Commissioner of Internal Rev. v. CHICAGO GRAPHIC ARTS F.

• Decision Date: 23 May 1942
• Docket Number: No. 7859.,7859.
• Citation: 128 F.2d 424
• Parties: COMMISSIONER OF INTERNAL REVENUE v. CHICAGO GRAPHIC ARTS FEDERATION, Inc.
• Court: U.S. Court of Appeals — Seventh Circuit

128 F.2d 424 (1942)

COMMISSIONER OF INTERNAL REVENUE v. CHICAGO GRAPHIC ARTS FEDERATION, Inc.

No. 7859.

Circuit Court of Appeals, Seventh Circuit.

May 23, 1942.

J. P. Wenchel and Ray N. McMillan, both of Washington, D. C., Bur. of Int. Rev., Samuel O. Clark, Jr., Asst. Atty. Gen., and J. Louis Monarch and Robert R. Barrett, Sp. Assts. to Atty. Gen., for petitioner.

Harry M. Brostoff, of Chicago, Ill., for respondent.

Before EVANS, KERNER, and MINTON, Circuit Judges.

KERNER, Circuit Judge.

Petitioner asks us to review the correctness of a decision of the Board of Tax Appeals involving a claimed deficiency for income and excess profits taxes for the years 1936 and 1937 and penalties for the year 1936.

The respondent was incorporated in 1927 in Illinois as a not-for-profit corporation. Its members are all plant owners and operators in the printing industry, the unit of membership being the printing firm. Its purpose is to promote the welfare of the printing industry, improve the conditions of printers and their service to the public, develop better methods of management and ethical relations among themselves and with others through collective cooperative effort, and to secure uniform and united action in the common interests.

Respondent, being a not-for-profit corporation, has no capital stock nor stockholders and has never made any distribution of dividends. It has held meetings of its members, appeared before legislative bodies and discussed contemplated legislation, promoted printing exhibits, distributed cost and production information to its members, supplied credit information to its members through the maintenance of a credit information bureau, supplied an employment service to its members, conducted an estimating course designed to teach employees of the printing trade how to make estimates on printing, promulgated a code of ethics and adopted trade customs for the printing industry, conducted a waste paper bureau for the sale of members' waste paper through a collective sales arrangement, litigated the applicability of the Illinois Retailers' Occupational Tax to the printing industry, and handled refund claims for members of the industry.

Its operating revenues are derived principally from dues paid by its members, fixed on a basis of the members' mechanical payroll. Its income, arising from dues and other sources, has varied from 59% dues, 29% waste paper sales, and 12% other activities in 1930 to 83% dues, 10% waste paper sales, and 7% other activities in 1939. In 1936 and 1937 it received $35,249.50 (60%) and $39,918.50 (66%) from dues, 4% and 13% from waste paper sales, and 36% and 21% from other activities, respectively. The percentages of income from other activities for 1936 and 1937 include the amounts received for the occupational tax actions and refunds. In 1936 respondent engaged a Tax Service Association to contest the legality of the retailers' occupational tax. The Tax Service secured a favorable decision. For the clerical work and for handling refunds of its members, it received a portion of the amounts recovered.

Its offices are in Chicago and there it keeps its property consisting of office equipment valued on December 31, 1937, at $5,440.18, less a reserve of $3,527.57. Its balance sheets showed a surplus on December 31, 1927, of $3,823.77, increased as of December 31, 1937, to $36,086.41.

Our problem is to determine whether the respondent is a business league within the provisions of § 101(7) of the Revenue Act of 1936, c. 690, 49 Stat. 1648, 26 U.S.C.A. Int.Rev.Code, § 101(7), which provides that "Business leagues, * * * not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual" shall be exempt from taxation. Article 101(7) of the Treasury Regulation 94, promulgated under the Act, provides: "A business league is an association of persons having some common business interest, the purpose of which is to promote such common interest and not to engage in a regular business of a kind ordinarily carried on for profit. * * * its activities should be directed to the improvement of business conditions of one or more lines of business as distinguished from the performance of particular services for individual persons. An organization whose purpose is to engage in a regular business of a kind ordinarily carried on for profit, even though the business is conducted on a cooperative basis or produces only sufficient income to be self-sustaining, is not a business league."

Petitioner, notwithstanding he concedes that the respondent is a business league in form, organized as a not-for-profit corporation, nevertheless contends that because the respondent conducted a cost accounting and estimating course and waste paper bureau, supplied a credit and employment service and received a percentage of the fees in connection with the litigation concerning the retailers' occupational tax, it was carrying on and was engaged in a regular business of a kind ordinarily carried on for profit. He argues that respondent's activities fall into three categories: (1) activities directed toward unity and cooperation within the industry; (2) the relations of the industry to the public, both of which he concedes improved the industry, but only in so far as the economically sound management of the individual firms resulted in a general improvement; and (3) the services...