July 30, 1998 | Read Time: 2 minutes
An organization that runs more than two dozen rural hospitals in Kansas and Nebraska has asked a federal court to reverse the I.R.S.’s decision to revoke its tax exemption.
Great Plains Health Alliance of Phillipsburg, Kan., operates small hospitals, most of which are owned by local governments, through lease and management agreements.
The I.R.S. granted charity status to the health alliance in 1956 and reaffirmed that status in 1984 after the organization merged with another group. However, the service changed its view of the group during a recent audit of Great Plains.
In its ruling, the I.R.S. noted that the organization’s workers are hospital administrators and financial and accounting employees. Great Plains does not employ medical personnel in its own name but in the name of each hospital with which it has a contract.
The revenue service said that the health alliance’s lease agreement does not authorize it to be responsible for and have control over all operational and financial aspects of the hospital. “Providing management and ancillary services to an unrelated hospital is not in itself a charitable purpose,” the I.R.S. said. Even though the organization’s services “do indirectly promote health in the various hospitals, that fact is not sufficient to demonstrate that [its] operations and purposes are exclusively charitable.”
In fact, the revenue service said that the group’s “overall activities are scarcely distinguishable from similar activities of an ordinary commercial enterprise.”
After rejecting other ways that Great Plains might continue to qualify as a charity, the I.R.S. concluded that it should pull the group’s exemption (Technical Advice Memorandum 9822004).
In its lawsuit, filed in U.S. Tax Court, Great Plains Health Alliance argued that it has long promoted health care and is a hospital that deserves charity status. For 40 years the group “has devoted itself to promoting health care in rural settings, providing essential services to facilities and in communities which would otherwise find such services unavailable,” the organization said.
Its “involvement in rural health care antedates by decades the time when government regarded the management of hospitals as a business engaged in for profit,” said Great Plains. “The law of charity is not so destitute that it embraces only particular hallowed endeavors recited on some I.R.S. laundry list: like the common law, it remains attuned to the changing needs of people.”
The health alliance said that its operations have changed little over the years, adding: “The Internal Revenue Service perception of what is charitable has changed.”
