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as exempt under section 501(c)(3); and Redlands Health Services,
a for-profit corporation.
As described in more detail below, and as reflected
schematically in the appendix hereto, in 1990 RHS became co-
general partner with a for-profit corporation, Redlands-SCA
Surgery Centers, Inc. (SCA Centers), in a general partnership
formed to acquire a 61-percent interest in an existing outpatient
surgical center in Redlands, California, two blocks from the
Redlands Hospital facility. This general partnership in turn
became sole general partner in the California limited partnership
that owns and operates the surgical center. Under a long-term
management contract, SCA Management Co. (SCA Management)--a for-
profit affiliate of SCA Centers--manages the day-to-day
operations of the surgical center, in return for a percentage of
gross revenues. Several months after forming the general
partnership, RHS formed petitioner to succeed to its interest in
it.
Petitioner has no activity other than its involvement with
the partnerships. The question is whether petitioner is operated
exclusively for exempt purposes within the meaning of section
501(c)(3). We hold that it is not.
Redlands Hospital
Since its founding in 1929, Redlands Hospital has been
recognized by respondent as a charitable organization described
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