University Medical Resident Services, P.C. - Page 10

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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.                                                       
          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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