Source: https://law.justia.com/cases/federal/appellate-courts/F2/190/120/247265/
Timestamp: 2019-04-20 04:17:55+00:00

Document:
Harry J. Rudick, New York City (Mason G. Kassel, New York City, on the brief), for petitioner.
Harry Baum, Washington, D. C. (Theron Lamar Caudle, Asst. Atty. Gen., Ellis N. Slack, Special Asst. to the Atty. Gen., on the brief), for respondent.
The facts are stipulated and set out at length in the Tax Court decision. We reiterate only so much of them as will expose the issue. The petitioner was organized as a Delaware corporation on August 21, 1947, for the purpose of benefitting the School of Law of New York University, an educational institution concededly exempt from income taxation under Section 101 (6). On August 28, 1947, the petitioner acquired, with borrowed funds, all the outstanding stock of C. F. Mueller Company, a taxable New Jersey corporation then engaged in the manufacture and sale of macaroni and allied products. The petitioner caused this stock to be canceled and, pursuant to a merger agreement, the New Jersy corporation was merged into the petitioner.
The petitioner's certificate of incorporation which was included in the merger agreement, recites that the petitioner's purpose is charitable. It provides that the profits and assets available for distribution should be paid only to New York University for the exclusive benefit of the School of Law, and that upon the termination of the petitioner, its assets should only be distributed in like manner after the discharge of debts. The petitioner's total authorized stock consists of ten shares, par value $100 each, the capital having been contributed. All the shares are held by voting trustees under a voting trust agreement dated August 28, 1947, but after a period of ten years the shares are to be transferred to New York University. The certificate of incorporation further provides that no stockholder shall be entitled to dividends at any time, nor to any of petitioner's assets or profits. No right to alter the certificate may be exercised to divert petitioner's income or property, after satisfaction of creditors, from New York University for the exclusive benefit of the School of Law. Finally, no director of petitioner may receive compensation for his services as director.
We agree that the statute lends itself to the result so far achieved, as explained in the Roche's Beach case, since it plainly contemplates that there may exist income otherwise taxable and does not proscribe any particular source of income, nor any particular activity save carrying on propaganda or otherwise attempting to influence legislation. Moreover, the authoritative rule of construction applicable in this instance requires the ambiguity of the statute to be resolved against taxation. Helvering v. Bliss, 1934, 293 U.S. 144, 150, 55 S. Ct. 17, 79 L. Ed. 246; Old Colony Trust Co. v. Helvering, 1937, 301 U.S. 379, 384, 57 S. Ct. 813, 81 L. Ed. 1169. The policy, as these cases indicate, is that the benefit from revenue is outweighed by the benefit to the general public welfare gained through the encouragement of charity. United States v. Proprietors of Social Law Library, 1 Cir., 1939, 102 F.2d 481, 482.
We are, therefore, content to rest upon the historical approach to Section 101 (6), which leads to the conclusion that the petitioner was exempt. The problem, in that view, was chiefly legislative, and while the Congress has seen fit to amend the law, it has done so without changing the pre-existing situation.
For the reasons stated, the decision of the Tax Court will be reversed.
"§ 101 Exemptions from tax on corporations.
"(6) Corporations and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation; * * *."
§ 303, Revenue Act of 1950, 26 U.S.C.A. § 421 note, provides in pertinent part: "* * * The determination as to whether an organization is exempt under section 101 of the Internal Revenue Code from taxation for any taxable year beginning before January 1, 1951, shall be made as if section 301(b) of this Act had not been enacted and without inferences drawn from the fact that the amendment made by such section is not expressly made applicable with respect to taxable years beginning before January 1, 1951."
We note also that it appears from the opinion of the Court that Community Services, Inc., not only has a purpose to devote its profits to charity, etc., but it has an additional purpose to operate its business ventures for the convenience of the employees of Graniteville Company, a non-exempt business organization, and of the people in the communities where Graniteville operates its mills. If this objective of convenience is substantial, the purpose of Community Services, Inc., is not exclusively charitable, and a decision contrary to that reached by the Court would run afoul of the singleness of purpose insisted upon in Better Business Bureau of Washington, D. C. v. United States, 1945, 326 U.S. 279, 66 S. Ct. 112, 90 L. Ed. 67.

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