Midwest Research Institute, Appellee, v. United States of America, Appellant.midwest Research Institute, Appellant, v. United States of America, Appellee, 744 F.2d 635 (8th Cir. 1984)

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U.S. Court of Appeals for the Eighth Circuit - 744 F.2d 635 (8th Cir. 1984)

Submitted May 17, 1984. Decided Sept. 26, 1984


Stinson, Mag & Fizzell, George E. Feldmiller, David E. Everson, Jr., Charles W. German, Kansas City, Mo., for appellee.

Glenn L. Archer, Jr., Asst. Atty. Gen., Michael L. Paup, Robert A. Bernstein, Steven I. Frahm, Attys., Tax Div., Dept. of Justice, Washington, D.C., for appellant; Robert G. Ulrich, U.S. Atty., Kansas City, Mo., of counsel.

Before LAY, Chief Judge, FLOYD R. GIBSON, Senior Circuit Judge, and FAGG, Circuit Judge.

FAGG, Circuit Judge.

Midwest Research Institute (MRI) is a non-profit scientific research organization whose tax exemption under 26 U.S.C. § 501(c) (3) is not challenged. The question in this case is whether MRI may recover taxes paid on income it realized from conducting projects for private sponsors on a fee basis. The Internal Revenue Service collected the funds under 26 U.S.C. § 511-513 as tax on income from an unrelated business conducted by a tax-exempt organization.

The district court held that income from the majority of the privately sponsored projects was not taxable as unrelated business income, but that income arising from the remainder of the disputed projects constituted unrelated business taxable income. Midwest Research Institute v. United States, 554 F. Supp. 1379 (W.D. Mo. 1983), modified, No. 78-0875-CV-W-2-6 (W.D. Mo. April 15, 1983). MRI's request for attorney fees under the Equal Access to Justice Act, 28 U.S.C. § 2412, was denied by the district court.


The government appeals from the district court's determination that completion of most of the projects undertaken for private sponsors was substantially related to MRI's exempt purpose of conducting scientific research for the purpose of aiding the Midwest by encouraging the development of industry in the area, and hence income from these projects was not taxable.

MRI cross-appeals from the district court's conclusion that a few of the privately sponsored projects, involving testing, lubrication of parts, and computer rental, produced taxable income because they did not entail scientific research and their performance by MRI constituted engaging in businesses unrelated to MRI's exempt scientific research purposes. MRI also challenges the denial of its request for attorney fees, which was based on the district court's determination that the government's position was substantially justified and that special circumstances made an award unjust.

We have carefully studied the record, including the district court's opinion and the briefs of the parties to the action. The district court's determinations concerning MRI's tax liability represent findings of fact that are not clearly erroneous. Upon considering the government's position in light of Iowa Express Distribution, Inc. v. NLRB, 739 F.2d 1305 at 1309-1310 (8th Cir., 1984), we also agree with the district court's decision that the government's position was substantially justified. We thus find no merit in the arguments made for reversal. Affirmed.