(CN) – An association of tax-exempt schools formed to pool insurance funds is not tax-exempt itself, a federal judge ruled.
The Florida Independent Colleges and Universities Risk Management Association (FICURMA) incorporated in 2003 so that schools could band together to apply for group insurance with lower rates. The association considers itself a risk-management pool instead of a commercial insurance company.
FICURMA, which includes one representative each from up to 11 member educational institutions, applied for tax-exempt status in 2006. But the Internal Revenue Service said that FICURMA needed to change its articles of incorporation to specify that the association was made for exempt purposes.
The IRS ultimately denied FICURMA’s application in 2008, stating that it was barred from exemption because it did not have the requisite charitable startup capital.
FICURMA filed suit the next year, asking a court to declare it tax-exempt since its members are tax-exempt schools.
U.S. District Judge Royce Lamberth sided with the government on summary judgment.
“Although logically possible, FICURMA’s position requires a tortured reading of the tax code,” Lamberth wrote.
He cited the ruling for Paratransit Insurance Corp. v. Commissioner.
“Paratransit involved a non-profit association formed under California law to pool risk among its members organizations providing transportation as a social service to the elderly and the handicapped, among others,” he wrote.
“If Paratransit was unable to obtain tax-exempt status, then FICURMA must be similarly precluded.”
“By self-insuring to a certain extent and arranging for group policies for excess risk, FICURMA does exactly that – ‘supply,’ or ‘make available,’ insurance to its members,” Lamberth added. “And this insurance is indeed “commercial-type insurance.” Although FICURMA leans on legislative history to argue that the term only applies when the institution seeking exemption offers insurance to the public at large, the Paratransit court rejected the same argument.”