563 F.2d 505 (1st Cir. 1977), 77-1129, La Caisse Populaire Ste. Marie v. United States

Docket Nº:77-1129.
Citation:563 F.2d 505
Party Name:LA CAISSE POPULAIRE STE. MARIE (St. Mary's Bank), Plaintiff, Appellee, v. UNITED STATES of America, Defendant, Appellant.
Case Date:September 30, 1977
Court:United States Courts of Appeals, Court of Appeals for the First Circuit
 
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Page 505

563 F.2d 505 (1st Cir. 1977)

LA CAISSE POPULAIRE STE. MARIE (St. Mary's Bank), Plaintiff, Appellee,

v.

UNITED STATES of America, Defendant, Appellant.

No. 77-1129.

United States Court of Appeals, First Circuit

September 30, 1977

Argued June 6, 1977.

Page 506

Leonard J. Henzke, Jr., Atty., Tax Div., Dept. of Justice, Washington, D. C., with whom Myron C. Baum, Acting Asst. Atty. Gen., Washington, D. C., William J. Deachman, III, U. S. Atty., Concord, N. H., Gilbert E. Andrews and William A. Friedlander, Attys., Tax Div., Dept. of Justice, Washington, D. C., were on brief, for defendant, appellant.

James E. Higgins, Manchester, N. H., with whom E. Tupper Kinder, Stephen E. Weyl and Sheehan, Phinney, Bass & Green, Prof. Assn. of Manchester, N. H., were on brief, for plaintiff, appellee.

Before COFFIN, Chief Judge, CAMPBELL, Circuit Judge, and CAFFREY, [*] District Judge.

CAFFREY, District Judge.

The question presented by this appeal is whether La Caisse Populaire Ste. Marie (St. Mary's Bank) is a credit union entitled to federal income tax exemption under the provisions of Section 501(c)(14)(A) of the Internal Revenue Code of 1954.

St. Mary's Co-operative Credit Association, founded in 1908 and chartered by the State of New Hampshire on April 9, 1909, was the first credit union in the United States. 1 Under its original charter, membership was restricted to residents of the

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City of Manchester. N.H.Laws of 1909, chap. 303, § 3. In 1925, the New Hampshire legislature changed the name to La Caisse Populaire Ste. Marie (St. Mary's Bank) and eliminated the requirement that members be Manchester residents. N.H.Laws of 1925, chap. 340, §§ 4 and 1. In 1935, St. Mary's applied for and received from the Treasury Department a letter of exemption from federal income taxes under § 101 of the Revenue Act of 1934.

St. Mary's tax exempt status continued until January 14, 1966, when the Secretary of the Treasury revoked it. Thereafter, St. Mary's paid taxes totalling $48,965.11 for the years 1969-1974. Administrative claims for refunds were filed and denied, and on December 23, 1975, the instant action was commenced.

After a non-jury trial, the district court found that the State of New Hampshire considers St. Mary's to be a credit union and regulates it as such. It held that the recognition of St. Mary's as a credit union was not a gross misuse of the name and that St. Mary's was a credit union within the meaning of Section 501(c)(14)(A) of the Internal Revenue Code of 1954 for the years in question. La Caisse Populaire Ste. Marie v. United States, 425 F.Supp. 512 (D.N.H.1976).

On appeal the United States argues that St. Mary's is a hybrid mutual savings/commercial bank and not a credit union. Citing the nature of the services offered by St. Mary's and the absence of a requirement that all members share some common bond, the government contends that St. Mary's competes with banks and should be taxed as a bank. The government suggests that no significance should attach to the State's recognition of St. Mary's as a credit union. Alternatively, the government argues that the State has grossly misused the name "credit union."

Section 501(c) of the Code exempts from federal income taxation ". . . (14) (A) Credit unions without capital stock organized and operated for mutual purposes and without profit." In order to be a member of St. Mary's one must be a shareholder. Shareholder status allows one to borrow, to save and to participate in the earnings of the association. The shares do not appreciate in value, and net earnings, with the exception of certain reserves, are distributed to the members. The evidence presented at trial supports, and the government does not now contest, the correctness of the trial judge's finding that St. Mary's is organized without capital stock and is operated for mutual purposes and without profit.

Notwithstanding the foregoing, the government contends that St. Mary's is not a credit union because it...

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