California Thoroughbred Breeders Ass'n v. Comm'r of Internal Revenue, Docket No. 5415-64.
| Citation | 47 T.C. 335 |
| Decision Date | 29 December 1966 |
| Docket Number | Docket No. 5415-64. |
| Parties | CALIFORNIA THOROUGHBRED BREEDERS ASSOCIATION, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | United States Tax Court |
OPINION TEXT STARTS HERE
Adam Y. Bennion, for the petitioner.
Roger Rhodes, for the respondent.
Petitioner, an organization exempt under sec. 501(c)(5), I.R.C., 1954, filed Forms 990 but not Forms 990-T for 1959 and 1960. More than 3 years after the Forms 990 were filed, respondent asserted deficiencies on the ground that petitioner was subject to the tax on unrelated business income. Held, that the deficiency notice was untimely for the reason that, under sec. 6501(g)(2), the Forms 990 constituted the return for the purposes of the 3-year period of limitations.
Respondent determined deficiencies of $13,598.20 and $1,591.17 in petitioner's Federal income tax for the taxable years 1959 and 1960, respectively. The determination involves the following issues:
(1) Whether the filing of an information return (Form 990) commenced the running of the period of limitations against assessment of the tax on unrelated business income imposed by section 511;1 and
(2) If not, whether any of the income petitioner realized during 1959 and 1960 from its activities in connection with sales of horses (herein referred to as breeders sales) constituted unrelated business income within the meaning of section 511.
The California Thoroughbred Breeders Association (hereafter referred to as petitioner) was organized on May 8, 1937, under the laws of the State of California as a nonprofit corporation.
By letter dated November 1, 1945, respondent reaffirmed an earlier ruling, dated September 9, 1943, that petitioner was entitled to exemption from Federal income tax under section 101(1) of the Internal Revenue Code of 1939 which is identical with section 501(c)(5) of the Code of 1954, and which exempts ‘labor, agricultural, or horticultural organizations.’
Respondent concedes that petitioner's basic exempt status was in full force and effect during the taxable periods involved herein.
Respondent's letter of exemption, dated November 1, 1945, noted the fact that petitioner's activities included ‘holding an auction sale for members' California thoroughbred horses.’
A Form 990 has been filed by petitioner with the district director of internal revenue at Los Angeles, Calif., for each year from 1946 to the present time. The Forms 990 for the calendar years 1959 and 1960 were timely filed, i.e., on or before May 15, 1960, and May 15, 1961, respectively. The notice of deficiency was mailed to petitioner on August 24, 1964, more than 3 years after the filing of the Form 990 for each taxable year in controversy.
The general instructions on the back of each Form 990 beginning with the year 1951 have included a statement that, with respect to taxable years beginning after December 31, 1950, a tax is imposed upon exempt organizations on income derived from operation of a business enterprise which is unrelated to the purpose for which such organization received an exemption. The instructions specify such income and tax are to be reported on Form 990-T.
Beginning with the year 1951, each Form 990 asked whether a return on Form 990-T had been filed for that year, and, if so, where filed and the unrelated business gross income reported. In each Form 990 filed by petitioner the initial question was answered ‘No.’
The entries on petitioner's Forms 990 for the taxable years 1959 and 1960 under the heading ‘Income, Dues, Contributions, etc.‘ contained the following:
On its Forms 990 for the taxable years 1959 and 1960, petitioner listed the following as expenses:
+-----------------------------------------------------------------------------+
¦ ¦1959 ¦1960 ¦
+-------------------------------------------------------+----------+----------¦
¦ ¦ ¦ ¦
+-------------------------------------------------------+----------+----------¦
¦Wages, salaries, and commissions. Number of employees ¦$71,025.69¦$75,684.00¦
¦(12) ¦ ¦ ¦
+-------------------------------------------------------+----------+----------¦
¦Taxes ¦4,328.31 ¦5,016.31 ¦
+-------------------------------------------------------+----------+----------¦
¦Depreciation ¦7,107.32 ¦6,204.06 ¦
+-------------------------------------------------------+----------+----------¦
¦Miscellaneous expenses: ¦ ¦ ¦
+-------------------------------------------------------+----------+----------¦
¦(a) Foal registration ¦1,243.90 ¦1,624.61 ¦
+-------------------------------------------------------+----------+----------¦
¦(b) Magazine production ¦43,170.76 ¦48,266.97 ¦
+-------------------------------------------------------+----------+----------¦
¦(c) Breeders' sales ¦986.25 ¦0 ¦
+-------------------------------------------------------+----------+----------¦
¦Miscellaneous expenses: ¦ ¦ ¦
+-------------------------------------------------------+----------+----------¦
¦(a) Administrative and general ¦17,282.76 ¦19,955.65 ¦
+-------------------------------------------------------+----------+----------¦
¦Contributions ¦12,500.00 ¦201.54 ¦
+-------------------------------------------------------+----------+----------¦
¦Additions to surplus and reserves (excess income over ¦35, 285.86¦11,147.23 ¦
¦expenses) ¦ ¦ ¦
+-------------------------------------------------------+----------+----------¦
¦Total ¦192,930.85¦168,100.39¦
+-------------------------------------------------------+----------+----------¦
¦ ¦ ¦ ¦
+-----------------------------------------------------------------------------+
Petitioner did not file a Form 990-T for any taxable year. Petitioner's income tax matters have been handled by a national firm of certified public accountants, which firm prepared and filed the Form 990 for each of the taxable years 1959 and 1960 and for all other years since 1946. The question of whether petitioner was in receipt of taxable income was not raised when the Forms 990 were filed, and petitioner believed that the accounting firm prepared and filed for it such returns as were applicable to it. Petitioner determined in good faith that it was an exempt organization and had no taxable income and that, therefore, it was not required to file any return other than Form 990.
OPINIONWe deal first with the question whether the deficiencies herein are barred on the ground that they were not asserted against the petitioner within the applicable period of limitations. We hold that they were so barred. As a consequence, we do not reach the second question involved herein, namely, whether the net income derived by petitioner from its breeder sales constitutes unrelated business income within the meaning of section 511.
Section 6033 provides in pertinent part:
(a) GENERAL.— Every organization, except as hereinafter provided, exempt from taxation under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts, and disbursements, and such other information for the purpose of carrying out the provisions of subtitle A as the Secretary or his delegate may by forms or regulations prescribe, and shall keep such records, render under oath such statements, make such other returns, and comply with such rules and regulations, as the Secretary or his delegate may from time to time prescribe, except that, in the discretion of the Secretary or his delegate, an organization described in section 401(a) may be relieved from stating in its return any information which is reported in returns filed by the employer which established such organization. * * *
Pursuant to the authority contained in section 6033(a), respondent by regulation has provided for the filing of an annual return by petitioner's type of exempt organization on Form 990 and of a return with respect to unrelated business income on Form 990-T. Secs. 1.6033-1(a) and (i) and 1.6012-2(e), Income Tax Regs.
Section 6501(a) provides that the amount of any income tax (which includes the tax on unrelated business income) ‘shall be assessed within 3 years after the return was filed.’ Section 6501(g)(2) provides as follows:
(2) EXEMPT ORGANIZATIONS.— If a taxpayer determines in good faith that it is an exempt organization and files a return as such under section 6033, and if such taxpayer is thereafter held to be a taxable organization for the taxable year for which the return is filed, such return shall be deemed the return of the organization for the purposes of this section.
The narrow issue thus presented is whether the filing of a Form 990-T (w...
To continue reading
Request your trial
-
Durovic v. Comm'r of Internal Revenue
...reliance on the ‘wrong return’ cases of Germantown Trust Co. v. Commissioner, 309 U.S. 304 (1940), and California Thoroughbred Breeders Association, 47 T.C. 335 (1966), is also misplaced. In Germantown, taxpayer trust company, on March 15, 1933, filed a Form 1041 fiduciary return for the ye......
-
State Police Ass'n of Massachusetts v. C.I.R., 97-1319
...limitation period, when the information return (a so-called "990" return) is in fact made. See California Thoroughbred Breeders Ass'n v. Commissioner, 47 T.C. 335, 338, 1966 WL 1128 (1966) (construing IRC § 6501(g)(2)). Without this rule deeming the Association's 990 return to be a 990-T re......
-
State Police Association v. Commissioner
...on unrelated business income if the organization is later held to be a taxable organization. California Thoroughbred Breeders Association v. Commissioner [Dec. 28,225], 47 T.C. 335, 339 (1966). Because petitioner pled the bar of the statute of limitations, petitioner must show that the stat......
-
Colombo Club, Inc. v. Comm'r of Internal Revenue
...such return shall be deemed the return of the organization for purposes of this section. This Court has held in California Thoroughbred Breeders Association, 47 T.C. 335 (1966), that the filing of an information return (Form 990) stated the running of the statute of limitations under sectio......