American Medical Association v. United States

The American Medical Association (AMA) (plaintiff) was a tax-exempt organization under § 501(c)(6) of the Internal Revenue Code (code). The AMA published two periodicals, the Journal of the American Medical Association and American Medical News (periodicals), which the AMA sent to all its dues-paying members for no additional fees. The periodicals contained editorial content consistent with the AMA’s tax-exempt purpose. The AMA also sold advertising space in the periodicals. As part of its ad-sales business, the AMA sent complimentary copies of the periodicals (so-called controlled circulation) to select demographics of physicians—regardless of whether those physicians were AMA members—that advertisers sought to target. The AMA’s sole purpose of this controlled circulation was to increase advertising revenue. The AMA’s editorial efforts contributed to its ad-sales efforts. Recipients included in the controlled circulation would be more likely to read the periodicals—and thus more likely to see advertising—if the periodicals contained high-quality articles. The AMA conceded that its advertising business was unrelated to its tax-exempt purpose and that the business gave rise to some degree of unrelated business taxable income (UBTI). The AMA nonetheless sought to claim as deductions against that UBTI its costs in producing the periodicals’ editorial content. The AMA sought a refund from the Internal Revenue Service (IRS) based on the above argument, which the IRS rejected. The AMA then sued the government (defendant) for the refund. The district court ruled in favor of the AMA, and the government appealed.