Auto. Club of Michigan v. Comm'r of Internal Revenue
| Decision Date | 23 September 1953 |
| Docket Number | Docket No. 27988. |
| Citation | 20 T.C. 1033 |
| Parties | AUTOMOBILE CLUB OF MICHIGAN, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
1. In 1945 the respondent held that the petitioner was not an exempt organization under the Internal Revenue Code or under prior revenue acts, revoked rulings of exemption made in 1934 and 1938 and required petitioner to file returns for 1943 and 1944. Held, that the portion of Regulations 103, section 19.101-1, and the corresponding portions of earlier regulations, providing that where an organization established its right to exemption it need not there after make a return of income unless it changed its character, did not operate to exempt petitioner from tax for 1943 and 1944.
2. Held, that the period of limitations for assessment and collection of tax for 1943 and 1944 had not expired at the time the respondent mailed the notice of deficiency to petitioner.
3. The petitioner kept its books and filed its returns on the accrual basis. During the taxable years it received payment in advance of annual membership dues without restrictions as to their use and disposition. Held, that the entire amount of dues constituted income for the year in which received.
4. Since there is no showing that at any time during its existence prior to January 1, 1943, the petitioner was an organization exempt by law, depreciation or amortization on on properties, acquired prior to January 1, 1943, and used by petitioner in its business after that date, is to be computed on the same basis as if petitioner had always been held to be a corporation subject to tax. Raymond H. Berry, Esq., and A. H. Moorman, Jr., Esq., for the petitioner.
A. J. Friedman, Esq., and Charles Speed Gray, Esq., for the respondent.
The respondent determined deficiencies in the petitioner's income and excess profits taxes as follows:
+--------------------------------+
¦ ¦Deficiencies ¦
+------+-------------------------¦
¦ ¦Income ¦Excess ¦
+------+----------+--------------¦
¦Year ¦tax ¦profits tax ¦
+------+----------+--------------¦
¦1943 ¦$49,016.97¦$128,953.72 ¦
+------+----------+--------------¦
¦1944 ¦48,781.99 ¦157,307.29 ¦
+------+----------+--------------¦
¦1945 ¦42,373.66 ¦ ¦
+------+----------+--------------¦
¦1946 ¦13,645.94 ¦ ¦
+------+----------+--------------¦
¦1947 ¦7,365.87 ¦ ¦
+--------------------------------+
The principal issues are the correctness of the respondent's action (1) in determining that the years 1943 through 1947 the petitioner was not exempt from income and excess profits taxes, as a club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, within the purview of section 101 (9) of the Internal Revenue Code, (2) in determining that the period of limitations for assessment of tax for 1943 and 1944 had not expired at the time of mailing of the deficiency notice, (3) in determining that the entire amount of membership dues received by petitioner during each of the years 1943 through 1947 is to be included in income for the year in which received, and (4) in determining the deductions allowable as depreciation or amortization for the years 1943 through 1947. The parties are agreed that all other issues have been disposed of by stipulation or will be disposed of by our decision of the above-stated issues.
GENERAL FINDINGS OF FACT.
A portion of the facts has been stipulated and is found accordingly.
The petitioner is a Michigan corporation and has its office and principal place of business in Detroit. It filed its income tax returns, excess profits tax returns, and declared value excess-profits tax returns for the years 1943 through 1947 with the collector for the district of Michigan.
Issue 1. Exemption From Taxation.
On July 21, 1916, the petitioner was incorporated under the laws of the State of Michigan under the name of Detroit Automobile Club for a term of existence of 30 years. It assumed its present name in 1930 and in 1946 its existence was extended for a further period of 30 years. The petitioner was organized as a nonprofit corporation without capital stock or shares and has never paid any dividends.
As set forth in petitioner's articles of association and its bylaws, as they existed on January 1, 1940, the purposes or objects of the petitioner were as follows:
To promote and foster the healthy growth of the automobile industry; to secure the adoption and enforcement of reasonable and useful traffic ordinances and motor vehicle laws; to promote the establishment and construction of permanent highways for traffic; to interest automobile owners and drivers in the principles of ‘Safety First‘ as applied to automobile traffic; to promote touring and to obtain and furnish routing information and obtain the necessary signboarding of public highways; and to co-operate in any work or movement which may tend to benefit the automobile driver, user, owner or manufacturer, and the automobile industry in general.
In January 1941 the petitioner's bylaws were amended to provide that petitioner's funds should be used only to accomplish the foregoing purposes or objects of the petitioner.
The petitioner's board of directors has general charge of management and control of the petitioner's affairs and its funds and property. The board is elected annually and its members serve without pay. The functions of the petitioner are carried out by its officers and employees under the direction of the board of directors.
During the years involved herein until May 1947 the petitioner had three classes of membership, namely, honorary, life, and active. Honorary membership was limited to 25 in number and includes certain Government officials and other persons named by the board of directors. Honorary members pay no dues and have no voting rights. Life membership is obtained by an active member paying $250 at one time. Life members are exempt from the payment of future dues and assessments but continue to have all the rights of active members. Active memberships are open to persons (male or female) of good moral character over 16 years of age. In May 1947 the bylaws were amended to provide that any person, wife, son, or daughter, domiciled in the home of an active member might become an associate member and that such memberships should run concurrently with the active membership with which it was associated.
The petitioner had no entrance fee but its dues for active members were $10 annually, except that effective October 1, 1946, they were increased to $12 annually.
To persons soliciting members the petitioner paid $2.50 for each new member obtained.
The number of members belonging to the petitioner during the indicated years were as follows:
+-------------+
¦1943¦212,865 ¦
+----+--------¦
¦1944¦224,092 ¦
+----+--------¦
¦1945¦243,630 ¦
+----+--------¦
¦1946¦261,695 ¦
+----+--------¦
¦1947¦244,994 ¦
+-------------+
Petitioner's bylaws provide for annual meetings of its members. Until some undisclosed time prior to March 15, 1947, twenty-five members constituted a quorum. Effective March 15, 1947, 10 per cent of petitioner's membership was required to constitute a quorum.
During 1943 through 1947 the petitioner devoted most if its resources and efforts to the bettering of conditions for motorists and the promotion of proper laws relating to the use of the motor car, the promotion of travel, and the use of the automobile for other modes of transportation. It engaged in the promotion of safety, the solution of traffic problems, and the promotion of the formation of schoolboy patrols. It organized the schoolboy patrols in Michigan. To teachers in the schools it furnished textbooks dealing with the conduct and operation of schoolboy patrols. As a reward it annually took some of the patrol boys to Washington, D.C. Annually it conducted seminars in the University of Michigan to promote the education of schoolteachers in the state in driver training courses. Petitioner's safety and traffic and engineer departments made surveys throughout the State of Michigan at the request of various cities and communities and many of its proposals as to safety measures were adopted. Petitioner supplied to its members in Michigan and those affiliated with the American Automobile Association emergency road service. The petitioner published and furnished to each of its active members a magazine containing news about travel and news about laws as they pertain to the use of automobiles. Maps and other touring information with reference to road conditions were also provided, as was assistance to the American Automobile Association in its designation or appointment of proper places for tourists to be housed and fed. The petitioner secured reservations for its members when traveling abroad and arranged for the shipping of their cars abroad. Petitioner also promoted and furnished gratis to various communities proper directional and stop signs. In its services the petitioner attempted to do for the motorist in a collective way that which he was unable to do as an individual.
The petitioner does not engage in or conduct any social activities.
During the early part of 1934, the petitioner inquired of respondent as to whether it was exempt from payment of the capital stock tax imposed by section 215 of the National Industrial Recovery Act. The respondent informed petitioner that in order to determine whether it was entitled to exemption from payment of the capital stock tax he must first determine whether the petitioner was entitled to exemption from Federal income taxation under the provisions of section 103 of the Revenue Act of 1932. Accordingly, respondent requested petitioner to supply certain information concerning its operations, a copy of its financial statement for 1933 showing assets and liabilities, and a...
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