Ihc Health Plans, Inc. v. Commissioner Of Internal Revenue

325 F.3d 1188 (2003)

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Nature of the Case

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Facts

Intermountain Health Care, Inc. (IHC) was formed in 1970 as a Utah nonprofit Corporation. IHC assumed ownership and control of fifteen hospitals previously owned by the LDS Church. The Internal Revenue Service recognized it as a charitable, tax-exempt organization. In order to further integrate its provision of healthcare services, IHC formed IHC Health Services, Inc. and IHC transferred its assets to Health Services. IHC became the parent company to Health Services. IHC is Health Services' sole corporate member and the board of trustees of IHC and Health Services is comprised of the same individuals. Health Services operated twenty-two hospitals and participated in the Medicare and Medicaid programs for inpatient and outpatient hospital services. The Commissioner has recognized Health Services as a tax-exempt organization under section 501(c)(3). IHC then formed three separate entities called P, IHC Care, and IHC Group to operate as HMOs. IHC's board controlled all of them. IHC, Health Services, and P shared many of the same corporate officers. Ps furnished group insurance entitling enrollees to the services of participating hospitals and physicians. All enrollees paid a premium, that was calculated by an “adjusted community rating” for individuals and small-group employers. It was based on “past claims experience” for large-group employers. P was recognized as a tax-exempt organization under 26 U.S.C.S. § 501(c)(3) in 1985. In 1999, D revoked the tax-exemption for P and denied tax-exemption to Care and Group in a final adverse determination letter by D 1999. D concluded that neither P, Care, nor Group operated exclusively for exempt purposes under Section 501(c)(3). D stated that P and Care were not entitled to tax-exemption status under Section 501(m)(1) which precludes tax-exempt status where a “substantial part of an organization’s activities consists of providing commercial-type insurance.” P brought a suit in the United States Tax Court seeking declaratory judgment reversing D’s adverse determinations. The Tax Court affirmed D’s conclusions and decision. P appealed.