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CHAPTER 7:
TAX TROUBLE
Unfortunately, the Internal Revenue Service did not agree.

After considering the association's several applications for tax-exempt status from 1950 to 1952, in July of 1952 the IRS sent a letter to the board affirming the association's status as a tax-exempt organization "if you operate strictly in accordance with [the] purposes" stated in the articles of incorporation. This was certainly good news for all those who had contributed money towards the purchase of the property.

However, in 1957, the IRS informed the board that Northwest Memorial Hospital owed $350,000 in back taxes on the money earned by the puzzle contests. According to Harry Givan, the IRS as much as said," 'You are not a non-profit organization as far as we're concerned. The only thing you people have done, other than the acquisition of property, is run a puzzle contest, and a puzzle contest, in our opinion, is a complete violation [of your articles of incorporation]. It is unrelated business income to a non-profit organization. This is a business, and therefore taxed."

Mr. Givan understood the severity of the situation — "We had been turned down by the tax division and the appellate courts," he said — and thought he could "unconvince" the IRS. He asked the board to elect him president so that he could take the association's case to Washington, D.C.

The chairman of the board at the time, attorney Charles Horowitz, was not optimistic about the outcome of such a visit. "(He) said, `Well, you can go to Washington if you want, but you're completely wasting your time — I've been there and talked to Magnusson and Jackson and all hands," remembered Mr. Givan.

But Mr. Givan had a close relationship with U.S. Congressman Jack Westland. They played golf together and he had managed the Congressman's 1952 election campaign. "I simply asked the question, 'Can you get me in to see these guys?!' So Jack made all those arrangements and went to every interview and was terribly important. We couldn't have done this without Jack Westland," Mr. Givan said.

Mr. Givan made three trips to Washington, D.C., and managed to convince the IRS of the association's virtue. "I made some statements that I really couldn't back up, but when you're desperate...! I said, 'All right. We've raised this money. I'll arrange for the hospital to put up a bond to guarantee the building of a hospital to the tune of $2,200,000, which is our budgeted amount [for building], and we'll pledge the property as security.' Whether that was ever convincing or not, I don't know. (Although I had no authority to do such a thing! But I was pretty sure the board, under the circumstances, would have approved.)

"I said, 'The Congressman will vouch as to all the principals involved — they're very honorable people and they're going to do exactly, with your permission, what we said we would do.

Whether it was the promise of a bond or Congressman Westland's rectitude that swayed the IRS, we may never know. But they did finally make the right decision, in March 1958, and Northwest Memorial Hospital's money was secure.

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