Internal Revenue Service
Revenue Ruling
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smRev. Rul. 76-9
1976-1 C.B. 348
Section 4251 -- Communications Tax
IRS Headnote
Communications tax; residential center with health facility. Amounts paid for communications services furnished to the health facility of a nonprofit residential center, for aged or indigent members of a fraternal organization and their families, do not qualify under section 4253(h) of the Code for exemption from the tax on communications imposed by section 4251.
Full Text
Rev. Rul. 76-9
Advice has been requested regarding the applicability of the tax imposed by section 4251 of the Internal Revenue Code of 1954 under the circumstances described below.
An organization described in section 501(c)(3) of the Code is exempt from income tax under the provisions of section 501(a). It maintains a residential center for aged or indigent members of a fraternal organization and their families. The center includes living quarters, recreational facilities, places of worship, and a health facility. The health facility has provision for inpatient care and an outpatient clinic, together providing for the residents a comprehensive medical program of prevention, treatment, and rehabilitation. The facility has its own pharmacy, clinical laboratory, and X-ray equipment. No surgery is performed there, but postoperative care is provided. There is a regular professional staff consisting of a director, assistant director, doctors, dentists, nurses, and other health specialists.
The question presented is whether amounts paid by the organization for communications services furnished to the health facility of the residential center are subject to the tax imposed by section 4251(a) of the Code, or whether these amounts are exempt under section 4253(h).
Section 4251(a) of the Code imposes a tax on amounts paid for local telephone service, toll telephone service, and teletypewriter exchange service.
Section 4253(h) of the Code provides that no tax shall be imposed under section 4251 on any amount paid by a nonprofit hospital for communications services furnished to such organization. For purposes of section 4253(h), the term "nonprofit hospital" means a hospital referred to in section 170(b)(1)(A)(iii) that is exempt from income tax under section 501(a).
Section 170(b)(1)(A)(iii) of the Code describes an organization the principal purpose or functions of which are the providing of medical or hospital care or medical education or research, if the organization is a hospital, or if the organization is a medical research organization directly engaged in the continuous active conduct of medical research in conjunction with a hospital.
Section 1.170A-9(c)(1) of the Income Tax Regulations states, in part, that the term "hospital" does not include convalescent homes or homes for children or the aged.
Although the medical care function of the residential center is extensive, it is nevertheless secondary to the primary purpose, which is the operation of a home for the aged and indigent. Under the regulations, such a home is not a hospital for purposes of the exemption from the tax on amounts paid for taxable communications services.
Further, there is no provision in section 4253(h) for treating an activity of an organization, which is described in section 501(c)(3) of the Code and exempt from income tax under section 501(a), as an independent unit that may qualify for exemption under section 4253(h) on its own. Compare section 4294(b), relating to the exemption from certain excise taxes of nonprofit educational organizations, that specifically authorizes the exemption to a school that is operated as an activity of an organization described in section 501(c)(3) which is exempt from income tax under section 501(a).
Accordingly, the exemption provided by section 4253(h) of the Code does not apply to any amount paid by the organization for taxable communications services furnished to the organization or to its health facility. Any amount paid for such communications services is subject to the tax imposed by section 4251(a).