University Medical Resident Services, P.C. - Page 15

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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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