Kintner v. United States, 519.

• Decision Date: 06 October 1952
• Docket Number: No. 519.,519.
• Citation: 107 F. Supp. 976
• Parties: KINTNER et ux. v. UNITED STATES.
• Court: U.S. District Court — District of Montana

107 F. Supp. 976

KINTNER et ux. v. UNITED STATES.

No. 519.

United States District Court D. Montana, Missoula Division.

October 6, 1952.

Smith, Boone & Rimel, Missoula, Mont., for plaintiffs.

Dalton T. Pierson, U. S. Atty., Butte, Mont., R. Lewis Brown, Jr., Asst. U. S. Atty., Butte, Mont., and John A. Rees, Sp. Asst. to Atty. Gen., for defendant.

MURRAY, District Judge.

This is a suit brought by plaintiffs, husband and wife, against the United States to recover the sum of $780.13, which they paid as a deficiency assessment on their 1948 income tax. The circumstances leading to the assessment of the deficiency are as follows:

Plaintiff Arthur R. Kintner is a medical doctor practicing his profession in Missoula, Montana. Prior to June 30, 1948, Dr. Kintner was a member of a group of doctors organized as a copartnership and practicing medicine under the name of Western Montana Clinic. On June 30, 1948, the partnership was dissolved and Articles of Association were executed by the former partners, forming an association for the practice of medicine, under the name of Western Montana Clinic Association. The Association, upon its formation, created a pension plan for the purpose of providing a pension fund for its employees. Under this plan, contributions in the sum of $976.14 were made by the Association to the pension fund on behalf of Dr. Kintner for the months of July to December, 1948, and Dr. Kintner did not report this sum as income, upon the theory that under Section 165(b) of Title 26 U.S.C.A. such sum was not taxable at the present time as income and would not be taxable until he commenced to receive payments from the fund. The Collector ruled otherwise and levied a deficiency assessment.

Another item which resulted in the deficiency assessment was the sum of $1,140.82. This amount represents the portion of a reserve set up by the Western Montana Clinic Association during 1948 to cover its operating expenses during the year 1949, which would be chargeable to Dr. Kintner as income if the Association is to be regarded for tax purposes as a partnership rather than a corporation. The two amounts, $1,140.82 and $976.14, were charged against Dr. Kintner and his wife on their joint return as additional income for 1948, and a deficiency assessment of $720.26, plus interest in the amount of $59.87, was levied against them. This they paid on September 5, 1950, and thereafter filed a claim for refund, which claim was not acted upon by the government within 6 months after its filing, nor any time up to the time of institution of this action, and this suit was started.

Plaintiffs claim the Western Montana Clinic Association is an association taxable as a corporation, and therefore the sum of $1,140.82 is not chargeable to Dr. Kintner as his proportion of the reserve set up by the Association to conduct business for the ensuing year. They also contend that the Doctor is an employee of the Association and that the funds contributed to the pension plan on his behalf by the Association are not presently chargeable to him as income and will not be chargeable to him until he actually receives money from the pension fund. The government takes a contrary position and in addition, in its brief, claims that under the provisions of Section 165(a) (3) (B) the plan is discriminatory in favor of officers, shareholders, supervising or highly compensated employees.

A decision in this case requires an answer to the following three questions:

1. Is the Western Montana Clinic Association an association that is taxable as a corporation within the meaning of the Internal Revenue Code and the Rules and Regulations of the Internal Revenue Bureau;

2. If Western Montana Clinic Association is an association taxable as a corporation, is the plaintiff, Dr. Kintner, an employee of that association;

3. Does the pension plan created by the Western Montana Clinic Association meet the requirements of Section 165(a) of the Internal Revenue Code?

It appears to the Court that the answer to the first question must be in the affirmative.

Turning first to the Income Tax Regulations of the Bureau of Internal Revenue, effective for the taxable years beginning after December 31, 1941, 26 CFR, part 29, the following definitions are found:

"Sec. 29.3797-1. Classification of taxables. For the purpose of taxation the Internal Revenue Code makes its own classification and prescribes its own standards of classification. Local law is of no importance in this connection. * * * The term `Partnership' is not limited to the common law meaning of partnership, but is broader in its scope and includes groups not commonly called partnerships. The term `corporation' is not limited to the artificial entity usually known as a corporation, but includes also an association, a trust classed as an association because of its nature or its activities, a joint-stock company, an insurance company, and certain kinds of partnerships * * *.

"Sec. 29.3797-2. Association. The term `association' is not used in the Internal Revenue Code in any narrow or technical sense. It includes any organization, created for the transaction of designated affairs, or the attainment of some object, which, like a corporation, continues notwithstanding that its members or participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a committee, a board, or some other group, acting in a representative capacity. It is immaterial whether such organization is created by agreement, a declaration of trust, a statute, or otherwise. It includes a voluntary association, a joint stock association or company, a `business' trust, a `Massachusetts' trust, a `common' trust, an inter-insurance exchange operating through an attorney in fact, a partnership association, and any other type of organization (by whatever name known) which is not, within the meaning of the Code, a trust or an estate, or a partnership. * * *"

The evidence shows the Western Montana Clinic Association was an organization created for the transaction of designated affairs (the practice of medicine and surgery); it continues notwithstanding that its members or participants change, and its affairs are conducted by a committee acting in a representative capacity. An association, under the above definition, includes any organization, by whatever name known, which is not, within the meaning of the Code, a trust or an estate or a partnership. There is no contention that the Western Montana Clinic is a trust or an estate, and turning to the definition of partnership in the regulations, the following is found:

"Sec. 29.3797-4. Partnerships. The Internal Revenue Code provides its own concept of a partnership. Under the term `Partnership' it includes not only a partnership as known at common law, but, as well, a syndicate, group, pool, joint venture, or other unincorporated organization which

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