## Facts

- Easter House, an Illinois not-for-profit corporation, operated a private adoption agency and sought recognition as a tax-exempt charitable organization under I.R.C. §§ 501(c)(3) and 501(a).
- The agency charged substantial fees to adoptive parents as its only revenue source and set fees to exceed operating costs, generating significant retained profits.
- Services to unmarried mothers (e.g., counseling and care) were closely connected to facilitating adoptions; care generally ended if a mother decided to keep her child.
- Seymour (Howard) Kurtz was president and sole “life member,” with broad authority over governance and contracting and effective control over the board.
- Easter House paid Kurtz $45,125.05 in 1983 for part-time work.
- Easter House made loans to other adoption-related entities controlled by Kurtz, functioning as a source of credit for those related organizations.
- The IRS denied the exemption application, finding Easter House was not operated exclusively for charitable purposes and that net earnings inured to a private individual; Easter House filed a declaratory judgment action challenging that denial.

## Issues

1. Whether Easter House was operated exclusively for charitable purposes within the meaning of I.R.C. § 501(c)(3).
2. Whether Easter House satisfied the § 501(c)(3) requirement that no part of net earnings inure to the benefit of any private shareholder or individual.

## Decision

- The Claims Court upheld the IRS’s denial of tax-exempt status under I.R.C. §§ 501(c)(3) and 501(a).
- The court found Easter House’s primary objective was a fee-based adoption placement business rather than charitable activity.
- The court independently found prohibited private inurement because Kurtz’s control, compensation, and related-party lending showed earnings benefitted a private individual.
- Judgment was entered for the United States.

## Legal Principles

- An organization fails § 501(c)(3)’s operational test if its primary purpose is a commercial business activity rather than an exempt charitable purpose, even if it provides some socially beneficial services.
- The “no inurement” requirement is absolute: any net earnings inuring to the benefit of a private shareholder or individual disqualifies the organization from § 501(c)(3) exemption.
- Insider control and financial arrangements (including compensation and use of organizational funds to support related entities controlled by the insider) are probative of private inurement.

## Conclusion

The Claims Court sustained the IRS’s denial of Easter House’s § 501(c)(3) exemption because the agency operated chiefly as a profit-generating adoption placement enterprise and because its earnings impermissibly benefitted its controlling insider through compensation and related-entity financing.


Easter House v. United States, 12 Cl. Ct. 476 (Cl. Ct. 1987)