St. David's Retains Tax-Exempt Status

Author:Mr Todd Greenwalt
Profession:Vinson & Elkins L.L.P.

In a verdict reached March 4, 2004, a jury in the United States District Court for the Western District of Texas held that St. David's Healthcare System continues to qualify as a tax-exempt organization under section 501(c)(3) of the Internal Revenue Code. The jury verdict followed last November's remand of the case by the United States Fifth Circuit Court of Appeals, in which the Fifth Circuit overturned the District Court's summary judgment in favor of St. David's and instructed the trial court to focus on whether St. David's had relinquished control over its operations to such an extent that it no longer engaged primarily in charitable activities. The current controversy began when the IRS issued a notice revoking St. David's tax-exempt status for 1996 and subsequent years based on St. David's participation in a joint venture with affiliates of HCA Inc. into which St. David's had contributed substantially all of its hospital operating assets. Although the jury verdict does not present the insight set forth in a written opinion, the verdict validates St. David's contention that its 50/50 joint venture with HCA Inc. affiliates does not adversely affect its ability to pursue charitable purposes.

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