American Hardware & Eq. Co. v. COMMISSIONER OF INT. R., 6520.
| Decision Date | 17 February 1953 |
| Docket Number | No. 6520.,6520. |
| Citation | 202 F.2d 126 |
| Parties | AMERICAN HARDWARE & EQUIPMENT CO. v. COMMISSIONER OF INTERNAL REVENUE. |
| Court | U.S. Court of Appeals — Fourth Circuit |
David H. Henderson, Charlotte, N. C. (Henderson & Henderson, Charlotte, N. C., on brief), for petitioner.
Harry Marselli, Special Asst. to the Atty. Gen. (Charles S. Lyon, Asst. Atty. Gen., Ellis N. Slack and Lee A. Jackson, Special Assts. to the Atty. Gen., on brief), for respondent.
Before PARKER, Chief Judge, and SOPER and DOBIE, Circuit Judges.
This petition for review involves the Commissioner's determination of deficiencies in income tax for the fiscal years ending June 30, 1947 and June 30, 1948, of the American Hardware & Equipment Co., growing out of deductions of $1,800 and $1,500, respectively, claimed by the taxpayer on account of contributions made to National Tax Equality Association of Chicago, Illinois. The question presented is whether these payments were deductible from gross income either as ordinary and necessary expenses, under § 23(a)(1)(A), or as contributions, under § 23(q)(2) of the Internal Revenue Code, 26 U.S.C.A. § 23 (a)(1)(A), (q)(2), to a corporation organized and operated exclusively for scientific or educational purposes, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and, no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation.
The Tax Court sustained the determinations of the Commissioner upon the following findings of fact:
Taxpayer is a North Carolina corporation. Since its incorporation in 1917 it has engaged in the wholesale hardware business in the states of North Carolina and South Carolina.
Taxpayer kept its books on a fiscal year basis ending June 30. Its returns for the taxable period involved were filed with the collector of internal revenue for the district of North Carolina at Greensboro, North Carolina.
Prior to and during the taxable years in question taxpayer was faced with competition from other distributors, one of which was Farmer's Cooperative Exchange.
On its tax returns for the fiscal years ended June 30, 1947 and June 30, 1948 the taxpayer claimed as deductions the respective amounts of $1,800 and $1,500, representing contributions made by it to National Tax Equality Association. In determining his deficiency for the taxable years 1947 and 1948 the collector disallowed the entire amounts claimed on the ground they did not constitute proper deductions.
National Tax Equality Association, hereinafter referred to as NTEA, is a nonprofit corporation organized under the laws of the State of Illinois in October 1943. Its articles of incorporation provide that the objects and purposes for which it was organized are — * * * to conduct educational, scientific and research activities relative to disparities in federal and state tax statutes and other laws and regulations affecting business, and to disseminate such information to civic organizations and representatives of business affected thereby, to the public and to federal and state governments. The Corporation shall be non-sectarian, non-partisan, and no part of the net earnings, if any, of the Corporation shall inure to the benefit of any private shareholder or individual.
NTEA was first ruled exempt from taxation under section 101(6) but at its request was later ruled exempt as a business league under section 101(7) of the Internal Revenue Code. 26 U.S.C.A. § 101(6, 7).
The suggestion that taxpayer make contributions to the NTEA came from taxpayer's president, L. D. Nuchols. He was elected a director of NTEA for the years 1947 and 1948, but did not attend any of the directors' meetings. Taxpayer's directors did not adopt any resolution authorizing the contributions made by the taxpayer to NTEA but informally approved the suggestion to its president.
NTEA was organized and primarily operated from its inception, and during the taxable years in question for the carrying on of propaganda with the ultimate objective being a revision in tax structure.
On these facts the Tax Court held that the contributions of the taxpayer to the Association were not deductible, following its decision upon the identical issue in Roberts Dairy Co. v. Commissioner, T. C. Memo 1951, which was affirmed by the Court of Appeals of the Eighth Circuit, 195 F.2d 948.
The principal contention of the taxpayer in the pending case is that no substantial evidence was presented to the Tax Court to justify its crucial finding of fact that the National Tax Equality Association "was organized and primarily operated from its inception and during the taxable years in question for the carrying on of propaganda with the ultimate objective being a revision in tax structure." The taxpayer offered evidence that it was greatly hindered in its business by competition with cooperative business organizations which enjoyed a tax-free status and were thus enabled to undersell individual business corporations. The point was emphasized by statistics showing tremendous expansion of Cooperatives during the period 1929 to 1947. Hence it became necessary for the taxpayer in its judgment to obtain information as to the mode of operation and financial structure of this type of competitor, and it found that the information could be best obtained at the lowest cost through the Association. For this reason the taxpayer and other individual business corporations contributed to the work of the Association and in return received information and material which they have used to carry their story to the merchants from whom they purchased and to the customers to whom they sell their merchandise, appealing to them and to the general public to adopt a sympathetic attitude toward the competitive difficulties which they were experiencing.
The taxpayer also emphasized testimony tending to show that the literature furnished by the Association during the tax years in question did not dwell upon the influencing of legislation as an...
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