Within the past week both the Internal Revenue Service and the Sta-home Health Agency appealed a May 22 decision by the U.S. Tax Court in the first court test of the Internal Revenue Service's intermediate sanctions authority. In that decision the tax court reinstated the tax-exempt status of the Jackson, Miss.-based agency, but still assessed taxes and penalties of $11.6 million against the family that owns it. In its appeal, which will go before the 5th U.S. Circuit Court of Appeals in New Orleans, the IRS seeks the reinstatement of the tax exemption revocation. In their Oct. 15 appeal, the owners of Sta-home seek the elimination of the remaining penalties and taxes.
The case involved three not-for-profit companies created by Sta-home, which was founded in 1976 and controlled by six members of the Caracci family. In 1995 the Caraccis created three for-profit corporations and transferred all the agency assets into them in exchange for assuming the liabilities. While the not-for-profit agencies still existed, they no longer operated for charitable purposes, the IRS concluded. The IRS charged that in the transfer and conversion the family undervalued the not-for-profit agencies' assets. The IRS imposed excise taxes on the family members and the for-profit corporations, arguing they unfairly reaped economic benefits in violation of tax-exemption laws. -- by Mark Taylor