United States v. American College of Physicians

The American College of Physicians (the college) (plaintiff) was a nonprofit, tax-exempt organization. The college’s purpose was to educate the medical profession in order to maintain high standards. The college published a professional journal entitled The Annals of Internal Medicine. The college sold advertising space in the journal but only accepted medical advertisements. Specifically, the college strived for advertisements that educated its readers, for example publishing advertisements for new drugs to keep its readers current on recent developments. However, some advertisements were for older, already established drugs, and some advertisements stayed in the journal for multiple months. In 1975, the college earned net income of $153,388 from the advertising. The college paid taxes on that income but then applied for a refund from the Internal Revenue Service (IRS) (defendant) on the ground that the income was substantially related to the college’s exempt purposes. The IRS denied the application, and the college appealed the decision in the United States Claims Court. The claims court held that the advertisements were not sufficiently related to the college’s exempt purposes and ordered the college to pay taxes on the advertising revenues. The United States Court of Appeals for the Federal Circuit reversed. The United States Supreme Court granted certiorari.