It is not illegal for a charity to enter into a 50-50 joint venture or partnership with a for-profit entity. But the IRS will examine such a venture very closely. It basically takes the position that if the charity does not control the venture, the venture, no matter how closely related to the charity’s exempt purpose, is deemed to be unrelated business activity for the charity. 

 

(See Ready Reference Page: “IRS Says Charities Must Control Joint Ventures.”) A charity that conducts a substantial non-charitable activity can lose its exemption. 

 

The IRS does not win all of its cases. (See Nonprofit Issues®, March 16-31, 2004.) But the administrative hassle may not be worth the cost. The issue does not arise when the partner is also a charity and the charitable mission of at least one of the organizations is likely to prevail.