AHW Corp. v. Commissioner of Internal Revenue

AHW Corporation (plaintiff) was a wholly owned subsidiary of the Amherst H. Wilder Foundation (foundation), which was exempt from federal income tax under § 501 of the Internal Revenue Code (code). AHW was formed for the primary purpose of developing and managing a housing-development project for the foundation. AHW had a secondary purpose of using the expertise gained over the course of the development project to provide at-cost property-management and consulting services to other, nonaffiliated tax-exempt organizations. AHW explained these purposes in its application to the Internal Revenue Service (IRS) (defendant) for tax-exempt status. The IRS responded that it intended to deny the application because the IRS did not consider providing at-cost services to unaffiliated organizations to be charitable. AHW disagreed with the IRS’s conclusion. AHW agreed to forego activities pursuant to the secondary purpose, and the IRS, explicitly citing AHW’s agreement not to provide at-cost services to unaffiliated organizations, granted a determination letter that AHW was eligible for tax-exempt status. Despite the eligibility letter, AHW then petitioned the United States Tax Court for a declaratory judgment that the IRS was incorrect that AHW’s provision of services at cost would render AHW ineligible for tax-exempt status under § 501.