IRS'S DENIAL OF TAX-EXEMPT STATUS TO IHC HEALTH PLANS AFFIRMED.

Teresa E. McLaughlin, Attorney, Tax Division, Department of Justice (Eileen J. O'Connor, Assistant Attorney General, and Gary R. Allen, Attorney, Tax Division, Department of Justice, with her on the brief), Washington, DC, appearing for the Appellee.

Before TACHA, Chief Circuit Judge, HOLLOWAY, and EBEL, Circuit Judges.

TACHA, Chief Circuit Judge.

A. The IHC Integrated Delivery System

1. The formation of IHC

[2] In 1970, the Church of Jesus Christ of Latter Day Saints ("LDS Church") formed Health Services Corporation, later renamed Intermountain Health Care, Inc. ("IHC"), as a Utah nonprofit corporation. IHC assumed ownership and control of fifteen hospitals previously owned by the LDS Church. In 1975, the LDS Church transferred control of IHC to an independent board of trustees, comprised of persons representative of the community. The Internal Revenue Service ("IRS") has consistently recognized IHC as a charitable, tax-exempt organization.

1. The formation of Health Services

[3] As part of its plan to streamline and integrate its provision of health-care services, IHC formed IHC Health Services, Inc. ("Health Services") in 1982 as a Utah nonprofit corporation. In 1983, IHC transferred its hospitals and substantially all the assets necessary to its operation to Health Services. IHC then ceased operating hospitals directly and assumed the role of a parent company, with Health Services as IHC's principal health-care services organization. IHC is Health Services' sole corporate member and the board of trustees of IHC and Health Services are comprised of the same individuals.

[4] At the end of 1999, Health Services operated twenty-two hospitals located in Utah and Idaho, employing approximately 300 primary care physicians and 100 specialist physicians in its Physician Division; it separately employed approximately 120 physicians in its Hospital Division. All Health Services hospitals participated in the Medicare and Medicaid programs for inpatient and outpatient hospital services. Between 1997 and 1999, Health Services provided nearly $1.2 billion in health-care services, without reimbursement, to patients covered by Medicare, Medicaid, and other governmental programs. During that same period, Health Services furnished more than $91 million in free health-care services to indigent patients.

[5] The Commissioner has recognized Health Services as a tax- exempt organization under section 501(c)(3).

1. Health Plans, Care, and Group

[6] In order to further integrate its provision of health-care services, IHC formed Health Plans, Care, and Group to operate as health maintenance organizations ("HMOs") within the IHC Integrated Delivery System. A detailed description of each organization is set forth in Sections I(B)-(D), infra.

1. IHC's role as parent company

[7] IHC's board of trustees maintained governance power and control over Health Plans, Care, and Group. In particular, IHC had the authority, directly and indirectly, to elect petitioners' boards of trustees. IHC, Health Services, and petitioners shared many of the same corporate officers.³ IHC conducted petitioners' strategic planning, established their priorities, and attempted to implement their business plans on an enterprise basis. Also, Health Services provided petitioners with centralized management services, including human resources, legal services, public relations, and treasury functions.⁴

[9] In 1999, the population of Utah was approximately 2,130,000. Health Plans enrolled 416,370 Utahans in its various plans, or approximately twenty percent of Utah's total population. In 1999, approximately 73,503 Utahans were enrolled in a Medicaid managed-care program. Health Plans enrolled 35,902 of these individuals, or approximately fifty percent of Utah's total Medicaid population.

[10] In determining premiums, Health Plans applied an "adjusted community rating" for individuals and small- employer groups, adjusting its rates for risk factors such as age and gender. For large-employer groups, Health Plans used a "past claims experience" method in determining premiums.

[11] In June 1985, the IRS recognized Health Plans as tax exempt under section 501(c)(3). The Commissioner subsequently revoked Health Plans' tax exemption in 1999.

A. Care

[12] In 1985, IHC formed Care to operate as a "direct contract" HMO, offering federally-qualified health plans in conjunction with Health Plans.⁶ Health Plans incorporated Care as a subsidiary because the HMO Act of 1973, 42 U.S.C. § 300e-9, precluded Health Plans from operating a federally-qualified HMO within the same corporate entity in which it operated a state- licensed HMO. Health Plans was Care's sole corporate member, and Care used the same network of health-care providers as Health Plans.

[13] Care only offered its IHC Care health plan to employers with more than 100 employees. Care used an adjusted community rating methodology to determine IHC Care premiums, as required for all federally-qualified HMOs. See 42 C.F.R. § 417.104(a)(3), (b). Between 1996 and 1998, Care also offered IHC Senior Care, a Medicare "risk" health plan it has since discontinued.

[14] On April 28, 1986, Care applied for tax exemption under section 501(c)(3). The Commissioner denied Care's request in a final adverse determination letter on June 16, 1999.

A. Group

[15] In 1991, IHC formed Group to operate as a federally- qualified "group" model HMO. IHC separately incorporated Group because, at the time of Group's formation, the Health Care Financing Administration⁷ prohibited a single corporation from operating two different types of federally-qualified HMOs. Health Plans was Group's sole corporate member.

[16] Group offered its SelectMed health plan exclusively to employers with 100 or more employees. To determine the amount of the premium under the SelectMed plan, Group relied upon an adjusted community rating methodology. Enrollees in the SelectMed plan received a variety of health-care services at no additional charge through Group's "Core Wellness Program." Between 1993 and 1998, Group also offered a Medicare "cost" health plan, IHC Senior Care, which it has since discontinued.

[17] In 1991, Group filed an application for tax exemption under section 501(c)(3). The Commissioner denied Group's request in a final adverse determination letter on June 16, 1999.

[19] Health Plans, Care, and Group brought suit in the United States Tax Court, seeking a declaratory judgment reversing the Commissioner's adverse determinations. On September 25, 2001, the Tax Court affirmed the Commissioner's conclusions in three separate opinions. IHC Health Plans, Inc. v. Commissioner, 82 T.C.M. (CCH) 593 (2001); IHC Group, Inc. v. Commissioner, 82 T.C.M. (CCH) 606 (2001); IHC Care, Inc. v. Commissioner, 82 T.C.M. (CCH) 617 (2001).⁸ This appeal followed.

B.

[20] We review Tax Court decisions "in the same manner and to the same extent as decisions of the district courts in civil actions tried without a jury." 26 U.S.C.§ 7482(a)(1). "Thus, we review factual questions for clear error, legal questions de novo, and mixed questions of law and fact either for clear error or de novo, depending on whether the question is primarily factual or legal." Consolidated Mfg. Inc. v. C.I.R., 249 F.3d 1231, 1236 (10th Cir. 2001) (citation omitted). The appropriate legal standard for determining whether an organization operates for a "charitable" purpose is a legal question, which we review de novo. Whether an organization in fact operates exclusively for a charitable purpose, however, is a question of fact, which we review for clear error. Florida Hosp. Trust Fund v. C.I.R., 71 F.3d 808, 810 (11th Cir. 1996); Living Faith, Inc. v. C.I.R., 950 F.2d 365, 371 (7th Cir. 1991). As the taxpayer claiming entitlement to exemption, petitioners bear the burden of proof. Living Faith, 950 F.2d at 370 (citing cases).

C. Overview of Applicable Law

[21] "Our analysis must start from the proposition that exemptions from income tax are a matter of legislative grace." Mutual Aid Ass'n of Church of the Brethren v. United States, 759 F.2d 792, 794 (10th Cir. 1985) (citation omitted). Thus, we must narrowly construe exemptions from taxation. Bingler v. Johnson, 394 U.S. 741, 751-52 (1969) (recognizing the "principle that exemptions from taxation are to be construed narrowly"). In this case, petitioners seek exemption under 26 U.S.C. § 501(c)(3).

[22] Under section 501(c)(3), an organization must meet three requirements in order to qualify for tax exemption: "(1) the corporation must be organized and operated exclusively for exempt purposes; (2) no part of the corporation's net earnings may inure to the benefit of any shareholder or individual;[ ⁹ ] and (3) the corporation must not engage in political campaigns or, to a substantial extent, in lobbying activities."¹⁰Hutchinson Baseball Enters., Inc. v. C.I.R., 696 F.2d 757, 760 (10th Cir. 1982). In this case, the sole question we must consider is whether Health Plans, Care, and Group operated exclusively for exempt purposes within the meaning of section 501(c)(3).

[24] Second, we must determine whether petitioners in fact operated primarily for this purpose. Geisinger Health Plan v. C.I.R., 985 F.2d 1210, 1219 (3d Cir. 1993) (Geisinger I). Under the "operational test" set forth in the IRS regulations, "[a]n 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."¹² 26 C.F.R. §1.501(c)(3)-1(c)(1).

[25] In this case, the Tax Court concluded that "the promotion of health for the benefit of the community is a charitable purpose," Health Plans, 82 T.C.M. at 602, but found that neither Health Plans, Care, nor Group operated primarily to benefit the community. Health Plans, 82 T.C.M. at 605; Care, 82 T.C.M. at 625; Group, 82 T.C.M. at 615. For the reasons set forth below, we agree.

[28] By the last part of the twentieth century, however, with the advent of Medicare and Medicaid and the increased prevalence of private insurance, nonprofit hospitals moved away from this "relief of poverty" function. Colombo, supra, at 218. "The financing of their services evolved in parallel, from primary dependence on the generosity of religious orders and charitable donors, to almost exclusive reliance on payments for services rendered." M. Gregg Bloche, Health Policy Below the Waterline: Medical Care and the Charitable Exemption, 80 MINN. L. REV. 299, 300 (1995).

[29] In 1969, in response to the nonprofit hospital's changing function, the IRS modified its position regarding charity care. In Rev. Rul. 69-545, which modified 56-185, the IRS removed "the requirement[] relating to caring for patients without charge or at rates below cost." In its discussion, the IRS stated:

[30] Finally, in Revenue Ruling 83-157, the IRS amplified its prior ruling in 69-545. The hospital in 83-157 was identical to the hospital in 69-545,¹⁵ except that it did not operate an emergency room open to all regardless of ability to pay. In eschewing any rigid test under section 501(c)(3), the IRS made clear that although "[g]enerally, operation of a full time emergency room providing emergency medical services to all members of the public regardless of their ability to pay for such services is strong evidence that a hospital is operating to benefit the community . . . other significant factors . . . may be considered." Rev. Rul. 83- 157. The IRS went on to conclude that the hospital did in fact operate for the benefit of the community, noting that the hospital treated patients participating in Medicare and Medicaid and applied any surplus funds to improve facilities, equipment, and patient care, and advance its medical training, education, and research.

[31] Thus, under the IRS's interpretation of section 501(c)(3), in the context of health-care providers, we must determine whether the taxpayer operates primarily for the benefit of the community.¹⁶ And while the concept of "community benefit" is somewhat amorphous, we agree with the IRS, the Tax Court, and the Third Circuit that it provides a workable standard for determining tax exemption under section 501(c)(3).

[33] Similarly, the IRS rulings in 69-545 and 83-157 demonstrate that an organization cannot satisfy the community-benefit requirement based solely on the fact that it offers health-care services to all in the community¹⁷ in exchange for a fee.¹⁸ Although providing health-care products or services to all in the community is necessary under those rulings, it is insufficient, standing alone, to qualify for tax exemption under section 501(c)(3). Rather, the organization must provide some additional "plus."

[34] This plus is perhaps best characterized as "a benefit which the society or the community may not itself choose or be able to provide, or which supplements and advances the work of public institutions already supported by tax revenues." Bob Jones Univ., 461 U.S. at 591. Concerning the former, the IRS rulings provide a number of examples: providing free or below-cost services, see Rev. Rul. 56-185; maintaining an emergency room open to all, regardless of ability to pay, see Rev. Rul. 69-545; and devoting surpluses to research, education, and medical training, see Rev. Rul. 83-157. These services fall under the general umbrella of "positive externalities" or "public goods." Bloche, supra, at 312.¹⁹ Concerning the latter, the primary way in which health-care providers advance government-funded endeavors is the servicing of the Medicaid and Medicare populations.

a. Quantifying "community benefit"

[35] Difficulties will inevitably arise in quantifying the required community benefit. The governing statutory language, however, provides some guidance. Under section 501(c)(3), an organization is not entitled to tax exemption unless it operates for a charitable purpose. Thus, the existence of some incidental community benefit is insufficient. Rather, the magnitude of the community benefit conferred must be sufficient to give rise to a strong inference that the organization operates primarily for the purpose of benefitting the community. Geisinger I, 985 F.2d at 1219.

[36] Thus, our inquiry turns "not [on] the nature of the activity, but [on] the purpose accomplished thereby."²⁰Bethel Conservative Mennonite Church v. C.I.R., 746 F.2d 388, 391 (7th Cir. 1984) (emphasis added). Of course, because of the inherent difficulty in determining a corporate entity's subjective purpose, we necessarily rely on objective indicia in conducting our analysis. Geisinger I, 985 F.2d at 1215 (citation omitted). In determining an organization's purpose, we primarily consider the manner in which the entity carries on its activities. Living Faith, 950 F.2d at 372 (citing cases).

a. The resulting test

[37] In summary, under section 501(c)(3), a health-care provider must make its services available to all in the community plus provide additional community or public benefits. The benefit must either further the function of government-funded institutions or provide a service that would not likely be provided within the community but for the subsidy. Further, the additional public benefit conferred must be sufficient to give rise to a strong inference that the public benefit is the primary purpose for which the organization operates. In conducting this inquiry, we consider the totality of the circumstances. Geisinger I, 985 F.2d at 1219. With these principles in mind, we proceed to review the Tax Court's decision in the present case.

a. Free or below-cost products or services

[41] The fact that an activity is normally undertaken by commercial for-profit entities does not necessarily preclude tax exemption, particularly where the entity offers its services at or below-cost. Cf. Bloche, supra, at 311 n.31. But petitioners provide virtually no free or below-cost health-care services.²⁴ All enrollees must pay a premium in order to receive benefits.²⁵ As the Eighth Circuit has recognized, "[a]n organization which does not extend some of its benefits to individuals financially unable to make the required payments [generally] reflects a commercial activity rather than a charitable one." Federation Pharmacy Servs., Inc. v. C.I.R., 625 F.2d 804, 807 (8th Cir. 1980). Further, the fact that petitioners in no way subsidize dues for those who cannot afford subscribership distinguishes this case from the HMOs in Sound Health Ass'n v. C.I.R., 71 T.C. 158 (1979), and Geisinger I, 985 F.2d at 1219.

[42] We acknowledge, as did the Tax Court, that petitioners' "adjusted community rating system[] likely allowed its enrollees to obtain medical care at a lower cost than might otherwise have been available." Care, 82 T.C.M. at 625; Group, 82 T.C.M. at 615. Again, however, selling services at a discount tells us little about the petitioners' purpose. "Many profitmaking organizations sell at a discount." Federation Pharmacy, 72 T.C. at 692, aff'd 625 F.2d 804 (8th Cir. 1980). In considering price as it relates to an organization's purpose, there is a qualitative difference between selling at a discount and selling below cost.²⁶

[43] In sum, petitioners sole activity is arranging for health- care services in exchange for a fee. To elevate the attendant health benefit over the character of the transaction would pervert Congress' intent in providing for charitable tax exemptions under section 501(c)(3). Contrary to petitioners' insinuation, the Tax Court did not accord dispositive weight to the absence of free care. Neither do we. Rather, it is yet another factor that belies petitioners' professions of a charitable purpose.²⁷

a. Research and educational programs

[44] Nothing in the record indicates that petitioners conducted research or offered free educational programs to the public.²⁸ This bolsters our conclusion that petitioners did not operate for the purpose of promoting health for the benefit of the community.

a. The class eligible to benefit

(1) Health Plans

[45] As the Tax Court noted, "[Health Plans] offered its [coverage] to a broad cross-section of the community including individuals, the employees of both large and small employers, and individuals eligible for Medicaid benefits." Health Plans, 82 T.C.M. at 604. In fact, in 1999, Health Plans' enrollees represented twenty percent of Utah's total population and fifty percent of Utah residents eligible for Medicaid benefits.²⁹

[46] Nevertheless, even though almost all Utahans were potentially eligible to enroll for Health Plans coverage, the self- imposed requirement of membership tells us something about Health Plans' operation. As the Third Circuit noted in Geisinger I:

(a) Care and Group

[47] Neither Care nor Group offered their health plans to the general public. Rather, both Care and Group limited their enrollment to employees of large employers (employers with 100 or more employees). Thus, as the Tax Court found, "[Care and Group] operate[d] in a manner that substantially limit[ed] [the] universe of potential enrollees." Care, 82 T.C.M. at 625; Group, 82 T.C.M. at 615. Based on this finding, the Tax Court correctly concluded that neither Care nor Group promoted health for the benefit of the community.

(1) Community board of trustees

[48] Finally, we consider petitioners' board composition. Prior to 1996, Health Plans' bylaws provided that "[a] plurality of Board members shall represent the buyer-employer community and an approximately equal number of physicians and hospitals representatives shall be appointed." As the IRS noted, Health Plans' pre-1996 bylaws skewed control towards subscribers, rather than the community at large. In 1996, however, Health Plans amended its bylaws to require that a majority of board members be disinterested and broadly representative of the community.

[49] It makes little difference whether we consider petitioners' board prior to 1996 or following the amendments. Even if we were to conclude petitioners' board broadly represents the community, the dearth of any actual community benefit in this case rebuts any inference we might otherwise draw.

[52] In general, "separately incorporated entities must qualify for tax exemption on their own merits." Geisinger Health Plan v. C.I.R., 30 F.3d 494, 498 (3d Cir. 1994) (Geisinger II) (citing Church of the Brethren, 759 F.2d at 795 n.3). Several circuits, however, have recognized a so-called "exception" to this general rule, commonly called the integral-part doctrine. See, e.g., id. ("[The] 'integral part doctrine' . . . may best be described as an exception to the general rule that entitlement to exemption is derived solely from an entity's own characteristics."); Tex. Learning Tech. Group v. C.I.R., 958 F.2d 122, 126 (5th Cir. 1992); Squire v. Students Book Corp., 191 F.2d 1018, 1020 (9th Cir. 1951). Under the integral-part doctrine, where an organization's sole activity is an "integral part" of an exempt affiliate's activities, the organization may derive its exemption from that of its affiliate. Geisinger II, 30 F.3d at 498; see also Geisinger I, 985 F.2d at 1220 ("The integral part doctrine provides a means by which organizations may qualify for exemption vicariously through related organizations, as long as they are engaged in activities which would be exempt if the related organizations engaged in them, and as long as those activities are furthering the exempt purposes of the related organizations.").

[53] To the extent the integral-part doctrine rests on a derivative theory of exemption, it runs contrary to two fundamental tenets of tax law: (1) the "doctrine of corporate entity," under which a corporation is a separate and distinct taxable entity;³⁰ and (2) the canon of statutory interpretation requiring strict construction of exemptions from taxation.³¹Bingler, 394 U.S. at 751-52. IHC separately incorporated Health Services, Health Plans, Care, and Group. "It cannot now escape the tax consequences of that choice, no matter how bona fide its motives or longstanding its arrangements." Nat'l Carbide Corp. v. C.I.R., 336 U.S. 422, 439 (1949). Further, we reject petitioners' contention that the integral-part doctrine constitutes a "less rigorous" road to tax exemption. The rigor of the charitable-purpose requirement remains constant, regardless of the theory upon which the taxpayer bases its entitlement to tax exemption under section 501(c)(3).

[54] Nevertheless, to the extent the integral-part doctrine recognizes that we should consider the totality of the circumstances in determining an organization's purpose, the doctrine is in accord with our section 501(c)(3) jurisprudence. One of the myriad factors we may consider in determining an organization's purpose is whether an essential nexus exists between an organization seeking tax exemption and a tax-exempt affiliate. The example cited in the Treasury Regulations aptly illustrates the point: "a subsidiary organization which is operated for the sole purpose of furnishing electric power used by its parent organization, a tax-exempt educational organization, in carrying on its educational activities."³² 26 C.F.R. § 1.502-1(b). In other words, as we interpret the integral-part doctrine, it simply recognizes that "[t]he performance of a particular activity that is not inherently charitable may nonetheless further a charitable purpose." Rev. Rul. 69-572. "The overall result in any given case is dependent on why and how that activity is actually being conducted." Id. (emphasis added).

[55] Using the example cited in Treasury Regulation 1.502-1(b), if we were to consider the nature of the subsidiary's activity in isolation -- furnishing electricity -- we would have no indication that the subsidiary serves an exempt purpose. On the other hand, when we look at the totality of the circumstances, it becomes clear that the subsidiary's activity furthers the exempt purpose of education: the product provided is essential; the subsidiary furnishes its product solely to the tax-exempt affiliate;³³26 C.F.R. § 1.502-1(b). and the tax-exempt parent exercises control over the subsidiary. These facts, considered in conjunction with the exempt purpose for which the tax-exempt parent operates, support a strong inference that the subsidiary operates for the same exempt purpose as does the parent.

[56] In this case, we need not decide whether petitioners provide a service necessary to Health Services in conducting its exempt activities. The required nexus between the activities of petitioners and Health Services is lacking. As the Tax Court noted, "petitioner[s]' enrollees received approximately 20 percent of their physician services from physicians employed by or contracting with Health Services, while petitioner contracted for the remaining 80 percent of such physician services directly with independent physicians." Health Plans, 82 T.C.M. at 606. Thus, unlike the subsidiary furnishing electricity in Treasury Regulation § 1.502-1(b), petitioners do not function solely to further Health Services' performance of its exempt activities. Rather, a substantial portion (eighty percent)³⁴"Employed" includes those physicians employed by Health Services' Physician Division. "Not employed/Panel" includes independent contractors who had medical staff privileges at a Health Services hospital. "Not employed/Non-panel" includes all other physicians. of petitioners' enrollees received physician services from "physicians with no direct link to [Health Services]."³⁵Health Plans, 82 T.C.M. at 606. Thus, our consideration of petitioners' "connectedness" to Health Services in no way detracts from our earlier conclusion that petitioners do not qualify for a charitable tax exemption under section 501(c)(3).

²On December 21, 2000, Care and Group both became part of Health Plans.

³Health Plans, Care, and Group had identical officers and trustees.

⁴Health Plans provided specialized management and administrative services to Care and Group. Neither Care nor Group had any employees, facilities, or equipment, and both relied on Health Services and Health Plans for their operational requirements.

⁵Health Plans offered the following eight health plans: SelectMed, SelectMed Plus, IHC Care, IHC Care Plus, IHC Direct Care, IHC Direct Care Plus, Health Choice, and IHC Access.

⁶The HMO Act of 1973 provided certain marketing advantages to "qualified" HMOs. In particular, under 42 U.S.C. § 300e-9, certain employers were required to offer their employees the option of enrolling in a federally-qualified HMO.

⁷The Health Care Financing Administration ("HCFA"), an agency of the Department of Health and Human Services, administered the HMO Act of 1973. In 2001, HCFA's name changed to Centers for Medicare and Medicaid Services.

⁸The Tax Court did not consider the Commissioner's alternative conclusion under 26 U.S.C. § 501(m)(1).

⁹This element can be viewed as a corollary to the public-benefit requirement under section 501(c)(3)'s definition of "charitable," discussed infra.

¹⁰Specifically, section 501(c)(3), in conjunction with section 501(a), provides that the following organizations are exempt from taxation:

¹²The Supreme Court construed a similar provision under the Social Security Act in Better Business Bureau v. United States, concluding that "a single non-[exempt] purpose, if substantial in nature, will destroy the exemption regardless of the number or importance of truly [exempt] purposes." 326 U.S. 279, 283 (1945).

¹³In a subsequent ruling, the IRS characterized the hospital's open emergency room as a "major factor" in its determination. Rev. Rul. 83-157.

¹⁴The specific facts of the nonprofit hospital in Revenue Ruling 69-545 are as follows:

¹⁶In interpreting these three rulings, court decisions have highlighted several factors relevant under the "community benefit" analysis. These factors include:

¹⁷We recognize that certain health-care entities provide specialized services, which are not required by "all" in the community, and we do not mean to foreclose the possibility that such entities may qualify as "charitable" under section 501(c)(3). As the IRS recognized in Rev. Rul. 83-157:

¹⁹Under the Treasury Department's view, for-profit enterprises are unlikely to provide such services since "'market prices . . . do not reflect the benefit [these services] confer on the community as a whole.'" Bloche, supra, at 312 (quoting Tax-Exempt Status of Hospitals, and Establishment of Charity Care Standards: Hearing before the House Comm. on Ways and Means, 102d Cong., 1st Sess. 34-37 (1991) (statement of Michael J. Graetz, Deputy Assistant Secretary for Tax Policy, U.S. Dep't of the Treasury)). Thus, the provision of such "public goods" -- at least when conducted on a sufficiently large scale -- arguably supports an inference that the enterprise is responding to some inducement that is not market-based. Cf. id.

²⁰As the Third Circuit has noted, "'[w]hen the legality of an action depends not upon its surface manifestation but upon the undisclosed motivation of the actor, similar acts can lead to diametrically opposite legal consequences.'" Geisinger I, 985 F.2d at 1215 (quotation omitted).

²¹Because the community-benefit requirement is considered under a totality-of-the-circumstances test, we reject petitioners' challenge to the Tax Court's reliance on any one of the numerous factors cited in support of its conclusion.

²²We recognize that an activity that is not "inherently charitable" may nonetheless further a charitable purpose. Rev. Rul. 69-572. Thus, we do not accord dispositive weight to this (or any other) factor.

²³We are primarily concerned with this characteristic as it bears on our determination of petitioners' purpose. However, we also note that petitioners not only resemble commercial insurance providers, petitioners in fact compete with commercial insurance providers. Thus, "granting a tax exemption to [petitioners] would necessarily disadvantage other for-profit [entities] with which [petitioners] compete[]." Federation Pharmacy Servs., Inc. v. C.I.R., 625 F.2d 804, 808 (8th Cir. 1980) (citing Abbott Labs. v. Portland Retail Druggists Ass'n, Inc., 425 U.S. 1, 17-18 (1976)).

²⁴Health Plans did apparently conduct some free health screenings in 1999. Health Plans, 82 T.C.M. at 605.

²⁵Petitioners note that Care and Group offered "risk" and "cost" Medicare health plans, and contend that Care and Group went forward with these plans "with the full knowledge that those plans might lose money." Care and Group discontinued these plans, however, based on concerns of "financial feasibility."

²⁶Further, as the Tax Court noted, "the benefit associated with these cost savings is more appropriately characterized as a benefit to petitioner[s]' enrollees as opposed to the community at large." Care, 82 T.C.M. at 625; Group, 82 T.C.M. at 615.

²⁷As the Eighth Circuit has noted, "a 'charitable' hospital may impose charges or fees for services rendered, and indeed its charity record may be comparatively low depending upon all the facts . . . but a serious question is raised where its charitable operation is virtually inconsequential." Federation Pharmacy, 625 F.2d at 807 (8th Cir. 1980) (quoting Sonora Cmty. Hosp. v. C.I.R., 46 T.C. 519, 526 (1966)) (internal quotation marks omitted).

²⁸As the Tax Court noted, petitioners' Core Wellness Program was offered exclusively to enrollees.

²⁹We acknowledge that Health Plans' service to Utah's Medicaid community provides some community benefit. The relevant inquiry, however, is not "whether [petitioner] benefitted the community at all . . . [but] whether it primarily benefitted the community, as an entity must in order to qualify for tax-exempt status." Geisinger I, 985 F.2d at 1219.

³⁰See, e.g., Moline Prop. v. C.I.R., 319 U.S. 436, 438 (1943); Church of the Brethren, 759 F.2d at 795 n.3.

³¹As the Third Circuit noted in Geisinger II, the "integral-part doctrine" is not codified. 30 F.3d at 499. Although it finds support in 26 C.F.R. § 1.502-1(b), it must ultimately be justified under section 501(c)(3) and its charitable- purpose requirement.

³²We need not decide whether such an organization operates for an exempt purpose per se. We merely note that these facts would suggest that the subsidiary operates for an exempt purpose.

³³The IRS contrasted the following hypothetical:

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