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Harding Hospital, Inc. v. United States

United States Court of Appeals for the Sixth Circuit
505 F.2d 1068 (1974)


Harding Hospital, Inc. (Harding) (plaintiff) was a teaching hospital that used a specialized therapy style to treat psychiatric patients. Originally a for-profit hospital, Harding later amended its articles of incorporation to become a tax-exempt nonprofit organization. Harding contracted with Harding-Evans Medical Associates, Inc. (HEMA), a group of seven specific doctors, to treat 90 to 95 percent of Harding’s patients. HEMA received payment for treating those patients. After converting to a nonprofit, Harding also paid HEMA an annual amount to provide supervision and other services to the hospital, including teaching residents and providing free or reduced-rate care to Harding’s indigent patients. HEMA paid Harding a monthly fee to rent equipment and office space. Although the fee amount went up and down, HEMA paid Harding an amount well below market value for these rentals for several years. The federal government (defendant) determined that Harding did not qualify for a nonprofit tax exemption, and Harding was forced to pay taxes. Harding sued to recover the taxes, but the district court ruled that Harding did not qualify for a nonprofit tax exemption. Harding appealed.

Rule of Law


Holding and Reasoning (Phillips, C.J.)

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