68 T.C. 651 (1977)
OKLAHOMA STATE UNION OF THE FARMERS EDUCATIONAL AND COOPERATIVE UNION OF AMERICA, PETITIONER
COMMISSIONER OF INTERNAL REVENUE, RESPONDENT
United States Tax Court
August 1, 1977
Held, petitioner is a mutual insurance company under sec. 821(a) and is taxable as such.
Jon H. Trudgeon and Donald R. Philbin, for the petitioner.
Michael J. O'Brien, for the respondent.
Respondent determined the following deficiencies in petitioner's Federal income tax:
After a concession by petitioner regarding a short-term capital gain, the only issue remaining is whether petitioner was a mutual insurance company entitled to report its income pursuant to sections 821 through 826.
FINDINGS OF FACT Some of the facts have been stipulated and are so found. The stipulation of facts, together with the exhibits attached thereto, are incorporated herein by this reference. The petitioner, Oklahoma State Union of the Farmers Educational and Cooperative Union of America (hereafter referred to as petitioner), is an unincorporated association whose principal office was located in Oklahoma City, Okla., at the time of the filing of the petition herein. Petitioner filed a United States Mutual Insurance Company Income Tax Return, Form 1120M, for each of the taxable years 1970 and Page 652
1971 with the Internal Revenue Service Center in Austin, Tex. For the years in issue, petitioner kept its books and filed its returns using the accrual method of accounting based upon a calendar year. Petitioner operates under a charter issued March 23, 1906, to the Indiahoma State Union and under a charter issued October 11, 1920, to its successor by the National Farmers Union. Relevant excerpts from petitioner's bylaws are set out below: ARTICLE I PURPOSES To function as a general farm organization, establish and issue charters to Local and County Unions. To foster, promote and conduct agricultural education, legislation and research which will encourage and protect the family farm and the families on the land. To foster, promote and teach the concept of cooperation and the cooperative movement among farmers. To secure equity, establish justice and apply the Golden Rule. To assist our members in buying and selling. To secure and maintain profitable and uniform prices for farm products. To strive for harmony and goodwill among all mankind, and brotherly love among ourselves; therefore be it remembered, that THE OKLAHOMA STATE UNION OF THE FARMERS' EDUCATIONAL AND CO-OPERATIVE UNION OF AMERICA, generally known as the Oklahoma Farmers' Union and hereinafter referred to as the State Union, (having a charter issued to the Indiahoma State Union on the 23rd day of March, 1906, and a Charter issued to it as successor to the Indiahoma State Union on the 11th day of October, 1920, by the National Union), adopts the said foregoing purposes as its own. Because of the change of conditions in the intervening years, it is considered desirable and therefore included herein the following statement of principle and purpose: 1. To adopt programs calculated to promote better conditions for its members; 2. To operate, aid in the organization and maintenance of non-profit commodity and service cooperative for members thereof; 3. To distribute and disseminate information to farm families and especially to its members for carrying out a program of education in cooperation and cooperative philosophy generally and engage in such activities in carrying out its declared purposes and, if possible and practical, in a way that will entitle it, operating for its members, to exemption from the payment of income taxes as such organization, and, 4. To publish a newspaper which shall be identified as the Oklahoma Union Farmer. Page 653
ARTICLE II OTHER POWERS AND REQUIREMENTS Section 1. The State Union has a fraternal relationship with the National Union, but in its business activities, such as its Mutual Insurance Department, operated for its members only, is a non-stock, non-profit, mutual voluntary association operated for its members. Section 3. The Farmers Union is especially designed to promote the general welfare of family type farmers and as set forth in the Articles of Incorporation of the National Union and the specific and general purposes hereinbefore enumerated and as hereinafter provided in these By-Laws, and as further set forth in its action program adopted annually by its State Convention. The State Union is not operated for pecuniary profits as such, but is operated for the savings it can make for its members and benefits to its members of an educational and fraternal nature. It is not its purpose to accumulate large assets for the direct benefit of members as such. Section 4. In the event the assets of the State Union shall be liquidated, the following order shall be followed: (a) Pay obligation to creditors in the order of priority thereof or security thereof as provided by law. (b) Pay the dissolution or liquidation expense. (c) The assets remaining shall be vested in trustees who shall be appointed by the State Board of the State Union. Trustees shall divide the residual assets and distribute them to the membership on the then determined percentage to the individual members based upon the indebtedness, if any, which might exist between an individual member and the Farmers Union at the time of said distribution. ARTICLE VIII BOARD OF DIRECTORS Section 1. The Board of Directors shall be composed of seven (7) members elected for a term of three years or until their successors are chosen and qualified. Section 2. The Board of Directors, subject to restrictions of law, or these By-Laws, shall exercise all of the powers of the State Union and perform all acts which said Board may deem in the best interest of the State Union and its members. The powers of the Board of Directors shall include, without limiting in any other way, other powers which said Board should have in accordance with the laws of the State of Oklahoma and the By-Laws of the State Union the power to sell, lease, mortgage or otherwise dispose of property of this Association and to perform all acts which said Board may deem in the best interests of its members. Page 654
ARTICLE IX OFFICERS Section 1. The principal officers of this state division shall be the President, Vice President & Secretary-Treasurer. Section 2. The President shall be elected annually by and at the State Convention held each year and shall hold office for a term of one (1) year and until his successor is elected and qualified. He shall be the Chief Executive Officer of the State Division. He shall preside at State Conventions. He shall have the power to appoint committees for the work of such conventions. He shall preside at all meetings of the Board of Directors. He may vote in case of a tie vote. He shall decide all questions concerning the By-Laws. He shall perform such other duties as may be required of him by the Board of Directors. He shall receive for his services a salary, the amount of which shall be determined and authorized by the Board of Directors. He shall be reimbursed for necessary expenses when away from home on the business of the State Division. ARTICLE XI MANAGEMENT Section 1. Management of the State Union shall be by the President, under the supervision of the Executive Committee. ARTICLE XII INITIATIVE AND REFERENDUM The right of the initiative and referendum, the recall, and the imperative mandate shall not be denied the members of the Union. Five percent (5%) of the membership may petition the President to submit to a referendum vote any measure, or ask the recall of any office, and upon receipt of such petition he shall submit the same to a referendum vote of the entire membership at such time and in such manner as may be directed by the By-Laws. ARTICLE XIV BUSINESS ACTIVITIES RESERVE AND DIVIDENDS Section 1. The business activities and operations of the Oklahoma State Union of the Farmers' Educational and Co-Operative Union of America shall be confined to the writing of insurance for its members, on properties located in the State of Oklahoma and as a mutual non-profit association and not operated for profit and the maintaining of its membership and information to be furnished for its members and other services of an educational nature are to be related to and incident to the said insurance business for its members. As part of the community life where it operates and to aid in promoting the general welfare it may perform such services as a mutual insurance organization may properly render and retain the most favorable income tax status as such organization. Page 655
Section 2. As near as possible, adequate rates shall be charged for insurance on properties of members to take care of losses and necessary overhead expenses, based on past experiences, and in the judgement of the executive officers, to maintain such reserve as will make its insurance sound and give security to its policyholders. Dividends may be declared out of earnings in excess of what may be deemed reasonable and proper in the conduct of said business and in excess of all liabilities or the rates charged for insurance may be reduced, it being the purpose of this organization to operate the said business on the mutual and non-profit...