Ford Dealers Advertising Fund, Inc. v. Comm'r of Internal Revenue, Docket No. 2595-69.
| Decision Date | 22 February 1971 |
| Docket Number | Docket No. 2595-69. |
| Citation | 55 T.C. 761 |
| Parties | FORD DEALERS ADVERTISING FUND, INC., JACKSONVILLE DIVISION, PETITIONER v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT |
| Court | U.S. Tax Court |
OPINION TEXT STARTS HERE
William R. Frazier, for the petitioner.
Vernon J. Owens, for the respondent.
Petitioner, a nonprofit corporation, received funds from Ford Motor Co. auto dealers which, under a written agreement, were to be expended solely for the not-for-profit purposes of the fund in advertising and promoting the automotive products and services of the members. Petitioner also received funds from Ford Motor Co. which were to be expended solely ‘for advertising.’ Held, petitioner held all funds in ‘trust,‘ and could realize no gain or profit as a result of their receipt; hence said funds are not includable in petitioner's ‘gross income.’
Respondent has determined deficiencies in petitioner's Federal income tax for the taxable years ending January 31, 1966, and January 31, 1967, in the amounts of $97,514.85 and $83,150.54, respectively.
Concessions having been made, the only issue remaining for decision is whether funds received by the Ford Dealers Advertising Fund, Inc., from its members and Ford Motor Co., are includable in ‘gross income.’
Some of the facts have been stipulated. The stipulation and exhibits attached thereto are incorporated herein by this reference.
Petitioner herein is the Ford Dealers Advertising Fund, Inc., Jacksonville Division (hereinafter sometimes referred to as Advertising), whose principal place of business was located in Jacksonville, Fla., at the time the petition in the instant case was filed. Advertising filed its corporate income tax returns for the fiscal years ending January 31, 1966, and January 31, 1967, with the district director of internal revenue, Jacksonville, Fla. Its books were kept and its corporate returns filed on the cash receipts and disbursement method of accounting with a fiscal year ending January 31.
According to Advertising's charter as amended on February 7, 1951, the purposes and limitation upon its activities are:
II
The general nature, object and purpose of this corporation shall be to promote social and educational intercourse between its members, to exchange ideas and methods in respect to the promotion of the sales of their products through advertising of various kinds and through various mediums, and to unify and standardize their efforts and aims along said lines so as to promote harmony and to make the same more productive and effective.
II.(B)
To improve business conditions in the general area comprised of the State of Florida and the Southern part of Georgia with respect to the sale in that area of passenger cars, commercial cars, and/or trucks and automobile equipment handled by members of the Corporation, whether new or used, to promote good will and acceptance for such cars, trucks, and automotive equipment, and to promote the common business interest of the members of the Corporation with respect thereto, by group advertising and other legitimate means and methods deemed desirable.
The Corporation shall not engage in any business of a kind ordinarily carried on for profit, and nothing in these Articles of Incorporation or in the By-Laws shall authorize the Corporation to, and the Corporation shall not enter into any transaction, carry on any activity, or engage in any business for pecuniary profit, and any income received by the Corporation shall be applied exclusively to the not-for-profit purposes and objects of the Corporation as set forth herein, and no part thereof shall inure to the benefit of any private member or individual.
The bylaws, as amended January 13, 1966, further enumerate the purposes to be:
1. To promote sales of Ford cars, trucks, parts and accessories, used cars and trucks, and automobile maintenance and repair services offered to car and truck owners and users in territories served by the dealer members of the Fund, through the medium of various types of advertising promotions and services purchased and paid for locally by the Fund from monies contributed voluntarily thereto for that purpose, by the members.
2. To retain the services of competent advertising counsel to advise and to assist in the planning, designing, preparation and execution of appropriate advertising campaigns and material.
3. To collect the voluntary advertising contributions of the respective dealer members of the Fund to be used for the purchase of an advertising counsel and materials and services as contracted for with all types of advertising media, and for all expenses incident thereto, including the cost of maintaining records and administering the funds.
4. To elect a committee consisting of authorized dealer members to act on behalf of all members of the Fund in the planning and execution of advertising activities, including those recommended or suggested by advertising counsel, receive the voluntary contributions of dealer members and to expend such monies for appropriate advertising purposes and expenses incident thereto, and to make available to all members an adequate accounting of Fund receipts.
5. The Ford Dealers Advertising Fund is definitely not intended to take over any dealer's individual advertising, but rather is intended to increase his own advertising by the use of media and rates to which the dealer does not have access, or by increasing the amount of advertising appearing in each dealer point through the use of any accepted medium. In other words, this Plan makes it possible for dealers to do collectively what they could not or would not do individually.
As provided in its charter, Advertising's affairs and business were to be conducted and managed by a board of directors (hereinafter sometimes referred to as the board), which might not be comprised of less than nine members; by a president, vice president, secretary, treasurer; and by other officers, agents, and employees as the board should authorize. During the years in issue the officers were a president and a secretary-treasurer and the board consisted of 24 directors elected by the members. The board's powers, under Articles V and VIII of the bylaws, were as follows:
The Directors in addition to the powers conferred by law and the Articles of Incorporation, shall have the power:
(a) To appoint and remove at pleasure all agents and employees of the Fund and prescribe their duties, fix their compensation and require from them security for faithful service.
(b) To conduct, manage and control the affairs, policies, and businesses of the corporation; to make rules and regulations no inconsistent with laws of the State of Florida or these By-Laws, for the guidance of the officers and management of the affairs of the Fund.
(c) To do any and all things that may be necessary and expedient for the welfare of the Fund.
All money received by the Fund shall be used and administered for the benefit of the Fund and of its members in such manner as the Board of Directors may from time to time determine.
During the years in issue, H. O. Harris (hereinafter sometimes referred to as Harris) was employed as Advertising's executive director. He supervised the administration of cash receipts, maintenance of records, and all day-to-day functions engaged in by Advertising. A secretary-bookkeeper and two other full-time office personnel were also employed by Advertising. Except for these four individuals, no other person received any compensation for his services to Advertising as such. Officers and directors did, however, receive reimbursement for traveling expenses for attending board and committee meetings.
Membership in Advertising was restricted to dealers who held franchises for the sale of Ford Motor Co. (hereinafter sometimes referred to as Ford) automobiles and trucks in Ford's Jacksonville sales district. At the time a dealer became a member he signed an authorization for Ford to add to his invoices $13 for each Ford automobile and truck and $28 for each Thunderbird delivered to him. These funds were forwarded by Ford to Advertising. The dealer also executed the ‘Jacksonville District Ford Dealers Advertising Fund, Inc., Dealer Agreement,‘ which provided:
JACKSONVILLE DISTRICT
NOW, THEREFORE, the dealers in the Fund, and said Fund, hereby mutually declare, agree and covenant with one another—
1. That all remittances heretofore or hereafter made by the dealers to the Fund shall be expended in their entirety for the not-for-profit purposes of the Fund in advertising and promoting the automotive products and services of the members, and necessary corporate expense incident thereto;
2. That in the event of dissolution of the Fund, all unexpended remittances shall be disbursed in their...
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