Federation Pharmacy Services, Inc. v. Commissioner

625 F.2d 804, affirming 72 TC 687 (1980)

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Federation Pharmacy Services, Inc. v. Commissioner

United States Court of Appeals for the Eighth Circuit
625 F.2d 804, affirming 72 TC 687 (1980)

Facts

Metropolitan Senior Federation (Metropolitan) was an organization that advocated for the interests of senior citizens. Metropolitan had a contract with a commercial pharmacy to provide prescription drugs to senior citizens at a discount relative to local retail prices. When the commercial pharmacy went out of business, Metropolitan organized Federation Pharmacy Services, Inc. (Federation) (plaintiff) to acquire the pharmacy’s assets and continue offering a discount-drug program. Federation sold its members drugs at a discount of 5 percent off the lowest local retail price. Federation members did not have to show financial need, and Federation made no special provisions to offer any drugs below cost, even to indigent seniors. Federation did not solicit financial contributions; its primary source of income was its revenue from drug sales. Federation applied for exemption from tax under § 501 of the Internal Revenue Code (code). The Internal Revenue Service (IRS) (defendant) denied tax-exempt status to Federation. Federation petitioned to the United States Tax Court to review the IRS’s determination. The tax court also ruled Federation ineligible for exemption from income tax. Federation appealed the judgment to the court of appeals.

Rule of Law

Issue

Holding and Reasoning (Roy, J.)

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Federal Income Tax

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