Court Opinion

ID: 9445491
Source: CourtListenerOpinion
Date Created: 2023-08-03 21:30:40.401374+00
Date Added: 2024-06-11T17:30:17.457835
License: Public Domain

RIVES, Circuit Judge
(dissenting).
Appellant’s properties and funds were held by Guaranty Title as trustee. Its management was vested in an Executive Committee of seven members who acted, of course, in a fiduciary capacity. It seems clear to me that the purpose of its members had been to create that kind of savings bank whose affairs are administered by a board of trustees.1
The Congress had evidently intended that savings banks “not having a capital stock represented by shares” would be taxable as corporations, unless specifically exempted under § 101(2) of the Internal Revenue Code of 1939. We have heretofore held that the purpose to create no more than a mutual savings bank failed, because appellant was authorized to engage in and actually transacted business foreign to that of a bank. I think it equally clear that appellant was an “association” taxable as a corporation, within the meaning of § 3797(a) (3).2
All of us recognize the same cases as controlling on the characteristics an unincorporated organization must possess in order to be taxable as a corporation. Morrissey v. Commissioner of Internal Revenue, 296 U.S. 344, 56 S.Ct. 289, 80 L.Ed. 263; and its companion cases; see also A. A. Lewis & Co. v. Commissioner of Internal Revenue, 301 U.S. 385, 57 S.Ct. 799, 81 L.Ed. 1174. There are a legion of other cases in this field,3 and no useful purpose would be served by an elaborate survey of any substantial number of them. As we said in Lucas v. Extension Oil Co., 5 Cir., 47 F.2d 65, 66:
“Each of these cases grounds its result upon the controlling facts, and makes it clear that reality, and not fiction, must in each case determine whether the tax is or is not properly laid.”
Perhaps the key to a solution can best be reached by considering substance rather than form, inquiring whether in the particular case the organization enjoyed the privileges of doing business in a manner substantially the same as if *574it had been incorporated, and remembering also that, “* * * it is impossible in the nature of things to translate the statutory concept of ‘association’ into a particularity of detail that would fix the status of every sort of enterprise or organization which ingenuity may create * * Morrissey v. Commissioner, supra, 296 U.S. at page 356, 56 S.Ct. at page 295.
That case prescribed three general characteristics to be possessed by an organization before it is an association taxable as a corporation: (1) the actual association of two or more individuals in a joint enterprise; (2) for the purpose of carrying on some business; (3) with substantial resemblance to a corporation. See Morrissey v. Commissioner of Internal Revenue, supra, 296 U.S. at pages 356, 357, 56 S.Ct. at pages 294, 295, and see also, 7 Mertens Law of Federal Income Taxation (Zimet & Barton Revision) § 38A.10. In the present case, the association admittedly had the first two characteristics, the dispute centers on the third; that is, the extent to which it resembles a corporation. Some cases have held the resemblance to corporate form to be secondary in importance to the purpose of the organization. Helver-ing v. Washburn, 8 Cir., 99 F.2d 478, 481; United States v. Davidson, 6 Cir., 115 F.2d 799, 801; Nee v. Main Street Bank, 8 Cir., 174 F.2d 425, 429. Again, however, it seems to me that the key is to be found in whether there is substantial resemblance.
In particularizing the salient features whereby a trust can be found to take on corporate resemblance, the Court observed in the Morrissey case, supra, 296 U.S. at page 359, 56 S.Ct. at page 296:
“What then, are the salient features of a trust — when created and maintained as a medium for the carrying on of a business enterprise and sharing its gains — which may be regarded as making it analogous to a corporate organization ? A corporation, as an entity, holds the title to the property embarked in the corporate undertaking. Trustees, as a continuing body with provision for succession, may afford a corresponding advantage during the existence of the trust. Corporate organization furnishes the opportunity for a centralized management through representatives of the members of the corporation. The designation of trustees, who are charged with the conduct of an enterprise, who act ‘in much the same manner as directors,’ may provide a similar scheme, with corresponding effectiveness. Whether the trustees are named in the trust instrument with power to select successors, so as to constitute a self-perpetuating body, or are selected by, or with the advice of, those beneficially interested in the undertaking, centralization of management analogous to that of corporate activities may be achieved. An enterprise carried on by means of a trust may be secure from termination or interruption by the death of owners of beneficial interests and in this respect their interests are distinguished from those of partners and are akin to the interests of members of a corporation. And the trust type of organization facilitates, as does corporate organization, the transfer of beneficial interests without affecting the continuity of the enterprise, and also the introduction of large numbers of participants. The trust method also permits the limitation of the personal liability of participants to the property embarked in the undertaking.”
We restated those salient features in Commissioner of Internal Revenue v. Rector & Davidson, 5 Cir., 111 F.2d 332, 333:
“They are (1) title to the property held by the entity, (2) centralized management, (3) continuity uninterrupted by deaths among the beneficial owners, (4) transfer of interest without affecting the continuity of the enterprise, and (5) limitation of the personal liability of participants.”
*575It seems to me that appellant had (1) continuity of title in Guaranty Title for its benefit; (2) centralized management by the Executive Committee; (8) continuity uninterrupted by the deaths of any, less than substantially all, of the beneficial owners because the Executive Committee continued in control until final termination of the organization.
True, as has been stated, membership in and the units of appellant organization were nontransferable. Under its method of operation, however, the par value and the actual value of units were kept at approximately the same amount. Withdrawal of memberships and of deposits and the admission of new members and issuance of new units permitted flexible contraction and expansion of interests without affecting the continuity of the enterprise, and substantially supplied feature numbered 4.
In Del Mar Addition v. Commissioner of Internal Revenue, 5 Cir., 113 F.2d 410, 411, we said:
“The fifth characteristic is the limitation of the personal liability of participants. The trust agreement did not specially include such a provision, but the record is clear that it was not included only because, in the judgment of the participants, it was unlikely, due to the nature of the enterprise, that any contingency would arise requiring it.”
That is likewise true in the present ease. Following the excellent investment practices of Guaranty Title, the employer organization, with which its employees were of course familiar, the evidence shows that the association has never suffered a loss on a single investment. Further, if an individual member executed a note or obligation for the association under the by-laws he would be indemnified “to the extent of its total assets.” Under the peculiar facts of this case, the failure to provide for absolutely limited liability did not deprive the association or its members of any substantial right or privilege possessed by a corporate organization. See Bert v. Helvering, 67 App.D.C. 340, 92 F.2d 491, 495.
Finally, the Morrissey case, supra, 296 U.S. at page 354, 56 S.Ct. at page 294, suggested that,
“As the statute merely provided that the term ‘corporation’ should include ‘associations,’ without further definition, the Treasury Department was authorized to supply rules for the enforcement of the act within the permissible bounds of administrative construction.” 296 U.S. at pages 354-355, 56 S.Ct. at page 294.
It seems to me quite clear that this appellant is an association taxable as a corporation, distinguished from either a trust or from a partnership, within the terms of the applicable regulations, too lengthy to be here quoted. Treasury Regulations 111, § 29.3797 — 1, 2, 3 and 4.
Of opinion that the judgment should be affirmed, I therefore respectfully dissent.

. “§ 832. Nature and Kinds of Samngs Banks. — There are two distinct kinds of savings banks. What may be termed the first kind is that of the old-style savings bank, an institution in the hands of distinterested persons, the profits of which, after deducting the necessary expenses of conducting the business, inure wholly to the benefit of the depositors, in dividends or in a reserved surplus for their greater security. In such an institution there is no capital stock and there are no stockholders. The bank’s affairs are administered by a board of trustees, the securities in which the deposits shall be invested are prescribed by law, and returns are made to public authorities who may examine the institution at any time, so that the conduct of its affairs may be constantly under public supervision. Although termed a bank, it has few characteristics of a commercial bank of discount and deposit, and it is not a banking institution in the commercial sense of that phrase.
“What may be termed the modern style of savings bank is one in which the depositor becomes a creditor of the bank for the amount of the deposit, and receives such interest on the deposit as the trustees or directors of the bank may agree to pay, and in which the profits, after the payment of such interest, belong to the corporation and its stockholders. This is also the corporate setup and relationship in respect of a savings department in a commercial banking corporation thus organized. As a logical consequence, this modern type of savings bank has been regarded as within the operation of statutes imposing a superadded liability upon bank stockholders for the debts of the bank.
“The mere designation of a bank as a savings bank does not make it a savings bank. To determine its character, its organization, powers, and mode of doing business must be looked to.” 7 Am.Jur., Banks, § 832.

. Quoted in pertinent part in footnote 2 to the main opinion.

. Well reviewed in Mertens Law of Federal Income Taxation (Zimet & Barton Revision), Vol. 7, Chapter 38A, §§ 38A.01-38A.33.