Social enterprise, also known as social venturing, is becoming increasingly important as nonprofits move toward greater financial sustainability and away from the vulnerability created by reliance on gifts, grants, contributions, and investment returns. Social enterprise can make your organization more resilient by generating increased and more diverse revenue sources, which help to foster independence and sustainability and protect against the fluctuations of the financial markets.
Legal advice and analysis is critical before embarking on any new social enterprise. A new activity could create unrelated business income tax (“UBIT”) liability if the activity is unrelated to your organization’s mission and, in cases where a significant amount of UBIT is generated, your organization’s tax-exempt status may be threatened.
We work with clients to determine whether the Internal Revenue Service would consider a proposed activity “related” to their charitable missions. This analysis gives clients the tools to evaluate and minimize potential UBIT liability and avoid jeopardy to tax-exempt status. We also provide tax and corporate advice on corporate reorganization and nonprofit and for-profit subsidiary formation to help shield nonprofit organizations from UBIT and preserve tax-exempt status.