July 29, 1999 | Read Time: 1 minute
In a major victory for the Internal Revenue Service, the U.S. Tax Court has ruled that the agency was right to deny charity status to a California organization that runs a surgery center with for-profit partners.
Redlands Surgical Services is not operated exclusively for charitable purposes because it has “ceded effective control” of the surgery center’s activities to the for-profit interests, the Tax Court said, “conferring on them significant private benefits.”
The court based its ruling on several factors, including its finding that the partnership agreement does not establish “any obligation that charitable purposes be put ahead of economic objectives in the surgery center’s operations.”
The ruling — Redlands Surgical Services v. Commissioner of Internal Revenue, 113 T.C. No. 3 — provides support for the I.R.S.’s position, expressed in a ruling last year, that health-care charities in joint ventures with companies must not cede too much control (The Chronicle, March 26, 1998).
The full text of the ruling is available at http://www.ustaxcourt.gov/Taxcourt.htm.
