RANCHO CORDOVA, Calif.—As expected, on Aug. 8 VSP Vision Care and its legal team, led by former U.S. Solicitor General Kenneth Starr, petitioned the U.S. Supreme Court to hear its case on regaining the company’s federal tax-exempt status.

The petition said, “This case presents a critically important, recurring question regarding the standards governing the tax-exempt status of nonprofit health care enterprises, particularly nonprofit health maintenance organizations.”

In 2003, based on an examination conducted in 1999, the Internal Revenue Service revoked the tax-exempt status of VSP’s California corporation, which it had held since 1960. VSP California paid income taxes owed for 2003, then filed suit in federal court for a refund; since then it has continued to do business as a not-for-profit while paying federal income taxes, as the company’s appeals worked their way through the courts.

VSP does operate two for-profit divisions, Eyefinity and Altair.

“The IRS’s revocation of VSP’s tax-exempt status, over 40 years after it was initially granted, represents an unauthorized departure from the established law of charitable trusts and from the specific judgment of the 1986 Congress,” said VSP’s president and chief executive officer, Rob Lynch.
According to the peitition, “As a nonprofit entity providing care to a large segment of the community, VSP pursues a goal of maximizing delivery of health care services within the limits of its financial capacity, rather than maximizing net income.” Given as examples were the company’s disaster-relief services, negotiated discounts with providers, and community outreach and patient education programs.

The Supreme Court is expected to respond to VSP’s petition for the Court to hear the case in early October; then VSP will have 10 days to file a reply brief. The Court will decide whether or not to hear the case several weeks to a few months after VSP’s reply brief is filed; if the writ for a hearing is granted, the Court is expected to hear oral arguments in February or March 2009.