The Supreme Court is considering a case that may change the face of nonprofit publications and put advertising revenue back into the pockets of nonprofit associations.
The American College of Physicians, a Philadelphia-based professional and scientific society of more than 40,000 internists, filed in 1979 for a refund from the Internal Revenue Service for tax on income received from advertisements placed in its monthly magazine, the Annals of Internal Medicine. ACP argues that the advertisements, which are very technical in nature, are a service to its membership and therefore revenue from these ads should not be taxed.
The IRS refused to refund the taxes, and in 1982 ACP filed suit against the agency in Claims Court in Washington. The trial court ruled against the association, but the Court of Appeals for the Federal Circuit reversed that decision last September. In its ruling, the appeals court concluded that the advertising in the ACP journal contributes importantly to the accomplishment of the group's educational purposes by "appris ing internists of developments in their fields."
The Justice Department, arguing on behalf of the United States, contends in its Supreme Court brief that the ACP should pay tax on commercial advertisements, just as any other publisher must. In its brief, it argues that, if the ACP had the choice to offer free advertising to its members and instead chose to sell advertising to them then, "Obviously the respondent was motivated entirely by revenue raising and not at all by educational objectives."
The issue of whether advertising in nonprofit-group publications benefits members or is used as a profit-making source for those groups has been debated since 1950, when Congress enacted the Unrelated Business Income Tax. Under this law, any income gathering on a regular basis that is not related to the scientific and educational purposes of a nonprofit group must be taxed. In 1967, the IRS ruled that advertising income from publications of nonprofit organizations was unrelated to the educational intent of those organizations and should be taxed. The American College of Physicians and the Massachusetts Medical Society fought unsuccessfully to have that rule overturned in Congress.
At present, the Justice Department has filed its brief with the Supreme Court and is awaiting ACP's brief, which should be filed in the next few months, according to John Huffaker, ACP's attorney.
A high court's ruling in favor of ACP would have broad implications for other associations, said Jim Albertine, the director of government affairs at the American Society of Association Executives, which is filing a friend-of-the-court brief on ACP's behalf. Like many association executives, Albertine agrees that other nonprofits will follow suit and apply for refunds if the ACP wins next year.
One local association based in Gaithersburg already has applied for a refund. The Tissue Culture Association, a scientific organization with a worldwide membership of more than 2,100 research scientists, applied for a refund several months ago for ads that appear in its scientific journal, In Vitro Cellular & Developmental Biology.
"We were authorized by the IRS to be a nonprofit educational organization and our main purpose is to spread science worldwide," said William G. Momberger, the group's executive director. "From that standpoint, the advertising revenue is educational to our members." TRADE
Harvey Price, founder and executive director of the Industrial Biotechnology Association, will be leaving that group at year's end to join the private sector as a consultant for commercial biotech companies. Price formed the IBA in 1981 to represent seven start-up genetic engineering firms. Today the association speaks for 48 firms, including Monsanto Co., and some of the leading new biotechnology firms, such as Biogen Inc. of Cambridge, Mass. and Genentech Inc. of San Francisco. Price, an attorney, said he would remain in Washington and continue to be vocal on issues important to the industry. PROFESSIONAL
The Visiting Nurse Association has elected Paul Riger as its executive director. Riger will serve as the chief executive officer of the association's nonprofit parent corporation, VNA Inc., and of the VNA Foundation, the money-raising and home-care service arm of the group. VNA, founded 85 years ago, is made up of 230 health-care professionals who provide at-home services to the elderly and other homebound people in the District and Prince George's and Montgomery counties. An association spokesman said that in the past year, the group has made more home visits than at any other time in its history. Riger attributed the growth in home health care to pressures from private companies and the federal government to release hospital patients earlier. He added that technical advancements, such as the ability to provide chemotherapy in the home, also have aided in the growth of the industry.