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some or all of the board members, and the tax effects of such a
transaction on petitioner's tax-exempt status. It became clear
to Mr. O'Donnell that the board did not want to relinquish
control of the hospital and that petitioner needed access to the
hospital in order to conduct research; these factors limited the
options and effectively prevented selling to a third party. Mr.
O'Donnell advised the board on the choice of purchasing entity
(e.g., partnership or S corporation) and the associated liability
and tax implications for the purchasers.
On November 30, 1981, Mr. O'Donnell, on behalf of
petitioner, requested a private letter ruling (PLR) from the
Internal Revenue Service (IRS) as to the income tax consequences
of a sale of the hospital to a private entity (the request),
namely: (1) Whether petitioner would retain its charitable
qualification under section 501(c)(3); (2) whether any unrelated
business income would result; and (3) whether the proposed
transaction was prohibited by any Code provision, rule, or
regulation. Under "Statement of Facts", the request states:
7. Because of the highly specialized nature of the
hospital's facilities there is a very limited market
for its sale. Further, the risks and uncertainties
related to the operation of the hospital are best
understood and therefore subject to evaluation by the
Board of Directors of APC [petitioner]. For these
reasons, APC has decided to sell the hospital at its
appraised value, to its Board of Directors, or an
entity which they propose to form, probably a limited
partnership.
Under "Description of Proposed Transaction", the request states:
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