UNITED STATES v. AMERICAN COLLEGE OF PHYSICIANS

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Case Basics
Docket No. 
84-1737
Petitioner 
United States
Respondent 
American College of Physicians
Advocates
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Facts of the Case 

The American College of Physicians, a non-profit, tax-exempt organization, published a monthly medical journal. Within the journal were paid advertisements for products useful in the field of medicine specifically covered by the journal. Section 511(a)(1) of the Internal Revenue Code imposes a tax on "unrelated business taxable income" of tax-exempt organizations. The IRS asserted that the advertising income from the medical journal fell under this category. The American College of Physicians countered that the advertisements were "substantially related" to its tax-exempt purpose of maintaining high standards in medicine, and that they were therefore tax- exempt. When the IRS refused to give the organization a tax refund, it filed suit in United States Claims Court.

The Claims Court held that the advertisements were not substantially related to the organization's tax-exempt purpose and that the income was therefore taxable. On appeal, the Circuit Court of Appeals for the Federal Circuit reversed, ruling that the advertisements helped to educate the journal's readers and was therefore substantially related.

Question 

Were advertisements for medical products in the American College of Physicians' medical journal "substantially related" to the organization's tax- exempt purpose of maintaining high standards in medicine, and therefore tax- exempt?

Conclusion 
Decision: 9 votes for United States, 0 vote(s) against
Legal provision: Internal Revenue Code

No. In a unanimous decision authored by Justice Thurgood Marshall, the Supreme Court held that the advertisements in this particular case were not "substantially related" to the medical journal's educational purposes. The Court found that the conduct of the journal, rather than the content of the advertisements, was the relevant factor. Quoting the Claims Court, Justice Marshall wrote, "The evidence is clear that plaintiff did not use the advertising to provide its readers a comprehensive or systematic presentation of any aspect of the goods or services publicized. Those companies willing to pay for advertising space got it; others did not." The Court rejected both the government's contention that all advertising revenue should be taxed and the journal's contention that any informative advertising revenue should be exempt, relying instead on a case-by-case examination.

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UNITED STATES v. AMERICAN COLLEGE OF PHYSICIANS. The Oyez Project at IIT Chicago-Kent College of Law. 17 August 2014. <http://www.oyez.org/cases/1980-1989/1985/1985_84_1737>.
UNITED STATES v. AMERICAN COLLEGE OF PHYSICIANS, The Oyez Project at IIT Chicago-Kent College of Law, http://www.oyez.org/cases/1980-1989/1985/1985_84_1737 (last visited August 17, 2014).
"UNITED STATES v. AMERICAN COLLEGE OF PHYSICIANS," The Oyez Project at IIT Chicago-Kent College of Law, accessed August 17, 2014, http://www.oyez.org/cases/1980-1989/1985/1985_84_1737.