economics become
interrelated in a joint venture or other collaboration. When forming a collaboration
with a private partner, it is important to guard against unrelated business income
and illegal shelters of taxable income. For more information, see Chapters 27-36.

Regardless of the form of the collaboration, the two organizations should, as
in any partnership, enter into a written agreement that sets forth their respective
rights and obligations. Some of the more important details to consider in forming
any type of partnership, which should be included in a written agreement between
the two organizations, include (in no specific order):

a. Vision/Goals

Both parties should share the same vision, expectations, and goals with
respect to their participation in the partnership, which need to be clearly defined
from the outset. Why does each of the parties want to participate in this
partnership? Does the partner organization have a primary interest in furthering
your organization’s purposes? Does it have other interests, such as attracting
positive public recognition? Does the partner organization have any goals that
conflict with those of your organization? Any private partner with your tax-exempt
organization should understand that the written agreement between the parties
will specify that making sure the venture operates in furtherance of the tax-exempt
organization’s purposes must override the desire to produce profit. Can either
organization pursue other goals without the partner organization? Will either
organization object to having its name associated with the other organization in
areas in which the two organizations are not collaborating?

WASHINGTON NONPROFIT HANDBOOK -201- 2018