Thursday, July 8, 2010

Sperm Donor's Nonprofit Organization Not Tax-Exempt

In Free Fertility Foundation v. Commissioner (135 T.C. No. 2 (July 7. 2010)), the U.S. Tax Court concluded that a nonprofit organization, The Free Fertility Foundation, created to provide a donor's sperm without charge to women seeking to become pregnant through artificial insemination or in vitro fertilizaion did not qualify for tax-exempt status under section 501(c)(3) for the charitable purpose of promoting promoting health.  Certain portions of Judge Foley's opinion follow:

The free provision of sperm may, under appropriate circumstances, be a charitable activity. Petitioner, however, does not qualify for tax exemption because the class of petitioner’s beneficiaries is not sufficiently large to benefit the community as a whole. ... the class of potential beneficiaries includes only the limited number of women who are interested in having one man-–Naylor–-be the biological father of their children and who survive the very subjective, and possibly arbitrary, selection process controlled by the Naylors. Over a 2-year period, petitioner received 819 inquiries and provided sperm to 24 women. In deciding who receives the sperm, petitioner has certain preferences that narrow the class of eligible recipients. It is not apparent what, if any, relationship some of these preferences have to the promotion of health. ...

While Naylor may believe that petitioner’s activities “make more of a positive difference to the world than all of the inventions and scientific discoveries that * * * [he] could ever create”, we are not convinced that the distribution of one man’s (i.e., Naylor’s) sperm to a small number of women, selected in the manner presented, promotes health or confers a public benefit.

(Hat tip: TaxProf Blog)


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