St. David's Health Care System v. United States
United States Court of Appeals for the Fifth Circuit
349 F.3d 232 (2003)
St. David's Health Care System (plaintiff), a tax-exempt charitable organization, faced financial difficulty and formed a partnership with for-profit HCA Healthcare Corporation, contributing all its facilities while HCA contributed its own Austin-area hospitals; an HCA subsidiary ran day-to-day operations. After an audit, the IRS concluded the partnership meant St. David's no longer qualified as tax-exempt and ordered it to pay taxes, which it paid under protest before suing to recover them. The trial court ordered a refund, and the government (defendant) appealed, arguing St. David's had ceded control to HCA; St. David's argued it still furthered its charitable purpose.
Whether a tax-exempt nonprofit forfeits its exemption when it cedes effective control over its operations to a for-profit entity, even while continuing charitable activities.