IHC Care, Inc. v. Commissioner

82 T.C.M. 617 (2001)

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IHC Care, Inc. v. Commissioner

United States Tax Court
82 T.C.M. 617 (2001)

Facts

IHC Care, Inc. (IHC) (plaintiff) operated health-maintenance organizations (HMOs). IHC sold its services to employers with more than 100 employees and set premiums based on an adjusted community-rating system but did not have a program to subsidize premiums for low-income individuals. One of IHC’s affiliates, IHC Health Services, Inc. (Health Services), was a § 501(c)(3) organization that operated 23 hospitals and employed hundreds of physicians. Health Services provided a significant volume of charity services to indigent patients. IHC contracted with physicians and hospitals to provide services to its enrollees. Some of those physicians and hospitals were affiliated with Health Services; others were independent. IHC’s enrollees received nearly 80 percent of their physician services from physicians who had no direct link to Health Services. The services IHC’s enrollees received from independent hospitals either were specialty care not available through Health Services or were provided in a location Health Services did not serve. The commissioner of internal revenue (commissioner) (defendant) denied IHC’s application for tax-exempt status under § 501(c)(3) of the Internal Revenue Code on the ground that IHC was not operated exclusively for an exempt purpose. IHC sought a declaratory judgment to the effect that it was entitled to the exemption.

Rule of Law

Issue

Holding and Reasoning (Wells, C.J.)

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