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respondent quotes Founding Church of Scientology v. United
States, 188 Ct. Cl. 490, 412 F.2d 1197 (1969), which states:
“That the benefit conveyed may be relatively small does not
change the basic fact of inurement.” Id. at 497, 412 F.2d at
1200. This quotation, however, is taken out of context. The
same case concludes that an organization may “incur ordinary and
necessary expenditures in the course of its operations without
losing its tax-exempt status.” Id. at 496, 412 F.2d at 1200.
We conclude that petitioner's payment of below-market rent
constitutes an “ordinary and necessary” expenditure and does not
confer an impermissible private benefit on the University.
B. Petitioner’s Payment of Employees’ Salaries
Respondent states that petitioner has retained the same
museum employees that the University had employed. Because the
burden of paying the employees’ salaries has shifted from the
University to petitioner, respondent maintains, the University is
receiving a private benefit.
We reject respondent's argument. Petitioner is an
independent organization that conducts its own operations.
Petitioner pays its employees to perform services for the museum.
Although petitioner's employees previously worked for the
University, they do not currently provide any services to the
University in exchange for their salaries. Therefore, we
conclude that petitioner's payment of its employees' salaries
does not confer a private benefit on the University.
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Last modified: May 25, 2011