University Medical Resident Services, P.C. - Page 11

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          to the Supreme Court's decision in HCSC-Laundry v. United States,             
          450 U.S. 1 (1981), petitioners cannot qualify under section                   
               As a preliminary matter, we note that, in this case, section             
          501(e) does not preclude an analysis under section 501(c)(3).  In             
          HCSC-Laundry v. United States, supra, the Supreme Court held that             
          section 501(e) is the exclusive provision for hospital                        
          cooperatives to qualify under section 501(c)(3) and that a                    
          hospital cooperative that does not satisfy section 501(e) cannot              
          qualify independently under section 501(c)(3).  To qualify as a               
          hospital cooperative under section 501(e), the organization must              
          provide services “solely for two or more hospitals”.  Petitioners             
          serve schools in addition to hospitals.  Thus, they are not                   
          hospital cooperatives, and section 501(e) does not preclude                   
          petitioners from qualifying under section 501(c)(3).                          
               To qualify under section 501(c)(3), petitioners must                     
          establish that they are both “organized and operated” exclusively             
          for exempt purposes.  Sec. 1.501(c)(3)-1(a)(1), Income Tax Regs.              
          Respondent concedes that petitioners are organized exclusively                
          for exempt purposes but argues that petitioners are not operated              
          exclusively for such purposes.  An organization will be regarded              
          as operated exclusively for exempt purposes only if it engages                
          primarily in activities that accomplish one or more exempt                    
          purposes listed in section 501(c)(3).  Sec. 1.501(c)(3)-1(c)(1),              
          Income Tax Regs.  Whether an organization is operated exclusively             

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