Jury Allows Hospital to Retain Tax-Exempt Status

By Elizabeth Schwinn

A nonprofit hospital may retain its tax-exempt status despite its partnership with a for-profit hospital company, a jury has ruled.

St. David’s Health Care System, in Austin, Tex., may retain its nonprofit status even though half of the directors on its governing board were appointed by its for-profit partner, HCA, said the jury that heard the case in the U.S. District Court for the Western District of Texas.

The decision is the third round in the battle between the Internal Revenue Service and St. David’s. In 2002, the District Court approved the hospital’s joint venture, but a federal appeals court last year overturned the decision and sent the case back to the district court for another look.

The federal appeals court ruled that, to retain its tax exemption, St. David’s must do more than it had the first time around to demonstrate that it retains control of the joint venture with a for-profit partner.

After considering the latest round of arguments from both sides, the jury decided that the arrangement was acceptable.

The IRS has not yet decided whether to appeal the decision (St. David’s Health Care System v. United States of America, No. 101CV-046).