Redlands Surgical Services v. Commissioner of Internal Revenue
United States Tax Court
113 T.C. 47 (1999)
Redlands Surgical Services (RSS, plaintiff), a nonprofit tied to a tax-exempt hospital system, partnered with a for-profit company's subsidiary to form a General Partnership, which itself partnered with another entity to create an Operating Partnership running a surgical center; RSS applied to the IRS (defendant) for tax-exempt status, but the IRS denied the application, characterizing RSS's role as essentially investing in a for-profit entity and funneling profits to its nonprofit parent rather than genuinely operating for a charitable purpose.
Whether a health care entity will receive tax-exempt status if it has a charitable purpose, provides health care services to a sufficiently large section of the community, and meets a flexible community benefit standard based on a variety of factors, including whether it provides free care to indigents.