Court Opinion

ID: 9469954
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:53:05.525261+00
Date Added: 2024-06-11T17:41:38.870558
License: Public Domain

GARWOOD, Circuit Judge,
specially con-
curring:
I concur in the majority opinion. I write separately merely to reflect my understanding that the majority does not hold to be irrelevant, for purposes of determining if the income at issue is taxable under section 511, whether the exempt organization’s function giving rise to the income is active^ as opposed to merely passive. Here, as the majority correctly observes (see, e.g., its note 19), LCUL’s involvement was clearly “active.” That “trade or business” for these purposes imports some element of “activity” on the part of the exempt organization seems to be plainly inferable from the language of sections 513(c) and 512(a)(1).*

The first sentence of section 513(c) states: “For purposes of this section, the term ‘trade or business’ includes any activity which is earned on for the production of income from the sale of goods or the performance of services.” (Emphasis added.)
None of the emphasized words is appropriate to a purely passive income-producing function. Section 512(a)(1) makes plain that not only must the exempt organization derive income from the unrelated “trade or business,” but that also such “trade or business” must be one which is “regularly carried on by” the exempt organization.
The general rule, reflected by such decisions as International Trading Co. v. Commissioner, 275 F.2d 578, 584 (7th Cir.1960), relied on by the Tax Court in Professional Insurance Agents v. Commissioner, 78 T.C. 246 (1982), that normally whatever expense a corporate taxpayer incurs with intent to earn a profit is a- “trade or business” expense under section 162, logically applies to section 162 determinations respecting “for profit” corporations that are indisputably generally engaged in carrying on a trade or business, but not to sections 511-513 determinations respecting nonprofit corporations, such as LCUL, whose corporate purposes and functions are of another kind.