Paratransit Insurance Corp. v. Commissioner
United States Tax Court
102 T.C. 745 (1994)
- Written by Daniel Clark, JD
Facts
The California Department of Transportation, in response to disruptions in the automobile-insurance sector, recommended the formation of Paratransit Insurance Corporation (Paratransit) (plaintiff). Paratransit was a mutual-benefit, automobile-insurance company that limited its membership to organizations that provided automobile transportation to needy people and that qualified for exemption from federal income tax under § 501(c)(3) of the Internal Revenue Code (code). Members paid a fixed fee for every insured vehicle, and premiums were calculated according to actuarial risk. The pooled fees and premiums were used to cover members’ claims, and Paratransit was able to cover all its operational expenses with these funds. Paratransit’s premium rates were generally somewhere between 20 and 80 percent lower than the rates its members would have had to pay for coverage from a regular commercial insurer. Paratransit applied for exemption from federal income tax under § 501(c)(3). The Internal Revenue Service (IRS) (defendant) denied Paratransit tax-exempt status, and Paratransit filed a petition with the United States Tax Court.
Rule of Law
Issue
Holding and Reasoning (Raum, J.)
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