More from Pennsylvania Commonwealth Court on Charitable Tax Exemption for CCRC

On August 3, 2022, the Pennsylvania Commonwealth Court issued its latest ruling in the long-running case of Friends Boarding Home of Western Quarterly v. Commonwealth,  with an en banc opinion rejecting Friends Home's exceptions to the appellate court's earlier three-judge panel ruling.  The full court focuses closely on the use of residents' fees to operate the Continuing Care Retirement Community (CCRC) and the argument that because "some" residents receive subsidized care the facility is donating the necessary "substantial" portion of its services.  For example:  

Between 2014 and 2017, Friends incurred annual operating losses between $386,620-$542,652. In 2018, Friends had an operating deficit of $265,569 and for 2019, $790,069. Friends maintains that these deficits lend additional support that Friends’ rates contain substantial subsidies that benefit all residents, such that it satisfied the requirement that it donates or renders gratuitously a substantial portion of its services.

 

We recognize that Friends incurs operating deficits that it covers with funds generated from investments and contributions. However, Friends’ argument that its operating deficits prove that it donates a substantial portion of its services by subsidizing all rates is once again refuted by the fact that there are for-profit facilities in the vicinity of Friends Home providing similar services at comparable rates. Even though Friends may incur operating deficits, it has not demonstrated that it donates “a substantial portion of its services” “to those who cannot afford the ‘usual fee.’” HUP, 487 A.2d at 1315 n.9. Thus, we discern no error in the conclusion reached [by the Panel] in Friends Boarding Home in this regard.

My Pennsylvania colleague Douglas Roeder and I recently co-authored an article about the ongoing challenges for nonprofit organizations, especially those who offer fee-based services.  The latest ruling from the Pennsylvania Commonwealth Court would seem to deepen the need for certain nonprofits who seek "purely charitable" tax exemptions to carefully consider their charitable mission.  I'm also thinking that nonprofit CCRCs would also be well advised to have candid discussions of their charitable missions with both potential residents and current residents.  Ultimately,  it will be the more solvent residents who make up the difference in support of the charitable mission.