Court Opinion

ID: 4600999
Source: CourtListenerOpinion
Date Created: 2020-11-20 19:26:42.708805+00
Date Added: 2024-06-11T07:52:24.415968
License: Public Domain

MINSTER LOAN & SAVINGS CO., PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT.Minster Loan & Sav. Co. v. CommissionerDocket No. 11899.United States Board of Tax Appeals12 B.T.A. 610; 1928 BTA LEXIS 3499; June 14, 1928, Promulgated *3499  The petitioner, upon the evidence, held not to be a building and loan association within the meaning of section 231(4) of the Revenue Act of 1921.  L. L. Hamby, Esq., for the petitioner.  J. E. Marshall, Esq., for the respondent.  SIEFKIN*610  This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1922, in the amount of $250.  The *611  total amount of tax in controversy is $5,815.92, which includes $5,565.92 already assessed, a claim for the abatement of which was denied by the respondent.  The error assigned is the holding of the respondent that the petitioner, during the year in question, was not a domestic building and loan association within the meaning of the Revenue Act of 1921.  FINDINGS OF FACT.  Petitioner was incorporated on August 30, 1893, under the laws of the State of Ohio with its principal office at Minster, Ohio.  The constitution of the petitioner provided: This Association is organized for the purpose of raising money to be loaned to its members and others, and for such other purposes as are authorized by law.  During the year 1922, petitioner purchased mortgages*3500  aggregating $66,800, and the mortgagees were required to, and did become members by subscribing for and acquiring stock.  During the year 1922, petitioner made loans to members secured by real estate mortgages in the amount of $70,631.19, loans to members secured by pass-book stock in the amount of $600, and loans to members secured otherwise than by mortgages on real estate or stock of the association in the amount of $5,000, and made loans to nonmembers during the year in the amount of $800.  Petitioner had mortgage loans outstanding at the end of the years 1921 and 1922 in the respective amounts of $1,090,987.50 and $1,058,212.20.  The number of shares of loan stock outstanding at the beginning and end of the year 1922 was 10,910 and 10,583 shares, respectively; and during the year $18,456.30 was credited on this stock.  A charge of 10 cents per share was made to subscriptions of running or paid-up stock during the year as an initiation fee to defray the expense of printing mortgages, etc.  The rate of interest on farm mortgage loans was 6 per cent; and on other loans the interest rate varied from 6 per cent to 8 per cent.  Farm mortgage-loan payments were generally*3501  made semiannually on January 1, and July 1, although borrowers had the privilege of making payments in a minimum amount of $25 or more at any time during the year.  Loans on homes were payable weekly or monthly, at the option of the borrower at the rate of 25 cents per week on each $100 borrowed.  During the year 1922, approximately 80 per cent of petitioner's income was derived from loans outstanding during the year 1922 *612  to nonmembers or nonstockholders based upon the amount of loans outstanding at the end of the year.  Petitioner's balance sheet at the end of the year 1921 was as follows: December 31, 1921Assets:Cash$3,750.28Loans1,107,917.50Furniture and fixtures2,230.10Real estate6,377.22Real estate sold on contract580.00Office building5,824.26Accounts receivable79.84Bonds and war savings stamps6,716.80Deposits on building and loans31,000.001,164,476.00Liabilities:Running stock967,218.02Paid-up stock74,800.00Credits on loans74,926.94Contingent profit72.43Credits on pass books1,038.89Reserve fund24,832.81Undivided profits11,586.911,164,476.00Petitioner's balance*3502  sheet at the end of the year 1922, was as follows: December 31, 1922Assets:Cash on hand$12,263.46Loans on mortgage security1,058,212.20Loans on stock certificate or pass-book security1,700.00Loans on all other security19,000.00Furniture and fixtures2,007.09Real estate31,577.22Real estate sold on contract3,280.00Real estate office building5,824.26Due from borrowers for insurance and taxes39.47Deposits in other building and loan associations20,000.00Deposits in other financial institutions22,000.001,175,903.70Interest due and uncollected10,601.74Liabilities:Running stock and dividends964,938.37Credits on mortgage loans96,966.26Credits on other loans7,438.30Credit on real estate sold on contract$363.15Paid up stock and dividends72,000.00Reserved fund27,214.75Undivided profit fund4,938.07Borrowed money and accrued interestContingent profit on real estate sold on contract844.80Credits on pass-book loans1,200.00Total1,175,903.70Interest due and uncollected10,601.74Disbursements:Loans on mortgage security137,431.19Loans on stock certificate or pass-book security600.00Loans on all other security5,800.00Withdrawals of running stock and dividends235,717.80Withdrawals of paid-up stock9,500.00Borrowed money19,500.00Deposits in other financial institutions48,000.00Insurance and taxes paid for borrowers42.30Real estate (purchase price)29,754.85Real estate on contract4,100.00Dividends on paid-up stock3,630.89Interest on borrowed money72.93Salaries of officers and directors4,859.00Office held, rent and legal services807.70All other expenses1,727.84Taxes2,835.38Mortgage credits transferred to repay loans15,022.46Contingent profits transferred122,78Pass-book loan credits transferred336.37Distribution (reserve fund)2,381.94Distribution (undivided profits)6,648.84Dividends transferred to repay loan8.78Total528,901.05Cash on hand12,263.46Total541,164.51Receipts:Dues on running stock186,749.99Paid-up stock6,700.00Credits on mortgage loans31,911.45Loans on mortgage security repaid170,206.49Loans on stock certificate or pass book security repaid1,100.00Loans on all other security repaid1,530.00Borrowed money19,500.00Real estate sold4,554.85Real estate sold on contract1,400.00Insurance and taxes refunded by borrowers82.67Interest57,276.81Pass-book, initiation, and membership fees152.25Rents from company's real estate274.51Deposits in other building and loan associations withdrawn$5,000.00Deposits in other financial institutions withdrawn32,000.00Sale of bonds6,494.18Dues on pass-book loans497.48Court costs refunded404.77Credits on loans on other security1,234.45Contingent profit on real estate895.15Deposit-box rents69.35Credits on real estate sold on contract139.22Insurance refunded to company9.83War stamps sold200.00Distributions9,030.78Total537,414.23Cash on hand at close of last fiscal year3,750.28Total541,164.51*3503 *614  The loans made by the petitioner were for a period of 5 years, but when the security was good loans were allowed to run on indefinitely.  OPINION.  SIEFKIN: The sole question to be decided in this proceeding is whether, during the year 1922, the petitioner was a building and loan association within the meaning of section 231(4) of the Revenue Act of 1921, which provides: SEC. 231.  That the following organizations shall be exempt from taxation under this title - * * * (4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and cooperative banks without capital stock organized and operated for mutual purposes and without profit.  The evidence discloses that of the total loans made by the petitioner during the year 1922, only $800, slightly over 1 per cent, constituted loans made to nonmembers of the association but that during the same year, approximately 80 per cent of petitioner's income was derived from loans outstanding during the year 1922, to nonmembers or nonstockholders.  In our opinion this large percentage of the income attributable to transactions with nonmembers requires that*3504  the petitioner be held not exempt since substantially all its business is not confined to making loans to members.  See . Reviewed by the Board.  Judgment will be entered for the respondent.