OPINION OF THE COURT
SLOVITER, Circuit Judge.
On this appeal by the IRS from summary judgment entered against it, we must decide whether Congress, in enacting section 501(e) of the Internal Revenue Code, which specifically permits joint hospital facilities performing specified services to be treated as tax exempt charitable organizations under section 501(c)(3) of the Code, intended that joint hospital facilities performing services not specifically included in section 501(e) could nevertheless be treated as tax exempt charitable organizations under section 501(c)(3).
Plaintiff HCSC-Laundry, a non-profit corporation with its principal office in Allentown, Pennsylvania, was incorporated under the Pennsylvania Nonprofit Corporation Law on January 3, 1967.
The formation of HCSC-Laundry followed an investigation into the various possible ways in which laundry service could be provided to the area hospitals. In early 1966 the Lehigh Valley and Health Planning Council, an agency under the Hill-Burton Act,
The corporation has no capital stock. Each participating hospital is a dues-paying member of the corporation. HCSC dues were $500 for the taxable year in issue. Centronia Ambulance Corps does not pay dues in order to receive laundry service. HCSC-Laundry's only income in addition to the dues is a laundry charge of 1½ ¢ per pound of laundry serviced which is charged to each customer over the actual cost. "Cost" for this purpose includes operating expenses, debt retirement, and linen replacement. This charge in excess of cost is placed in a fund for equipment replacement and acquisition.
HCSC-Laundry sought exemption from federal income tax and, on March 26, 1976, filed an Application for Recognition of Exemption (Internal Revenue Service Form 1023) under Section 501(c)(3) of the Internal Revenue Code. This section authorizes exemption for corporations "organized and operated exclusively for religious, charitable, scientific, . . . or . . . educational purposes . . . no part of the net earnings of which inures to the benefit of any private shareholder or individual . . . ." I.R.C. § 501(c)(3).
On December 16, 1976, HCSC-Laundry filed a federal corporate income tax return (form 1120) for the fiscal year ending June 30, 1976 indicating taxable income of $123,-521.00 on which a federal income tax of $10,395.00 was paid. Promptly thereafter, it filed a Claim for Refund for overpaid federal income tax in the full amount paid, asserting it was "a tax-exempt organization under sections 501(c)(3) and/or 501(e) of the Internal Revenue Code of 1954." Although the IRS has informally advised HCSC-Laundry that the claim for the refund of taxes will be rejected, it has not taken formal action on this claim. This suit seeking a refund of the taxes paid followed.
The district court, on the basis of stipulated facts, entered summary judgment for HCSC-Laundry. HCSC-Laundry v. United States, 473 F.Supp. 250 (E.D.Pa.1979). It held that despite the omission of laundry services from those particular services for hospitals which are exempted under section 501(e) of the Code, HCSC-Laundry was entitled to exemption as an organization described in section 501(c)(3) of the Code. The court concluded:
Id. at 253.
The court also rejected the IRS assertion that HCSC-Laundry was not entitled to a charitable exemption because it was a
The court found that HCSC-Laundry was "a non-profit enterprise wholly controlled by charitable organizations `in order to effect economies in their own operations'," 473 F.Supp. at 254, and determined that since HCSC-Laundry was an integral part of the hospitals, it was not a feeder organization under section 502(a) as clarified by the applicable Treasury Regulation on Income Tax, 26 C.F.R. § 1.502-1 (1979).
On appeal, the IRS argues that the legislative history indicates that section 501(e) is the exclusive method whereby a hospital service organization, such as HCSC-Laundry, is entitled to tax-exempt status. It asserts that the Congressional intent is clear that a hospital service organization performing laundry services is not entitled to tax exempt status. It is joined in this position by the Textile Rental Services Association of America and the International Fabricare Institute who have filed a brief amici curiae.
HCSC counters that the district court's construction holding it exempt is in accord with the applicable precedent. It contends that since the laundry performs on a joint basis the same hospital laundry activity which previously each of its members either performed individually as part of their tax-exempt activities or had performed for them by commercial laundries, the exemption should continue regardless of the form in which conducted, i. e., jointly rather than separately.
It has been an accepted precept of statutory construction of tax laws, that a specific
In the discussion of the application of this precept as an aspect of the ejusdem generis rule which appears in 1 J. Mertens, The Law of Federal Income Taxation § 3.16, at 34 (1974), it is noted that "this rule of ejusdem generis is not invariable and should not defeat the legislative intent deducible from the entire context." The statutory provisions at issue in this case would, under ordinary circumstances, warrant application of the rule of ejusdem generis since section 501(e) deals specifically with jointly operated hospital services. Therefore, unless the legislative history indicates a contrary legislative intent, section 501(e) should be considered controlling.
Before the 1969 amendments to the Internal Revenue Code which added section 501(e) to the statute, there was no provision of the Code specifically dealing with mutual entities established by tax exempt hospitals to supply them with certain services. The Internal Revenue Service took the position that if two or more tax exempt hospitals had joined together to create an entity to perform ordinary commercial services for them, the entity was not a tax exempt organization.
In 1967 a Senate amendment would have treated organizations created by tax exempt hospitals to supply them with certain commercial services as charitable organizations. This amendment was not accepted by the House. H.R.Rep. No. 1030, 90th Cong., 1st Sess. 73 (1967). A House Report from the same session, directed to a bill which would have allowed Hill-Burton funds for cooperative hospital facilities regardless of their exempt status under the Internal Revenue Code, referred to the IRS interpretation that "an organization established by a number of other organizations to provide services or facilities for them, is not considered `nonprofit,' even though the organizations for whom the services or facilities are provided are each non-profit." H.R.Rep. No. 538, 90th Cong., 1st Sess. 32 (1967).
The following year, Congress began work on the tax amendments which were to culminate in the enactment of section 501(e). The Senate proposed an amendment to the Tax Adjustment Bill of 1968 which would have treated as charitable organizations almost all entities established by tax exempt hospitals to provide commercial services, including laundry service. 114 Cong.Rec. 7516 (1968); 114 Cong.Rec. 8111-12 (1968). In the Conference Committee the House acceded only to a more limited scope for section 501(e). Under the version of 501(e) which emerged from the Conference Committee, certain specified service organizations were to be treated as "organized and operated exclusively for charitable purposes." Mutual laundry service organizations were not among the specified service organizations. However, the omission of laundry services was not inadvertent.
The Conference report specifically states:
Although subsequent legislative history may not be as persuasive as contemporaneous history in indicating a Congressional intent in the case of the interpretation of section 501(e) it also serves to demonstrate that the general understanding of those most directly affected, the hospitals, was that cooperative hospital laundries were not entitled to obtain "charitable" status under the Code. Accordingly, in 1976 the American Hospital Association requested the Senate Finance Committee to extend tax exempt status to cooperative hospital organizations that performed laundry services. That statement included the following:
The statement continued:
Among the various recommendations made by the American Hospital Association was the following:
Tax Reform Act of 1975: Hearings on H.R. 10612 Before the Sen. Comm. on Finance, 94th Cong., 2d Sess. 2771-72 (1976) (statement of the American Hospital Association). The American Hospital Association proposal was opposed by the representatives of commercial laundries, who urged the Senate Finance Committee not to give special tax treatment to central laundries. See Certain Committee Amendments to H.R. 10612: Hearings Before the Sen. Comm. on Finance, 94th Cong., 2d Sess. 200 (1976) (statement of John J. Contney, Executive Director, Linen Supply Association of America).
Although the Tax Reform Act of 1976, Pub.L. 94-455, 90 Stat. 1520, contained an amendment to section 501(e) which would have included laundry services within the services specified in section 501(e), and this amendment was endorsed by the Senate Finance Committee, it was deleted from the Tax Reform Act by action on the floor of the Senate. See 122 Cong.Rec. 25915 (1976).
Thus a review of the legislative history supports the Internal Revenue Service's position that the statute reflects an explicit manifestation of legislative judgment and purpose not to afford cooperative hospital laundries tax exempt status.
The district court relied on the line of cases holding that a hospital laundry service organization could qualify as a charitable organization under section 501(c). Northern California Central Services, Inc. v. United States, 591 F.2d 620 (Ct.Cl.1979); Community Hospital Services, Inc. v. United States, 79-1 U.S.T.C. ¶ 9301 (E.D.Mich. 1979); Metropolitan Detroit Area Hospital Services, Inc. v. United States, 445 F.Supp. 857 (E.D.Mich.1978); Hospital Central Services Association v. United States, 77-2 U.S. T.C. ¶ 9601 (W.D.Wash.1977); United Hospital Services, Inc. v. United States, 384 F.Supp. 776 (S.D.Ind.1974).
In three of those cases, Metropolitan Detroit Area Hospital Services, Community Hospital Services, Inc., and Hospital Central Services Association, the courts said they reached their decisions on the basis of the decision of the original case in that series, United Hospital Services, Inc. v. United States, supra. That case, in turn, found persuasive the reasoning in Hospital Bureau of Standards and Supplies, Inc. v. United States, 158 F.Supp. 560, 141 Ct.Cl. 91 (1958). It is those two cases which should be considered.
In Hospital Bureau, plaintiff taxpayer was a New York corporation which purchased hospital supplies in bulk from suppliers on behalf of its 207 hospital members to whom the resulting savings accrued, and also maintained a research department and conducted technical analysis of supplies ordinarily used by its member institutions. It claimed exemption as a charitable organization for the calendar years 1952 and 1953. At the time of the decision there had been no discussion in Congress about enactment of a specific provision to provide tax exemption for hospital service organizations. The only issue before the court was whether the taxpayer could be considered a corporation "organized and operated exclusively for . . . charitable purposes" under the predecessor provision to section 501(c). The Court of Claims held that it was entitled to be so considered. That decision provides little assistance to the statutory analysis we must now undertake when the statute contains the subsequently enacted provision directly applicable to hospital service organizations.
By the time of the decision in United Hospital Services, Inc. v. United States, the first case to consider the tax status of a hospital laundry service organization, the statute had been amended to include section 501(e). Nonetheless, the court held that the "case is completely analogous to Hospital Bureau of Standards and Supplies . . . ." 384 F.Supp. at 781. Although the court recognized that "Congress intentionally omitted ordinary, general and commercial laundry services from the blanket exemption granted to hospital cooperatives in Section 501(e)," id. at 780, it held the taxpayer could be considered a charitable organization under Section 501(c)(3) on its own merits. It is not clear whether the United States Hospital Services decision is dependent upon the fact that the taxpayer was incorporated and doing business some years before section 501(e) was adopted in 1968, a fact stressed by the court. Later cases have not limited the holding in that way. See Metropolitan Detroit Area Hospital Services, 445 F.Supp. at 860-61.
In the most recent decision on comparable facts, Northern California Central Services, Inc. v. United States, supra, the Court of Claims adhered to its prior decision in Hospital Bureau. After considering the effect of section 501(e), it concluded that the intent of Congress was not to narrow the
We are constrained to hold that section 501(e) specifies the types of hospital service organizations which are encompassed within the scope of section 501(c) as "charitable organizations," and that since HCSC-Laundry does not fall within section 501(e), it is not entitled to treatment as a tax exempt organization. For the foregoing reasons, we will reverse the judgment of the district court and remand for further proceedings not inconsistent with this opinion. Each side will bear its own costs.
For purposes of this title, any organization which, by reason of the preceding sentence, is an organization described in subsection (c)(3) and exempt from taxation under subsection (a), shall be treated as a hospital and as an organization referred to in section 170(b)(1)(A)(iii).
26 C.F.R. § 1.502-1(b) (1979).
Committee of Conference on H.R. 15414, 90th Cong., 2d Sess., Revenue and Expenditure Control Act of 1968, Explanation of the Bill H.R. 15414. As Agreed to in Conference 20 (Comm. Print 1968) (emphasis added).