June 27, 2002 | Read Time: 1 minute
A nonprofit hospital will not lose its tax exemption as a result of a partnership with a for-profit hospital chain, a district court 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, the U.S. District Court for the Western District of Texas has ruled.
The ruling appears to contradict guidelines the IRS issued in 1998 that included an example of a nonprofit-corporate hospital joint venture in which the company appointed half of the partners as board members. In the example, the nonprofit organization lost its tax-exempt status, partly as a result of those appointments.
However, in its ruling, the district court said that a nonprofit majority on a board is not necessarily required for the nonprofit partner to retain its tax exemption. St. David’s partnership agreement with Columbia provided “exceptional protections” against the hospital being operated for private interests, it said. Among those protections: a provision that the chairman of the board be appointed by St. David’s.
The IRS has not yet decided whether to appeal the decision (St. David’s Health Care System v. United States of America, Civil A-01-CA-046 JN).
