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providing benefits is passed on to the Schools and hospitals and
is the cost that would be incurred if the Schools and hospitals
payed the residents themselves. Further, the administrative
costs of these activities are not assumed by petitioners because
the work is performed by employees of the Schools.
Petitioners argue that Rev. Rul. 85-2, 1985-1 C.B. 178,
supports their contention that they should qualify as exempt
organizations. We disagree. In that revenue ruling, the rules
of a local court required the appointment of guardians ad litem
to represent children in cases involving abuse. An organization
was formed to train volunteer guardians who ultimately replaced
court-hired attorneys. The organization was not fully funded by
the court. Thus, the organization lessened the burdens of
Government. In the present case, petitioners are funded in full
by the Schools and hospitals. Petitioners do not contribute any
funds toward the education of residents. Consequently, the
revenue ruling is not applicable.
III. Qualification as “Educational” under Section 501(c)(3)
Petitioners' final argument is that they qualify as
“educational” organizations. Generally, the term "educational"
as used in section 501(c)(3) relates to (1) the instruction or
training of an individual for the purpose of improving or
developing his capabilities or (2) the instruction of the public
on subjects useful to an individual and beneficial to the
community. Sec. 1.501(c)(3)-1(d)(3), Income Tax Regs.
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