WASHINGTON LAC Facilities Inc., the first organization to lose its tax-exempt status under the Internal Revenue Service's 501 (c)(3) audit program, has filed suit in the U.S. Court of Claims challenging the decision.
The IRS disclosed in August that it had revoked the, tax-exempt status of one 501(c)(3) organization after an audit under its Coordinated Examination Program, But refused to name the institution. The identity of LAC Facilities was revealed this week when court documents came to light showing that the Miami health care organization filed a motion for declaratory jUdgment with the claims court on Sept. 16.
The revocation has no implications for tax-exempt debt because LAC Facilities has no bonds outstanding, according to Lloyd Startertt, a partner with Fordham & Starrett, the firm representing the health care organization in its court challenge.
The decision to revoke the institution's tax-exempt status, made by the IRS in April, is retroactive to Oct. 1, 1985, according to court documents. Earlier this month, IRS Officials said they have closed 25 other audits by using closing agreements, The Service is auditing another 79 organizations, which include 34 health care entitles and 18 educational institutions.
The court papers include the IRS' explanation of why it revoked the taxexempt status of LAC Facilities. "You are operated for the benefit of private shareholders and individuals," the service said in a memo to the institution. "You do not promote or provide health care to a broad section of the community."
The IRS told LAC Facilities its audit found that-"millions of dollars of assets and earnings inured to the private benefit of your officers, trustees, key employees and other insiders."
In the audit, IRS officials discovered expenses incurred by the institution for non-charitable purposes. "These expenses include payments for country club charges, catering services, liquor purchases, gift items, and spouses' travel,: the IRS memo states.
LAC Facilities opened in 1960 as North Miami General Hospital Inc. In 1984 its assets were sold to Health Resources Corp. of America, and the hospital was renames Modern Health Care Services Inc. This year, the facility received permission from the IRS to stop operating as a hospital and instead provide its SerVices through so-called alternative delivery systems.
The organization then purchased several medical practices and opened an institution devoted to various medical specialties, including neurology, urology, and orthopedics. The organization changed its name to LAC Facilities Inc., in 1993.
In its memo to the institution, the IRS charged that several of the practices acquired by the organization were subsequently sold to "insiders" for less than what the organization had originally paid.
But institution lawyers said that the sales occurred because Modern Health Care steadily lost money through the 1980s, and that the buyers were not part of the organization's management.