#### DAVID HOFER, PETER J. HOFER, JOHN J. WIPF, JACOB HOFER, SAMUEL KLEINSASSER, MICHAEL J. ENTZ, GEORGE GROSS, GEORGE WALDNER, AND JACOB J. WIPF, TRUSTEES OF HUTTERISCHE CHURCH, v. THE UNITED STATES

[No. E-451.

Decided February 20, 1928]

*On the Proofs*

*Income anú, excess-profits taxes; religious corporation; exemption.-*— A corporation, the members of wbieb devote all their time, services, and earnings thereto, whose property is owned for the common use and benefit of its members, is, notwithstanding its religious purposes, not a corporation organized and operated exclusively for religious purposes as defined in section 11 (a) of the revenue act of 1916, as amended by the revenue act of 1917.

*The Reporter's*statement of the case:

*Mr. H. B. McCawley*for the plaintiffs. *Mr. George N. Brown*was on the brief.

*Mr. Lisle A.*Smith, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

*673The court made .special findings of fact, as follows:

I. The taxpayers above named, since July 3, 1923, have been and are trustees of the Hutterische Church, operating under a certain deed of trust, a copy of which is attached hereto and made a part hereof, and marked “ Exhibit A.” The Hutterische Church is the successor to the Hutterische Gemeinde Elmspring, a corporation organized under the laws of the State of South Dakota. The articles of such incorporation are attached hereto and made a part hereof and marked “ Exhibit B ”; the said corporation since the 12th day of March, 1897, until its dissolution on November 2, 1923, had its offices in Alexandria, in the State of South Dakota.

II. During the year 1917 the corporation was engaged in agriculture and raised wheat, rye, oats, com, cattle, hogs, horses, sheep, poultry, and garden truck, and during said year the corporation owned farm implements, farm land, and flour mills. The corporation also owned blacksmith shops, broom works, harness and shoe shops, and a bakery.

During the year 1917 the income of the corporation was derived from the sale to the public of agricultural products of all kinds, and the gross income from these sources during that year, as stated in the return of the corporation to the revenue bureau, was $227,906.35. After subtracting allowable expenses, including deductions for ordinary, and necessary business expenses, interest, taxes, depreciation, and losses, the net income of the corporation for the year 1917, as computed by the commissioner, amounted to $145,969.50. During that year the corporation consisted of four colonies, situated in Hutchinson, Hanson, and Beadle Counties in the State of South Dakota, and it owned 17,940 acres of land. On February 23, 1921, Hutterische Gemeinde Elmspring filed a duly executed waiver of the statutes of limitations on the assessment of income and excess-profit^ taxes under the provisions of the said revenue act of 1917 for the calendar year 1917 with the Treasury Department, through the office of the internal-revenue agent in charge at St. Paul, Minn.

III. On March 9, 1919, Hutterische Gemeinde Elmspring duly filed an application for refund of the sum of $13,680.42, *674the tax paid on its return for the year 1917, claiming exemption under paragraph 6 of section 11 of the revenue act of 1916, as amended by the revenue act of 1917, which claim was formally rejected by the Commissioner of Internal Revenue under date of August 13, 1919.

IY. The income of the corporation was used to support its members and their families, to purchase implements, facilities, and to maintain its land and buildings, and the balance of its funds was invested in the purchase of additional lands.

V. The Commissioner of Internal Revenue found and determined that the corporation was taxable under the revenue act of 1917. The corporation paid for the year 1917 income tax in the amount of $14,424.42.; $13,680.42 of this amount is shown on the original return and $744 represents an additional assessment made in January, 1921. After the payment of the tax shown to be due on the return and the additional assessment, making a total payment of $14,424.42, a claim for refund was filed on August 8, 1923, in the sum of $14,424.42, and was denied by the commissioner under date of March 20, 1924.

YI. The amount of taxes determined to be due and paid by the taxpayer for the year 1917 was $14,424.42, and the taxpayer and the commissioner agree that if the corporation is subject to tax upon its net income for the year 1917 under the revenue act of 1917, the amount of $14,424.42 as determined by the commissioner and paid by the taxpayer is correct.

EXHIBIT A

Declaration of trust and deed under which the Hutterische Society and Church of Elmspring, Hutchinson County, S. Dak., is now operating

Declaration of trust

This declaration of trust made and entered into this 3d day of July, 1923, by and between David Hofer, Peter J. Hofer, John J. Wipf, Jacob Hofer, Samuel Klejnsasser, Michael J. Entz, George Gross, George Waldner, and Jacob J. Wipf, trustees of the Hutterische Church, a voluntary, *675unincorporated religious society of Elmspring, Hutchinson County, State of South Dakota, party of the first part, and said Hutterische Church and the members thereof, party of the second part.

Whereas said trustees have been selected and elected by the members of the Hutterische Society and Church of Elmspring, Hutchinson County, State of South Dakota, to take and hold the legal title to all of the real and personal property of the Hutterische Gemeinde Elmspr,ing, a corporation of Elmspring, Hutchinson County, South Dakota, and all other property, real and personal, that may be deeded, granted, and transferred to them by order or authority of said Hutterische Church or the members thereof or by their request or consent for the use, maintenance, support, and benefit of all of the members of said society and church and their dependent families and their successors and the families of their successors so long as they live a community life and use the same as community property.

Whereas the Hutterische Gemeinde EJmspring, a corporation of Elmspring, Hutchinson County, South Dakota, has deeded, granted, transferred, and conveyed all of the real and personal property of said corporation to said trustees in pursuance of a resolution of said corporation, adopted at a general meeting of the members of said corporation, held on the 21st day of June, 1923. The description of said real estate is set forth by sections and quarter sections, aggregating about 18,000 acres.

The legal title of said real estate is to be held and possessed by said trustees for the purposes declared herein, but they are not to own or possess or be entitled to any equitable title, right, or interest in said property except as such trustees.

Now, therefore, we, David Hofer, Peter J. Hofer, John J. Wipf, Jacob Hofer, and Samuel Kleinsasser, Michael J. Entz, George Gross, George Waldner, and Jacob J. Wipf, the said trustees chosen and elected by said members of said Hutterische Church for and in consideration of one dollar paid to us by said members of said church do now accept said trust and make this declaration of trust and agree to and with said members of said Hutterische Society and Church and the members thereof to receive, take, hold, and possess the legal title to all of said real and personal property heretofore owned by said Hutterische Gemeinde Elm-spring, a corporation, deeded, granted, and conveyed to us as trustees of said church and members thereof; and all other real and personal property that said church and members may have, own, or that they may hereafter own or *676possess conveyed to us by or for said church or the members thereof, including- all that may hereafter become members thereof for the' use, maintenance, support, and benefit of al.l of the members of said society and church and their dependent families and their successors and the dependent families of their successors, according to and with the limitations and conditions herein expressed. And care for, protect, farm, cultivate, and raise grain, crops, produce, and stock thereon as may be required by said members of said Hutter-ische Church and do and perform all acts and things as said church or members may direct and require to be done for the benefit of said members and church either by by-laws made and adopted by said members of said Hutterische Church or in any other way that said members of said church may prefer and make reports to said church and the members thereof of our acts and doings as trustees of and for said Hutterische Church and members thereof at such times and ,in such manner as they may direct, and to act for and pay over all moneys that may be in our hands or held by us at such times or at any time that we may be directed to do so, and to grant, deed, transfer, and convey any and all property, both real and personal, that we or either of us may have, hold, or possess in our names or the name of either of us to said church or any members of said church or to any trustee or trustees of said Hutterische Church that may be chosen or elected to succeed us or either of us whenever required or requested to do so by the members of said church, for the time and during the pleasure of said members of said Hutterische Church as trustee and in trust for the members of sa,id Hutterische Church.

That said board of trustees of said Hutterische Society shall have the power and authority to contract for, buy, sell, assign, transfer, encumber, mortgage, and dispose of any and all the personal property of said corporation and contract for, make, and incur any and all contracts, deeds, obligations, notes, mortgages, liens, guarantees, leases, and liabilities of said church in the ordinary exercise, transaction, conduct, and control of the power, privilege, and property of said Hutterische Church and to do and perform any and all acts and things necessary and proper, and to engage in, carry on the Christian religion, religious teachings, and practice of said church, and to engage in, carry on, and conduct farming, agriculture, milling, manufacturing of flour, and other articles from agricultural products, and mechanical acts necessary thereto and to buy and sell and deal in said agricultural products and products made and manufactured therefrom and other articles, material, machinery, implements, *677and things belonging to or necessary to engage in, carry, on, and conduct said business and to make contracts, and negotiate for and make, execute, and deliver any and all necessary and proper transfers, conveyances, bills of sale, contracts, agreements, obligations, notes, instruments, mortgages, liens, guarantees, satisfactions, leases, releases, transfers, evidences of debt, and other papers and instruments necessary and proper thereto to do and perform said acts and things hereby authorized and empowered to do and perform for the use, maintenance, support, and benefit of all of the members, but in trust for said Hutterische Church and members thereof.

That said trustees or board of trustees of said Hutterische Church and members thereof shall not have any power or authority to buy, purchase, mortgage, or negotiate for or enter into any contracts, agreements, writings, or obligations to buy, purchase, or obtain any lands or real property for said Hutterische Church or members thereof without it has first been authorized and empowered so to do by said church or members thereof; and said board of trustees may be so authorized and empowered to buy, purchase, negotiate for, and enter into any contract, agreement, writing, and obligation to buy, purchase, and obtain any lands and real property for said church or members thereof and to do and perform any acts or things relating thereto at any annual, general, or special meeting thereof, but not otherwise.

And we hereby further declare that we are to act as trustees only for the purposes herein stated and without compensation or reward of any kind and only during the pleasure of the members of said church, and will resign and vacate said office as trustee whenever requested or required by the members of said Hutterische Church to do so; and to elect a president, secretary, and treasurer of said board from the said trustees and whenever there is a vacancy for any cause in said board the same members of said Hutterische Church are to choose and elect a member from the members of said church to fill said vacancy.

In witness whereof we have hereunto set our hands this 3d day of July, 1923.

David HoeeR.

Peter J. Hoeer.

JohN J. Wipe.

Jacob Hoeer.

Samuel KleiNSAsser.

Michael J. Eettz.

George Gross.

George WaldNer.

Jacob J. Wipe.

*678EXHIBIT B

The following is a correct copy of the articles of incorporation of the Hutterische Society:

We, the undersigned, residents of the State of South Dakota, associated together for religious purposes, under the name of the “ Hutterische Society,” in the county of Hutchinson and State of South Dakota, have, and do hereby associate ourselves together as a body corporate, pursuant to the laws of the State of South Dakota, under the name of “ Hutterische Society,” for the purposes of promoting, engaging in, and carrying on the Christian religion and religious teachings; and, therefore, we do hereby adopt the following articles of incorporation:

1. That the name of said corporation shall be the “ Hut-terische Society.”

2. That the purposes for which said corporation is formed are to promote, engage in, and carry on the Christian religion and religious teachings, and connected therewith, and as' a part thereof, and of the religion and religious teachings and belief of the members of said corporation, to engage in, carry on, and conduct farming, agriculture, milling, manufacturing of flour and other articles from agricultural products, and mechanics and mechanical arts, necessary thereto, and to buy and sell and deal in said agricultural products and products made and manufactured therefrom, and other articles, materials, machinery, implements, and things belonging to, or necessary to engage in, carry on, and conduct said farming, agricultural, milling, manufacturing, mechanics, and mechanical arts necessary thereto, and as a part of and connected with the religion and religious teachings of said corporation and members thereof.

3. That the principal business of said corporation shall be transacted in the county of Hutchinson and State of South Dakota.

4. That the said corporation shall be perpetual, and the term for which it is to exist shall be unlimited.

5. That the corporate powers, privileges, business', and property of said corporation shall be exercised, transacted, conducted, and controlled by a board of five trustees, who shall be male members of said corporation. That the names and residences of the members of said corporation, who are to serve as trustees of said corporation until the election of such trustees and officers thereof, are Darius Walter, Michael Stahl, Jacob Stahl, Joshua Hofer, and Christian Waldner, all residents of said State of South Dakota.

*6796. The trustees of said corporation shall be elected from the male members of said corporation and hold their offices for the term of 10 years, and may be removed, and others elected to fill the vacancies, caused by death, removal, expulsion, resignation, or other cause, at any time by a vote of two-thirds of the members of said corporation.

7. That the board of trustees of said corporation shall have charge, management, and control of, and exercise, conduct, and transact all the affairs, property, business, and transactions' of said corporation.

8. That the president, vice president, secretary, and treasurer, and other officers of said corporation shall be elected from the male members of said corporation.

9. That all the property, real and personal, of said corporation, howsoever it may have been obtained, shall forever be owned, used, occupied, and possessed by said corporation for the common use, interest, and benefit of each and all the members thereof, for the purposes of said corporation during the time and so long as they remain members thereof.

10. That all the property, both real and personal, that each and every member of said corporation have, or may have, own, possess, or be entitled to at the time that they join such corporation, or become members thereof, and all the property, both real and personal, that each and every member of said corporation may have, obtain, inherit, possess', or be entitled to, after they become, members of said corporation, shall be and become the property of said corporation, to be owned, used, occupied, and possessed by said corporation for .the common use, interest, and benefit of each and all of the members thereof as aforesaid.

11. That none of the property, either real or personal, of said corporation shall ever be taken, held, owned, removed, or withdrawn from said corporation, or be granted, sold, transferred, or conveyed by any member or members thereof, and if any member of said corporation shall be expelled therefrom, or cease to be a member thereof, he or she shall not have, take, withdraw from, grant, sell, transfer, or convey or be entitled to any of the property of said corporation, or any interest therein; and if any member of said corporation shall die, be expelled therefrom, or cease to be a member thereof, then his or her personal representatives, heirs at law, legatees, or devisees, or creditors, or any other persons shall not be entitled to or have any of the property of said corporation, or interest therein, whether or not he or she owned, possessed, or had any interest in or to any of the property of said corporation at the time he or she became a member thereof, or at any time before or thereafter, or had *680given, granted, conveyed, or transferred any property or property interest to said corporation at any time.

12. That each and every member of said corporation shall give and devote all his or her time, labor, services, earnings, and energies to the said corporation and the purposes for which it is formed, freely, voluntarily,. and without compensation or reward of any kind whatsoever, other than herein expressed. .

13. That the members of said corporation shall be entitled to, and have their husbands, wives, and children, who are not members thereof, reside with them, and be supported, maintained, instructed, and educated by said corporation, according to the rules, regulations, requirements, and by-laws of said corporation, and the Christian religion, religious teachings, and belief promoted, engaged in, and carried on by said corporation, during the time and so long as they obey, abide by, and conform to the rules, regulations, instructions, requirements, and by-laws of said corporation.

14. Whenever any member of said corporation shall die, then his or her husband, wife, and children, who are not members thereof, shall have the right to remain with and be supported, instructed, and educated by said corporation during the time and as long as they give and devote all of their time, labor, services, earnings, and energies to the said corporation and the purposes thereof and obey and conform to the rules, regulations, requirements, and by-laws of said corporation, the same as if the said member had lived.

15. That the husbands, wives, and children of each and all of the members of said corporation, who are not members thereof, shall give and devote all their time, labor, services, earnings, and energies to the said corporation and purposes for which it is formed, free, voluntarily, and without compensation of any kind whatsoever, other than herein provided, and obey and conform to all the rules, regulations, requirements, and by-laws of said corporation, while they remain at or with said corporation.

16. That the said corporation shall not be dissolved without the consent of two-thirds vote of all its members

*17.*That all the property, real and personal, held, owned, or possessed by the Hutterische Society, a religious association of the County of Hutchinson and State of South Dakota, hereinafter referred to, and all the property that the said society is entitled to, shall be and become, and be held, owned, and possessed by said corporation when incorporated.

"That on the 11th day of March, 1897, the Hutterische Society, a religious association, of the county of Hutchinson and State of South Dakota, for the election and to elect five *681trustees for said corporation to be formed by said association, who were to serve until the election of such trustees by said corporation and members thereof, at which meeting and election a majority of the members of said association were present and voted, and that Jacob Stahl, a member of said society, was duly elected president of said meeting and election, and that Samuel Hofer, jr., a member of said society, was duly elected secretary of said meeting and election, and that said Jacob Stahl and Samuel Hofer, jr., acted at and conducted said election as the president and secretary thereof, respectively, which facts are verified by the said officers conducting said election, as follows, to wit:

*State of South*Dakota, *Gomty of HuttoMnson, ss.:*

Jacob Stahl and Samuel Hofer, jr., being duly sworn, each for himself says: That he is a resident of the county of Hutchinson and State of South Dakota; that on the 11th day of March, 1897, at the office of the Hutterische Society, a religious association of the county of Hutchinson and State of South Dakota, at Wolfe Creek, in the said county of Hutchinson, the said association, Hutterische Society, held a meeting for the election of the trustees for the Hut-terische Society, a corporation to be formed and incorporated by said association, who were to serve until the election of such officers and trustees by such corporation, and the members thereof, at which meeting and election a majority of the members of said association were present and voted, and said Jacob Stahl, a member of said society, was duly elected the president of said meeting and election, and said Samuel Hofer, jr., a member of said society, was duly elected the secretary of said meeting and election, and that said Jacob Stahl and Samuel Hofer, jr., acted as president and secretary thereof, respectively, and conducted said meeting and election as such officers, and that Darius Walter, Michael Stahl, Jacob Stahl, Joshua Hofer, and Christian Waldner, all members of said society and residents of the county of Hutchinson and State of South Dakota, were duly elected the trustees of said corporation to be formed and incorporated, 'and who were to serve until the election of such officers by such corporation, and the members thereof, and thereupon the said meeting was adjourned.

Jacob Stahl.

Samuel Hofer, Jr.

Subscribed and sworn to before me this 12th day of March, A. D. 1897.

J. SCHNAIDT, Jr.,

*Notary PubMo.*

*682The court decided that plaintiffs were not entitled to recover.

Campbell, *Chief Justice,*

delivered the opinion of the court:

This is a suit by certain individuals as trustees of Hut-terische Church to recover an amount of income and excess-profits taxes paid by Hutterische Gemeinde Elmspring, a corporation, upon income for the year 1917. The corporation was organized in 1897 under the laws of South Dakota and was dissolved by action of its members in November, 1923. A copy of its articles of incorporation is attached to the stipulation of facts' upon which the case has been submitted. These articles provide, among other things, that the corporation may be dissolved with the consent of two-thirds of all its members. The Hutterische Church is, according to the stipulation, “ the successor to ” this corporation. A declaration of trust executed by the trustees in July, 1923, recited that they have been duly selected by the members “ to take and hold the legal title to all of the real and personal property ” of the corporation and all other property of the Hut-terische Church, and that the property has been conveyed to them “ for the use, maintenance, support, and benefit of all of the members of said society and church and their dependent families and their successors * * ***so long as they live a community life and us'e the same as community property.” The trustees are “ to care for, protect, farm, cultivate, and raise grain, crops, produce, and stock thereon ■as may be required by said members.”

The claim here, as already stated, is for a refund of taxes paid by the corporation, afterwards dissolved. Its property, as stated in the articles of incorporation, should “ forever be owned, us'ed, occupied, and possessed by said corporation for the common use, interest, and benefit of each and all the members thereof, for the purposes of said corporation during the time and so long as they remain members thereof.” The property of the individual members acquired by gift or purchase after they became members or held when they became members was to be the property of the corporation for the common use, interest, and benefit of all of the members. *683It is declared that each and every member of the corporation shall devote all his time, labor, Services, and earnings to the corporation without compensation or reward except as expressed, and it is provided that the members shall be entitled to and have their husbands, wives, and children who are not members reside with them and “be supported, maintained, instructed, and educated ” according to the rules of the corporation, and the Christian religion and belief promoted by the corporation. During the year 1917 this corporation held title to about 18,000 acres of land. It engaged in agriculture and rais'ed wheat, rye, oats, corn, cattle, hogs, horses, sheep, and poultry. It owned flour mills, blacksmith shops, broom works, harness and shoe shops, and a bakery. Its gross income from sales to the public from the sources mentioned was about $225,000. After deducting all allowable deductions its income for 19.17 was $145,969.50, upon which the taxes here sought to be recovered were assessed and paid. The question is whether this corporation was exempt from taxation under the provisions of the revenue act of 1916, as amended by the revenue act of 1917, 39 Stat. 766, as follows:

> “Sec. 11 (a). That there shall not be taxed under this title any income received by any * * *

> “ Sixth. Corporation or association organized and operated exclusively for religious, charitable, scientific, or educational purposes, no part of the net income of which inures to the benefit of any private stockholder or individual.”

We think that the recital of the purposes of the corporation excludes it from the class exempted by the statute. It is distinctly different from that of *Trinidad*v. *Sagrada*Orden, 263 U. S. 578, where the stipulation was in the first place that the plaintiff was a corporation solely organized and operated for religious, benevolent, scientific, and educational purposes in the Philippine Islands and elsewhere and, secondly, “ that neither its net income nor part of its rents from whatever source it may come is applied to the benefit of any particular stockholder or individual or of any of its members.” Conceding these things, the defendant contended that the corporation was not “ operated exclusively ” for the purpose above enumerated. In effect, say the court (p. 581), the contention puts aside as immaterial the fact that the *684income from the property was devoted exclusively to religious, charitable, and educational purposes. Construing the exempting clause it is said: “ First, it recognizes that a corporation may be organized and operated exclusively for religious, charitable, scientific, or educational purposes and yet have a net income. Next, it says nothing about the source of the income but makes the destination the ultimate test of exemption.” If there may still be a corporation sole under American law, it is quite pla,in that the corporation whose income was taxed in the present case is not one. Its property was controlled by a board selected by its members, and the stipulation found in the *Trinidad case, supra,*relative to income is not only absent from the present case, but the facts show that the income as well as the property was in large degree held for the common use and benefit of its members to be used for their support and maintenance, and also for the support, maintenance, and education of the heirs of deceased members. Certainly it may not be said that no part of the net income inured to the benefit of any individual. It was for the benefit of its members. Nor can it be said that such a corporation was operated exclusively for a religious purpose withjn the meaning of the exemption clause in the act mentioned.

The petition should be dismissed. And it is so ordered.

Moss, *Judge;*Graham, *Judge;*and Booth, Judge, concur. ■