BUILDERS'EXCHANGE OF TEXAS, INC. v. Commissioner
| Decision Date | 14 August 1972 |
| Docket Number | Docket No. 6120-70. |
| Citation | 31 TCM (CCH) 844,1972 TC Memo 172 |
| Parties | Builders' Exchange of Texas, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Muckleroy McDonnold, 805 NBC Bldg., San Antonio, Tex., for the petitioner. W. Read Smith, for the respondent.
Memorandum Findings of Fact and Opinion
Respondent determined the following deficiencies in petitioner's income tax:
Taxable Year Ended Deficiency
June 30, 1967 .................. $1,007.81
June 30, 1969 .................. 438.67
We are asked to determine whether respondent's retroactive revocation of his prior ruling granting petitioner tax-exempt status under section 501(c)(6)1 and its predecessors was proper under the circumstances herein.
Some of the facts have been stipulated and, together with the exhibits in support thereof, are incorporated herein by this reference.
The petitioner herein is a corporation organized and existing under the laws of the State of Texas since 1901. Its central office and headquarters were located in San Antonio, Texas, at the time of the filing of the petition herein.
Petitioner filed timely Forms 990, or Return of Organization Exempt From Income Tax, for the fiscal years ended June 30, 1967 and June 30, 1969 with the district director of internal revenue, Austin, Texas.
Petitioner's constitution provides, in relevant part, as follows:
Prior, during, and subsequent to the taxable years here involved, one of the petitioner's essential activities was the maintenance of a plan room for the convenience of members in its central office or headquarters in San Antonio, Texas. Plans and specifications for local construction projects, together with the names of general contractors bidding on specific projects, were filed in the plan room by various governmental construction agencies. Plans and specifications were also filed by leading architects and engineers. The plan room was open daily for the use of members, and members could reserve plans for overnight use or over the weekend.
Petitioner only permitted non-members to use its plan room when plans and specifications relating to United States Government projects were on exhibit to contractors for the purpose of submitting bids. Petitioner would not have been permitted to exhibit the plans and specifications of United States Government projects unless non-members were admitted to the plan room on these occasions.
Petitioner published and distributed to its members on a bi-annual basis a publication entitled "Construction Buyers' Guide and Membership Directory." This booklet listed petitioner's members, architects, and engineers cooperating with petitioner, giving addresses, telephone numbers, and trade names, and building construction products and services which were available.
Petitioner also published and distributed to its members five times per week a publication entitled "Construction News Bulletin." This bulletin contained information, obtained directly from governmental agencies and from architects and engineers, with respect to projects available for bids and correct lists of bidders, together with their addresses and telephone numbers. It contained reports on contract awards and materials purchased by general contractors. It also served as an advertising medium for the products and services being made available to the industry. Copies of the bulletin were mailed to cooperating architects, engineers, and Federal agencies, i.e., those individuals and agencies who provided petitioner with construction news and plans without charge.
Petitioner also provided, to its members, notary public service, statistical records on any phase of construction work, mail boxes for those members who did not maintain their own offices, receipt and forwarding of messages, telephone directories of various centers in the United States, and investigations of any nature concerning the building industry.
Petitioner was granted an exemption from tax in 1937 under the predecessor of section 501(c)(6). In 1965, respondent proposed to revoke petitioner's tax exempt status, but, "on the basis of the information available," respondent later reversed his position.
On July 31, 1970, respondent notified petitioner that its tax-exempt status had been revoked for years beginning after June 30, 1964.
OpinionSection 501(a),2 in conjunction with section 501(c)(6),3 exempts a business league from taxation, provided it is not organized for profit and no part of its net earnings inures to the benefit of any private shareholder or individual.
These regulations have been cited with approval as a correct interpretation of legislative intent. See, e.g., Evanston-North Shore Board of Realtors v. United States 63-2 USTC ¶ 9604, 320 F. 2d 375, 377 (Ct. Cl. 1963); American Automobile Association Dec. 19,537 19 T.C. 1146, 1158 (1953).
The parties lock horns on whether petitioner's activities amounted to the performance of particular services for individual persons. Respondent, pointing especially to the fact that the plan room and the bi-annual directory published by petitioner were available, for the most part, to members only, as opposed to the public or the construction industry as a whole, contends that petitioner was not entitled to tax-exempt status under section 501(a). Petitioner, of course, disagrees. Our resolution of the issue thus presented is complicated by the diffidence which petitioner, who has the burden of proof (Rule 32, Tax Court Rules of Practice), exhibited with respect to the trial of this case and the resulting gaps in the record herein.
Two general principles control our decision herein. First, an activity, although not carried on for profit, may still render an organization ineligible for tax-exempt treatment if the activity is operated for the convenience and economy of its members. See United States v. Oklahoma City Retailers Association 64-1 USTC ¶ 9467, 331 F. 2d 328, 330-331 (C.A. 10, 1964); Evanston-North Shore Board of Realtors v. United States, supra, 320 F. 2d at 378; Produce Exchange Stock Clearing Ass'n v. Helvering 1934 CCH ¶ 9323, 71 F. 2d 142, 143 (C.A. 2, 1934). Second, an organization whose principal activity is such as to justify exemption does not lose its tax-exempt status by engaging in an incidental nonqualified activity. See United States v. Omaha Live Stock Traders Exchange 66-2 USTC ¶ 9697, 366 F. 2d 749, 752 (C.A. 8, 1966); Evanston-North Shore Board of Realtors v. United States, supra, 320 F. 2d at 378; National Leather & Shoe Finders Association...
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