Bok v. McCaughn

• Decision Date: 21 July 1930
• Docket Number: No. 4292.,4292.
• Citation: 42 F.2d 616
• Parties: BOK et al. v. McCAUGHN, Collector of Internal Revenue.
• Court: U.S. Court of Appeals — Third Circuit

42 F.2d 616 (1930)

BOK et al. v. McCAUGHN, Collector of Internal Revenue.

No. 4292.

Circuit Court of Appeals, Third Circuit.

July 21, 1930.

Owen J. Roberts and Weill, Blakely & Nesbit, all of Philadelphia, Pa., for appellants.

Calvin S. Boyer, U. S. Atty., and Mark Thatcher, Asst. U. S. Atty., both of Philadelphia, Pa. (C. M. Charest, Gen. Counsel Bureau of Internal Revenue, and Thomas H. Lewis, Jr., and E. J. Dowd, Sp. Attys., Bureau of Internal Revenue, all of Washington, D. C., of counsel), for appellee.

Before BUFFINGTON and DAVIS, Circuit Judges, and JOHNSON, District Judge.

BUFFINGTON, Circuit Judge.

On July 1, 1921, Edward Bok, by indenture signed by himself as founder, by certain others as trustees and by the Girard Trust Company, as depository, transferred securities owned by himself aggregating $210,000, and increased by subsequent amounts. The instrument provided as follows:

"Whereas the Founder believes that service to others tends to make lives happy and communities prosperous and that the ideal of service as a test of good citizenship should be kept constantly before the minds of the people of Philadelphia in general and of the young in particular; and further believes that this may by some measure be accomplished through the making, under proper conditions of an annual award in recognition of some service rendered by a Philadelphian which shall have redounded to the good of the City."

It gave the fund absolutely and in perpetuity on certain trusts, which, as far as here pertinent, were:

"I. After the ending of each calendar year they shall determine what resident of Philadelphia or its suburbs or vicinity has during said year done an act or rendered a service of such advantage to the City or to its inhabitants as to be eminently worthy of public recognition and reward.

"II. When the Trustees shall have determined the person who has thus deserved best of the City they shall announce that such person has been selected to receive the Philadelphia Award for the preceding year and shall proceed with appropriate dignity and ceremony, in the American Academy of Music or in some other suitable place, to confer the Award upon the person so selected.

"III. The ceremony of conferring the Philadelphia Award shall include the making of the payment of $10,000 to the person selected to receive it and the delivery of a suitable certificate or other permanent record or symbol of distinction.

"IV. The nature of the act or service for which the Award may be made is not to be determined by a strict interpretation of the language of this instrument. The language is to be regarded by the Trustees rather as indicating the spirit in which the Award is to be made than as imposing limitations upon their discretion in making it.

"V. In case the Trustees shall determine that in the preceding year no act or service worthy of the Award has been done, or rendered, they shall have the right to apply the said $10,000 of the net income of the trust fund for that year to or toward free scholarships for boys and girls resident in Philadelphia, its suburbs or vicinity; such scholarships to be divided at the discretion of the Trustees among the following institutions:

"University of Pennsylvania,

"The Pennsylvania Museum and School of Industrial Art,

"The Jefferson Medical College of Philadelphia,

"Bryn Mawr College,

"Pennsylvania Academy of The Fine Arts,

"The Settlement Music School,

"The Drexel Institute,

"The National Farm School,

"Pennsylvania School of Horticulture for Women. * * *

"Eleventh: In case at any time hereafter the Trustees shall deem that the execution of the general spirit and intent hereof has become impracticable, the trust shall not wholly fail; but the trust fund shall thereupon become subject to the jurisdiction of a court of equity to be disposed of and administered cy pres."

In his income return for 1921, Mr. Bok claimed a deduction by virtue of that section of the Revenue Act of 1921 which provides: "That in computing net income there shall be allowed as deductions: * * * gifts made within the taxable year to or for the use of * * * any corporation, or * * * fund, or foundation, organized and operated exclusively for * * * charitable * * * or educational purposes * * * no part of the net earnings of which inures to the benefit of any private stockholder or individual" (section 214(a) (11), 42 Stat. 241), and "that when used in this Act * * * the term `corporation' includes associations" (section 2 42 Stat. 227). The taxing authorities denied this claim and over the taxpayer's protest collected the tax. Thereupon the taxpayer brought this suit. On trial the court below sustained the government's contention and entered judgment in its favor. Thereafter this appeal was taken.

Was Mr. Bok entitled to the exemption of the statute? That depends on the answer to those questions: First, were the transfers by Mr. Bok, in the words of the statute, "gifts"? There can be no doubt on that point. They were absolute, voluntary, and without consideration moving, and no provision was made for a return to him in case of lapse. In the words of the indenture, Mr. Bok "does assign, transfer and set over unto the Trustees and their successors the securities set forth * * * to be held in perpetuity", etc. Second, were they "gifts made within the taxable year"? Unquestionably so. The gift became effective at once by transfer and delivery. Everything to make the gift absolute was done during 1921. Third, was the gift, in the words of the statute, made "to or for the use of * * * any corporation * * * or foundation"? The statute defines the scope and meaning of corporation, viz.: "The term `corporation' includes associations," and, taking the dictionary definition of an association as a "union of persons in a company * * * for some particular purpose," we are of opinion that Congress by this comprehensive and inclusive word meant to include unincorporated bodies constituted by the association of men to carry on some common, charitable, or educational purpose. In the present case the trustees of the foundation created by the indenture were so associated in order to carry out the common purpose therein expressed, to wit, the recognition and reward each year of a resident of Philadelphia who has ...