Wiles, P.M., Corporate Restructuring: One Answer to TEFRA's Challenge, North Carolina Medical Journal, 45(1): 31 (January 1981). The author is indebted to this article and to L.J. Hoch's lengthy analysis of the restructuring issue (see infra, note 6) for much of the discussion that follows.Google Scholar

DeWitt, C., Getting Down to Business, Hospitals 55(19): 76 (Oct. 1, 1981).Google Scholar

Wiles, , supra note 1, at 43.Google Scholar

Id. at 43–44; see also 42 U.S.C.A. § 1395ww(d)(1983).Google Scholar

Wiles, , supra note 1, at 43–44.Google Scholar

Hoch, L.J., Corporate Reorganization: Nonprofit Tax-Exempt Hospitals, Topics in Health Care Financing 11(1): 1, 2, 4–5 (Fall 1984).Google ScholarPubMed

Id. at 18.Google Scholar

42 U.S.C.A. §1395ww(d)(1983); see also Hoch, , supra note 6, at 5; Wiles, , supra note 1, at 44.Google Scholar

Wiles, , supra note 1, at 44.Google Scholar

Hoch, , supra note 6, at 5.Google Scholar

Wiles, , supra note 1, at 43.Google Scholar

Id.; DeWitt, , supra note 1, at 77; and Hoch, , supra note 6.Google Scholar

Hoch, supra note 6, at 17.Google Scholar

DeWitt, , supra note 1; Note, Not-for-Profits Move Toward Corporate Restructuring, Hospitals 55(17): 55 (Sept. 1, 1981).Google Scholar

Hoch, , supra note 6, at 17; Wiles, , supra note 1, at 45.Google Scholar

Ernst & Whinney, Corporate Reorganization: A Survey of Hospitals That Have Reorganized (Ernst & Whinney, Cincinnati, 1982), pp. 10–11; Hoch, , supra note 6, at 20.Google Scholar

Hoch, , supra note 6, at 46.Google Scholar

Irvine, R.B. Moss, C.M., Investor-Owned v. Not-for-Profit, Ohio State Medical Journal 78(9): 31 (September 1982).Google Scholar

The controlled foundation and the independent foundation models will not be discussed since they are not commonly advocated as effective means to achieve the hospital's ends. See gen. Hoch, , supra note 6, at 17–20.Google Scholar

26 U.S.C.A. §§501-28.Google Scholar

Parts I through III, §§501 through 515 (26 U.S.C.A. §§501-15) address the tax-exempt status, generally, of certain organizations, including hospitals and other medical care facilities; Parts IV through VII, §§521 through 528 (26 U.S.C.A. §§521-28) address the tax-exempt status of farmers’ cooperatives, shipowners' protection and indemnity associations, political organizations, and certain homeowners' associations.Google Scholar

See gen. 26 U.S.C.A. §§501-4, 508, 511-14. These general rules include numerous reporting requirements (e.g., Treas. Reg. §1.501(a)-1, Rev. Proc. 84-46, 1984–22 IRB 31, Rev. Proc. 80-28, 1980–1 CB 680, and 26 U.S.C.A. §508).Google Scholar

26 U.S.C.A. §§4940-48, 507-9.Google Scholar

E.g., 26 U.S.C.A. §§4940-48, 502.Google Scholar

26 U.S.C.A. §501 (c)(3). See also text and notes at notes 43-44, infra.Google Scholar

See Bob Jones University v. United States, 461 U.S. 574 (1983).Google Scholar

Federation Pharmacy Services, Inc. v. Commissioner of Internal Revenue, 625 F.2d 804, 807 (8th Cir. 1980).Google Scholar

Bob Jones University, supra note 27, at 2026–29.Google Scholar

26 U.S.C.A. §510(a).Google Scholar

See, e.g., Massachusetts General Laws, c.63, §30, which makes exemption from the business income tax contingent upon exemption under Section 501, and Massachusetts General Laws, c.64H, §6(e), which provides that sales to 501(c)(3) organizations are exempt under the state sales tax provisions.Google Scholar

See, e.g., Rev. Rul. 55-453, 1955–2 CB 54 (contributions by an individual to a governmental entity for hospital expansion, development, or creation qualify for the maximum deduction).Google Scholar

Section 170 provides that any charitable contribution can be deducted (26 U.S.C.A. §170[a]). A “charitable contribution” is defined, in relevant part, as a gift to or for the use of a corporation, trust, or community chest, fund, or foundation … organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or to foster national or international amateur sports competition (but only if no part of its activities involve the provision of athletic facilities or equipment), or for the prevention of cruelty to children or animals. (26 U.S.C.A. §170[c][2])Google Scholar

26 U.S.C.A. §403(b).Google Scholar

26 U.S.C.A. §3121(k). The relevant part of Section 3121(k)(1)(A) reads:Google Scholar

39 U.S.C.A. §401(2), and the regulations promulgated thereunder—specifically, 39 C.F.R. §111.1, which includes, by reference, the Domestic Mail Manual. The Domestic Mail Manual explains the procedure required for a nonprofit organization to qualify for the third-class special bulk rate.Google Scholar

Bromberg, R.S. Teplitzky, S.V., Tangling with Tax Law, Hospitals 57(5): 69, 70 (March 1983).Google ScholarPubMed

42 U.S.C.A. §§291a-291o. The Hill-Burton Act, also referred to as the Hospital Survey and Construction Act, provides financial assistance to states for the construction and modernization of public and nonprofit hospitals and other medical facilities (42 U.S.C.A. §§291a-291b). This assistance is provided in the form of grants (42 U.S.C.A. §291a) as well as loan guarantees and loans (42 U.S.C.A. §§291j-1-291j-6). With respect to the grant program, the act initially allots money to the individual states based on the state's population, its financial need, and the need for modernization of its facilities (42 U.S.C.A. §291b). Funds are then distributed to each state as needed for each project, up to the established allotment, upon a showing that the particular project complies with the act (42 U.S.C.A. §291f).Google Scholar

42 U.S.C.A. §291i(a),(c).Google Scholar

26 U.S.C.A. §§501,503.Google Scholar

Section 501(a) reads: “An organization described in subsection (c) or (d) or section 401(a) shall be exempt from taxation under this subtitle unless such exemption is denied under section 502 or 503” (26 U.S.C.A. §501[a]). Section 401(a) defines qualified pension, profit-sharing, and stock bonus plans and is, therefore, irrelevant for the discussion herein. It should be noted that Section 503(a), related to the denial of exemptions for certain organizations, is inapplicable to 501(c)(3) organizations by the terms of Section 503(a)(1).Google Scholar

26 U.S.C.A. §501(c).Google Scholar

26 U.S.C.A. §501(c)(3). Rev. Rul 56-185, 1956–1 CB 202, as modified by Rev. Rul. 69-545, 1969–2 CB 117, indicates that a hospital may establish itself as an exempt charitable organization under Section 501(c)(3). Further, an organization that provided health care services to its members on a profit basis and to nonmembers on a fee-for-service basis has been granted exemption as a charitable organization (Sound Health Association, 71 T.C. 158, Dec. 35,519). Because hospitals are not specifically listed in Section 501(c), the House of Representatives Ways and Means Committee sought in 1969 to introduce a bill that would establish hospitals as a separate exempt category providing they were “organized and operated exclusively … for the providing of hospital care” (H.R. Rep. No. 413, 91st Cong., 1st Sess. [1969], U.S. Code Cong. & Ad. News 1645, 1688). This committee report indicates that although hospitals have been able in the past to qualify under Section 501(c)(3) as charitable organizations, the bill would seek to avoid any uncertainties occasioned by the somewhat vague wording of the statute and to clarify congressional intent (id). The Senate Finance Committee, however, modified this bill by deleting the explicit language (S. Rep. No. 552, 91st Cong., 1st Sess. [1969], U.S. Code Cong. & Ad. News 2027, 2090). The deleted version was ultimately adopted by the House-Senate Conference Committee, so that there was no statutory change (Pub. L. 172, 83 Stat. 487 [1969]).Google Scholar

26 U.S.C.A. §501(c)(3). It should be noted that there are also numerous reporting requirements for organizations desiring to be granted tax-exempt status as well as for organizations that are already tax-exempt; see, e.g. Treas. Reg. §§1.501(a)-1(3) and 1.6033-1.Google Scholar

Rev. Rul. 56-185, 1956–1 CB 202, as modified by Rev. Rul. 69-545, 1969–2 CB 117. See also The Church of the Visible Intelligence That Governs the Universe v. United States, 4C1. Ct. 55, 61 (1983).Google Scholar

Treas. Reg. §1.501(c)(3)-1(a).Google Scholar

Treas. Reg. §1.501(c)(3)-1(a)(2).Google Scholar

Treas. Reg. § 1.501 (c)(3)-1(b)(1)(ii).Google Scholar

Treas. Reg. §1.501(c)(3)-1(b)(1)(i).Google Scholar

Treas. Reg. § 1.501 (c)(3)-1 (b)(1)(iii).Google Scholar

Treas. Reg. §1.501(c)(3)-1(b)(4).Google Scholar

Treas. Reg. §1.501(c)(3)-1(b)(3).Google Scholar

26 U.S.C.A. §501(c)(3).Google Scholar

Treas. Reg. §1.501(c)(3)-1(c)(1).Google Scholar

Rev. Rul. 69-545, 1969–2 CB 117, 118.Google Scholar

Simon v. Eastern Kentucky Welfare Rights Organization, 426 U.S. 26 (1976>), at 42–43. See also Lugo v. Miller, 640 F.2d 823 (6th Cir. 1981).),+at+42–43.+See+also+Lugo+v.+Miller,+640+F.2d+823+(6th+Cir.+1981).>Google Scholar

Rev. Rul. 83-157, 1983–2 CB 94.Google Scholar

26 U.S.C.A. §501(c)(3).Google Scholar

Treas. Reg. §1.501(a)-1(c).Google Scholar

Bubbling Well Church of Universal Love, Inc. v. Commissioner of Internal Revenue, 670 F.2d 104, 105 (9th Cir. 1981). See also Church of the Visible Intelligence, supra note 45.Google Scholar

Incorporated Trustees of Gospel Worker Society v. United States Dept. of Treasury, 510 F. Supp. 374, 379 (D. D.C. 1981); affirmed 672 F.2d 894 (3d Cir. 1981); cert. den'd 456 U.S. 944 (1982).Google Scholar

Rev. Rul. 69-383, 1969–2 CB 113, 114.Google Scholar

B.H.W. Anesthesia Foundation, Inc., 72 T.C. 681, 684 (1979).Google Scholar

University of Maryland Physicians v. Commissioner of Internal Revenue, 41 T.C.M. 732, Dec. 37,633(M), T.C. Memo 1981-23.Google Scholar

Lowry Hospital Association v. Commissioner of Internal Revenue, 66 T.C. 850, 858–60.Google Scholar

Sonora Community Hospital v. Commissioner of Internal Revenue, 397 F.2d 814 (9th Cir. 1966).Google Scholar

26 U.S.C.A. §501(c)(3). If an organization loses its tax-exempt status under Section 501(c)(3) because of substantial lobbying, it cannot at any time thereafter qualify as a tax-exempt organization under Section 501(c)(4) (26 U.S.C.A. §504). Section 501(c)(4) defines tax-exempt civic leagues or organizations operated exclusively for the promotion of social welfare.Google Scholar

Treas. Reg. §1.501(c)(3)-1(c)(3).Google Scholar

26 U.S.C.A. §501(h).Google Scholar

26 U.S.C.A. §§501(h), 4911(c)(2).Google Scholar

26 U.S.C.A. §4911(c)(4).Google Scholar

26 U.S.C.A. §509(a).Google Scholar

See gen. 26 U.S.C.A. 508, 4940–48. See also Change–All Souls Housing Corp. v. United States, 671 F.2d 463 (1982).Google Scholar

26 U.S.C.A. §4940(a).Google Scholar

26 U.S.C.A. §§4941-44.Google Scholar

See H.R. Rep. No. 413 and S. Rep. No. 552, supra note 43; Change-All Souls, supra note 73, at 465.Google Scholar

Church of the Visible Intelligence, supra note 45, at 64, citing 26 U.S.C.A. §§170 and 509(a); S. Rep. No. 552, supra note 43, at 2085; and H.R. Rep. No. 413, supra note 43, at 1686.Google Scholar

William F. Quarrie, Mable E. Quarrie and Margaret K. Quarrie Charitable Fund v. Commissioner of Internal Revenue, 603 F.2d 1274, 1277 (7th Cir. 1979).Google Scholar

26 U.S.C.A. §509(a)(1)-(a)(4).Google Scholar

See 26 U.S.C.A. §§511-14.Google Scholar

26 U.S.C.A. §512(a).Google Scholar

26 U.S.C.A. §513(a).Google Scholar

Rensselaer Polytechnic Institute v. Commissioner of Internal Revenue, 732 F.2d 1058, 1061 (2d Cir. 1984); Service Bolt & Nut Co. v. Commissioner of Internal Revenue, 724 F.2d 519, 524 (6th Cir. 1983).Google Scholar

26 U.S.C.A. §512(a).Google Scholar

26 U.S.C.A. §512(b).Google Scholar

26 U.S.C.A. §512(a).Google Scholar

Treas. Reg. §1.512(a)-1(a).Google Scholar

26 U.S.C.A. §513(a).Google Scholar

Louisiana Credit Union League v. United States, 693 F.2d 525, 532 (5th Cir. 1982); Carolinas Farm & Power Equipment Dealers Association v. United States, 699 F.2d 167, 170 (4th Cir. 1983); Disabled American Veterans v. United States, 650 F.2d 1178, 1185 (Ct. of Claims 1981), appeal after remand 704 F.2d 1570 (U.S. Ct. App. 1983); and American Bar Endowment v. United States, 4 Cl. Ct. 404, 409 (1984).Google Scholar

Louisiana Credit Union League, supra note 90, at 535–36.Google Scholar

26 U.S.C.A. §§511-13.Google Scholar

Rev. Rul. 69-268, 1969–1 CB 160.Google Scholar

Rev. Rul. 69-267, 1969–1 CB 160 (gift shop); Rev. Rul. 69-269, 1969–1 CB 160 (parking lot).Google Scholar

Rev. Rul. 69-463, 1969–2 CB 131; Gundersen Medical Foundation, Ltd. v. United States, 536 F. Supp. 556 (D. D.C. 1982).Google Scholar

I.R.S. Letter Ruling 8131063.Google Scholar

St. Luke's Hospital of Kansas City, 494 F. Supp. 85 (W.D. Mo. 1980).Google Scholar

Rev. Rul. 68-374, 1968–2 CB 242, 243; Hi-Plains Hospital v. United States, 670 F.2d 528, 531 (5th Cir. 1982). See also Rev. Rul. 68-376, 1968–2 CB 246, which defines a hospital “patient” for the purposes of Section 513(a)(2).Google Scholar

I.R.S. Letter Ruling 8206093, Nov. 10, 1981.Google Scholar

26 U.S.C.A. §§513(e), 501(e)(1)(A).Google Scholar

26 U.S.C.A. §501(e).Google Scholar

26 U.S.C.A. §513(e).Google Scholar

Northern California Central Services, Inc. v. United States, 591 F.2d 620, 623–24 (Ct. of Claims 1979); Hospital Central Services Association v. United States, 623 F.2d 611, 612 (9th Cir. 1980), cert. den'd 450 U.S. 911 (1981); HCSC—Laundry v. United States, 450 U.S. 1, 5 (1981).Google Scholar

Metropolitan Detroit Area Hospital Services, Inc. v. United States, 634 F.2d 330, 335 (6th Cir. 1980), cert. den'd 450 U.S. 1031 (1981).Google Scholar

See 26 U.S.C.A. §§502, 4940-48, and 507-9.Google Scholar

26 U.S.C.A. §502(a).Google Scholar

26 U.S.C.A. §§507-9, 4940-48. See the discussion concerning the more restrictive provisions for private foundations and the congressional intent in enacting these provisions in the text and notes at notes 70 to 77, supra.Google Scholar

Hoch, , supra note 6, at 20; Wiles, , supra note 1, at 45. The description that follows is derived in large part from Hoch. The reader is directed to his article for more specific information concerning the corporate reorganization of hospitals.Google Scholar

Hoch, , supra note 6, at 20.Google Scholar

Id. at 24; and 26 U.S.C.A. §509(a).Google Scholar

26 U.S.C.A. §509(a)(3); Hoch, , supra note 6, at 26.Google Scholar

Hoch, , supra note 6, at 26-27.Google Scholar

Id. at 49.Google Scholar

Id. at 32-34.Google Scholar

Id. at 20-22.Google Scholar

Id. at 52.Google Scholar

Id. at 51.Google Scholar

See id. at 54-56.Google Scholar

Id. at 61.Google Scholar

Id. at 51.Google Scholar

Id. at 61-62.Google Scholar

Wiles, , supra note I, at 46.Google Scholar

26 U.S.C.A. §501(c)(3).Google Scholar

Treas. Reg. §1.501(c)(3)-1(b).Google Scholar

Treas. Reg. §1.501(c)(3)-1(c)(2).Google Scholar

26 U.S.C.A. §511.Google Scholar

See gen. 26 U.S.C.A. §165.Google Scholar

See 26 U.S.C.A. §§168, 46-48.Google Scholar

26 U.S.C.A. §501(c)(3).Google Scholar

26 U.S.C.A. §§501(c)(3), 501(h), 4911(c); Treas. Reg. §1.501(c)(3)-1(c)(3). See also the Federal Election Campaign Act (FECA) of 1971, 2 U.S.C.A. §§431-55 (1983).Google Scholar

Id.; Hastings, D.A. Oldaker, W.C. Kerman, L.J., Tax-Exempt Hospitals and Electoral Politics, Hospitals 58(15): 80 (Aug. 1, 1984).Google ScholarPubMed

See gen. 2 U.S.C.A. §§431-55.Google Scholar

Id. and regulations promulgated thereunder. See also Hastings, Oldaker, Kerman, supra note 131, at 82.Google Scholar

Wiles, , supra note 1, at 44.Google Scholar