Free Fertility Foundation v. Commissioner

William Naylor, a software engineer, contracted with a sperm bank to store and distribute his donated sperm. Naylor also formed a nonprofit corporation called the Free Fertility Foundation (foundation) (plaintiff) with the stated purpose of providing sperm at no cost to women who wished to become pregnant through artificial insemination or in vitro fertilization. According to the foundation’s website, Naylor was the foundation’s sole sperm donor. The website featured an extensive profile of Naylor, including photographs, health information, family history, and educational and professional accomplishments. Naylor also included a statement on the website about the satisfaction he derived from helping people who otherwise would not be able to have children, thereby making the world a better place. Women seeking a sperm donation from the foundation were required to complete a questionnaire that included inquiries about their familial background, living environment, age, education, and personal achievements. Naylor scored the questionnaires by hand and used a computer program to determine a ranking by which available vials of sperm were distributed. Preference was given to women who were well educated, had no record of divorce or domestic violence, and were from families whose members contributed to their communities. In 2004, the foundation received 433 applications and distributed sperm to 20 women. In 2005, the foundation received 386 applications and distributed sperm to four women. The foundation applied for exemption from federal income taxation pursuant to § 501(c)(3) of the Internal Revenue Code. The commissioner of internal revenue (commissioner) (defendant) denied application, and the foundation sought a declaratory judgment that it was entitled to the tax exemption.