Opinion ID: 3008141
Heading Depth: 3
Heading Rank: 1

Heading: The Joint Venture’s Structure

Text: WCI and WB Partners executed the NTC Joint Venture Agreement on September 20, 2000, a week after WB Partners was formed and just over a month before WCI won the subcontract from Harper. Under the agreement, WCI would perform the actual remediation work and WB Partners would supply indemnity and financial guaranty services. The agreement further provided that WB Partners would receive seventy percent of the profits, and WCI would receive thirty percent. The tax consequences of this arrangement bear mentioning. Because the joint venture agreement entitled WCI only to thirty percent of the profits, WCI would have to pay income tax only on that portion.5 The remaining seventy percent of the profits would pass to WB Partners, whose income, as mentioned above, was not subject to taxation unless and until the Plans distributed benefits. In short, if the NTC Joint Venture were valid for tax purposes, only thirty percent of its income would be subject to tax now. 5 A joint venture is considered a “partnership” for tax purposes. 26 U.S.C. § 761(a). Accordingly, the NTC Joint Venture would pay no tax on its income, but pass that income on to its members, WCI and WB Partners. See 26 U.S.C. § 701. 12 DJB HOLDING CORP. V. CIR The agreement also provided that the joint venture would reimburse WCI for costs incurred in the remediation work, plus five percent. The agreement obligated the joint venture to keep books and records and to file income tax returns. It contemplated that Harper would award the subcontract to WCI, not to the joint venture, and make payments directly to WCI.