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United Cancer Council, Inc. v. Commissioner

United States Court of Appeals for the Seventh Circuit
165 F.3d 1173 (1999)

Written by Sean Carroll, JD

Facts

The United Cancer Council, Inc. (UCC) (plaintiff) was a charity formed for the purpose of raising money for preventing cancer. About to go bankrupt, the UCC entered into an exclusive fundraising agreement with Watson & Hughey Company (W&H). W&H provided initial money for a fundraising campaign—essentially a loan to the UCC that the charity would pay back when it was able. Under the contract, W&H was granted coownership of the UCC’s donor list. Over the five-year contract, approximately 90 percent of the UCC’s revenue was paid to W&H for W&H’s fundraising efforts. At the end of the contract, W&H chose not to renew but rather to focus its fundraising efforts elsewhere. The Internal Revenue Service (IRS) (defendant) revoked the UCC’s status as a charity on the ground that a part of the UCC’s revenue improperly inured to the benefit of W&H. The UCC appealed the IRS’s decision in federal court. The tax court upheld the IRS’s decision, based largely on its determination that the contract between the UCC and W&H was overly favorable to W&H. The UCC appealed.

Rule of Law

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Holding and Reasoning (Posner, C.J.)

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