Individuals and Passthrough Entities - Fifth Circuit's Opinion in St. David's Raises More Questions than it Answers

Abstract

On November 7, 2003, the United States Court of Appeals for the Fifth Circuit published its opinion in St. David's Health Care System, Inc., reversing a grant of summary judgment in favor of the plaintiff, a nonprofit hospital, by the District Court for the Western District of Texas. The issue in St. David's concerned whether the IRS had abused its discretion in revoking the tax-exempt status of the nonprofit hospital when it entered into a limited partnership with a for-profit hospital. This article discusses the opinions of both the district court and the Fifth Circuit in St. David's and the standards that the Fifth Circuit set forth for purposes of determining whether forming a partnership or other entity classified as a partnership with a for-profit organization will cause a nonprofit organization to lose its tax-exempt status.