Vision Insurer Pushes Supreme Court to Restore its Tax-Exempt Status

July 16, 2008

Vision Insurer Pushes Supreme Court to Restore its Tax-Exempt Status

A California eye-insurance provider is petitioning the U.S. Supreme Court to reverse a 2003 decision by the Internal Revenue Service to revoke its tax-exempt status.

VSP Vision Care, in Rancho Cordova, Calif., said it believes the IRS overstepped its bounds when it ruled in 2003 that the organization does not provide enough services to the needy to justify its tax-exempt status.

The organization, which is the nation’s largest eye-insurance provider, has continued to do business as a nonprofit organization, but is paying federal income taxes as it has attempts to get the decision reversed.

The U.S. Court of Appeals upheld the IRS’ decision in January, prompting the insurance company’s petition to ask the Supreme Court to review the case.

Earlier decisions had determined that the organization “is not operated exclusively for the promotion of social welfare.”

But the insurance company is continuing to fight those rulings and has hired Kenneth Starr, the former U.S. Solicitor General and the independent counsel in the Whitewater investigation into former President Bill Clinton, to help prepare its case.

“This case is really about determining what guidelines the IRS uses to define what constitutes a tax-exempt, not-for-profit organization,” Mr. Starr said. “VSP had a tax exemption for more than 40 years, has not changed their business philosophy or focus on the community, yet lost their tax-exempt status.”

VSP, which received its tax-exempt status in 1960, says the IRS’s 2003 decision — and the subsequent court decisions in its favor — jeopardizes the nonprofit status of other nonprofit health-care institutions.

“The district court’s decision, affirmed by the panel, ignores the health-care context of this case and fashions a test for exemption that calls into question the exempt status of numerous nonprofit health plans across the country,” the eye-insurance company said in its appeal.

— Peter Panepento

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