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the activities of the Surgery Center has been sufficient to
further its charitable goals. Petitioner further contends that
it qualifies for exemption because it is organized and operated
to perform services that are integral to the exempt purposes of
RHS, its tax-exempt parent, and Redlands Hospital, its tax-exempt
affiliate.
II. Applicable Legal Principles
A. Operational Test
To qualify for exemption from Federal income tax, an
organization must be “organized and operated exclusively for
* * * charitable * * * purposes”. Sec. 501(c)(3); see Church of
Scientology v. Commissioner, 823 F.2d 1310, 1315 (9th Cir. 1987),
affg. 83 T.C. 381 (1984).
The applicable regulations provide as follows:
(c) Operational test--(1) Primary activities. An
organization will be regarded as “operated exclusively” for
one or more exempt purposes only if it engages primarily in
activities which accomplish one or more of such exempt
purposes specified in section 501(c)(3). An organization
will not be so regarded if more than an insubstantial part
of its activities is not in furtherance of an exempt
purpose. [Sec. 1.501(c)(3)-1(c)(1), Income Tax Regs.]
The operational test focuses on the actual purposes the
organization advances by means of its activities, rather than on
the organization's statement of purpose or the nature of its
activities. See American Campaign Academy v. Commissioner, 92
T.C. 1053, 1064 (1989); Goldsboro Art League, Inc. v.
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