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We interpret the phrase "State action" in the second
sentence of the above excerpt to refer to the intent of the first
sentence that adults must have been "placed by" a State agency
specifically designated as responsible for that function.
Our interpretation is further reinforced by referring to
section 131(b)(2). A qualified foster individual is not only one
placed by "an agency of a State or political subdivision thereof"
but may be one also placed by:
(B) in the case of an individual who has not
attained age 19, an organization which is licensed by a
State (or political subdivision thereof) as a placement
agency and which is described in section 501(c)(3) and
exempt from tax under section 501(a). [Sec.
131(b)(2)(B).]
If Congress had intended the phrase "[placed by] an agency of a
State or political subdivision thereof" contained in section
131(b)(2)(A) to include section 501(c)(3) entities such as
ElderPlace, it could have used language similar to that used in
section 131(b)(2)(B).
Petitioners counter with the argument that section
131(b)(2)(B) operates to exclude section 501(c)(3) organizations
from the benefit of section 131 where "there is no state
involvement"; that is, where the section 501(c)(3) organization
does not receive State funds. While we are not sure how this
bolsters their position, we note that the Court has already
observed that petitioners' interpretation of section 131(b)(2)(B)
is unsupported. See Cato v. Commissioner, 99 T.C. 633, 643
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