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This article questions the validity of Regulations section 1.502-1(b) and its resulting insistence upon virtual mergers. It argues that the regulation is invalid as having no basis in section 502, the statute under which it was codified. This article argues, instead, that the regulation is a logically incorrect amalgamation of two distinct judicial tax doctrines by which tax exemption may be or could have been gained vicariously: (1) the integral part doctrine which allows one organization to achieve tax exemption on the basis of another organization's charitable activities, and (2) the now-discarded destination of income doctrine under which tax exemption could be had on the sole basis that all the earnings of a corporation, however realized, were distributed to an organization directly providing charitable goods and services. An analysis of the two doctrines shows they are oriented toward distinct aspects of the unfair competition problem and do not simply address the same problem in different ways. Although the two doctrines may be legally and theoretically sound as separate doctrines, they are legally and theoretically unsound as a single merged doctrine resulting in the requirement of virtual mergers.

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