August 27, 1998 | Read Time: 1 minute
The U.S. Tax Court has ruled that the Internal Revenue Service properly pulled the tax-exemption of a Florida charity. The reason: The Anclote Psychiatric Center sold its hospital in 1983 for less than the facility’s fair market value to a company owned by the charity’s board members. The deal, the court said, allowed trustees — as charity insiders — to reap improper financial gains from the organization’s earnings.
Board members of the Anclote Psychiatric Center decided to sell the hospital when they were looking for ways to generate money to expand the facility and to promote the center’s research and educational goals. The center’s board members decided to sell the hospital to themselves in part because there was a “limited market” of potential buyers and in part because they wanted to be sure that the charity would have access to the hospital following a sale.
The psychiatric center hired an appraiser and sold the hospital to a company formed by the board members for a purchase price of $4.5-million plus assumed liabilities. In 1991, the I.R.S. revoked Anclote’s charity status retroactive to its 1983 fiscal year, saying that board members had improperly gained from the deal and that the charity had engaged in “minimal” research and education programs that were “poorly documented.”
In its opinion, the Tax Court backed the I.R.S., ruling that the hospital was sold for almost $1.2-million less than it was worth, a figure that was “outside the upper limit of any reasonable range of fair market values.” (Anclote Psychiatric Center v. Commissioner of Internal Revenue, T.C. Memo, 1998-273.)
