IHC Health Plans, Inc. v. Commissioner of Internal Revenue

IHC Health Plans, Inc. v. Commissioner of Internal Revenue,
Nos. 01-9013, 01-9014, 01-9015 (10th Cir. Apr. 9, 2003)

The U.S. Court of Appeals for the 10th Circuit denied the request of a health
plan to obtain tax-exempt status on the basis of its relationship to a large
non-profit healthcare corporation. The corporation maintained governance power
over the health plan, had the authority to appoint its board of trustees and
conducted the health plan’s strategic planning and business plans. The tax court
had denied the health plan’s request after concluding that the plan did not
operate exclusively for exempt purposes under section 501(c)(3), and alternatively,
that it did not qualify for exemption under section 501(m)(1) because a substantial
part of the organization’s activities consisted of providing commercial-type
insurance. The Court of Appeals determined that, while the health plan did further
a charitable purpose in its promotion of health, its sole activity – arranging
for health care services in exchange for a fee — did not establish that the
plan operated "primarily to benefit the community," which is a necessary
element in obtaining tax exemption. The court also denied the plan’s request
for exemption based on its functioning as an "integral part" of the
parent corporation, finding that the required nexus between the plan and the
corporation (that the subsidiary plan function solely to further the parent
corporation’s performance of exempt activities) was lacking because a substantial
portion of the plan’s enrollees received physician services from physicians
not connected with the parent corporation.