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does not advance education within the meaning of
section 1.501(c)(3)-1(d)(1) of the Income Tax
Regulations. You also do not qualify under section
501(e) of the Code because you are not operating on a
cooperative basis.
Discussion
I. In General
Section 501(a) provides an exemption from Federal income tax
for organizations described in section 501(c). Section 501(c)
sets forth a list of exempt organizations. The list includes
organizations “organized and operated exclusively for * * *
charitable * * * or educational purposes”. Sec. 501(c)(3).
Section 501(e), entitled “Cooperative Hospital Service
Organizations”, provides that an organization will be treated as
meeting the requirements of section 501(c)(3) if the organization
is: (1) Organized and operated exclusively to provide listed
services solely to two or more hospitals meeting certain
requirements; (2) organized on a cooperative basis and paying net
earnings to members within a specified time period; and (3)
wholly owned by the members if the organization has capital
stock. Sec. 501(e).
Petitioners contend that they are charitable and educational
organizations within the meaning of section 501(c)(3).
Respondent counters that petitioners are neither charitable nor
educational organizations and that they are operated for a
substantial nonexempt purpose. Respondent further argues that
petitioners do not fit within section 501(e), and that, pursuant
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