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2. Whether Petitioner Satisfies The Integral Part Test
In Geisinger III, we concluded that an organization may
qualify for exemption as an integral part of a tax-exempt
affiliate if: (1) The organization’s activities are carried out
under the supervision or control of a tax-exempt affiliate, and
(2) such activities would not constitute an unrelated trade or
business if conducted by a related tax-exempt entity. Geisinger
Health Plans v. Commissioner, 100 T.C. at 402-405. There is no
dispute that petitioner’s activities were carried out under the
supervision and control of IHC-–a tax-exempt affiliate. Thus, we
turn to the question whether petitioner’s activities would
constitute an unrelated trade or business if conducted by a
related tax-exempt entity.
In Geisinger III, we held that, because Geisinger HMO
enrollees received some hospital services from independent
hospitals, Geisinger HMO had to show that its overall operations
were substantially related to the functions of its tax-exempt
affiliates. Id. at 405. We stated:
If petitioner’s activities are “conducted on a scale
larger than is ‘reasonably necessary’” to accomplish
the purposes of the exempt entities, there is no
substantial relationship within the meaning of the
regulations. Hi-Plains Hospital v. United States, 670
F.2d at 530-531; sec. 1.513-1(d)(3), Income Tax Regs.
[Id. at 406.]
Although Geisinger HMO enrollees received all of their
physician services through Clinic, an exempt affiliate, Geisinger
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