At the end of September of this year, the City of Toronto had the pleasure of hosting the American Bar Association Tax Conference. Lawyers from Miller Thomson’s charity and non-profit practice group attended the Tax Exempt Section of the conference. While the rules are significantly different in the United States, we often catch glimpses of legal trends and issues that may migrate across the border.
A recent US case was the source of much discussion at the conference. In the Free Fertility Foundation v. Commissioner of Internal Revenue, a foundation was established to provide sperm free of charge to women seeking to become pregnant. The Foundation applied for charitable status in the US on the basis that it operated exclusively to promote health by providing free health products and services. The charitable status application was denied by the IRS.
This case would normally raise interesting questions about whether the provision of fertility is a health service, whether the provision of sperm to low income families should qualify as charitable in relief of poverty, and general issues regarding equal access to reproduction for everyone.
Unfortunately, these questions were never explored in this case due to the bizarre facts of the case, which more clearly indicated a lack of charitable intent. The foundation had only one sperm donor, who was on the board of directors and was also the sole financial contributor to the foundation. The board of directors screened the potential sperm recipients on many criteria that had little to do with health – such as education level, record of divorce, contributions to the community and ethnicity. Of the 819 applicants, only 24 received sperm.
The court held the foundation lacked the requirement to provide a public benefit. The court noted that:
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.
Furthermore the court held that this foundation did not promote health:
The petitioner’s activities may promote the propagation of [a single individual’s] seed and population growth, but they do not promote health for the benefit of the community.
It is often said that bad facts make for bad law. Hopefully if this issue is raised in Canada the facts will lead to the issue being given full consideration.