Laurel Hill Cemetery Ass'n v. United States
| Decision Date | 04 February 1977 |
| Docket Number | No. 75-233C(A).,75-233C(A). |
| Citation | 427 F. Supp. 679 |
| Parties | LAUREL HILL CEMETERY ASSOCIATION, Plaintiff, v. UNITED STATES of America, Defendant. |
| Court | U.S. District Court — Eastern District of Missouri |
Biggs, Curtis, Casserly & Barnes, Ward Fickie, Clayton, Mo., for plaintiff.
Evelyn Leopold, Trial Atty., Tax Div., Dept. of Justice, Washington, D.C., for defendant.
Plaintiff, Laurel Hill Cemetery Association (hereinafter referred to as the Association), brings this action for a refund of income taxes, and penalties and interest thereon assessed against and paid by plaintiff-taxpayer in the sum of $19,866.31 for the years 1954 through 1957, 1960 and 1961. This Court's jurisdiction of the case is proper under 28 U.S.C. § 1346(a)(1). Venue is proper pursuant to 28 U.S.C. § 1402(a)(1).
From the stipulation of facts and numerous joint exhibits filed by the parties with the Court it appears that the Association was formed as a voluntary association on July 23, 1923, for the stated purpose of providing and maintaining a cemetery for "the burial therein of white human remains of the Caucasian race." The Association was neither organized nor operated for profit. Subsequent to its organization, the Association was granted a Pro Forma Decree of Incorporation and thereby created as "a body politic and corporate." The Association at all times pertinent to this case was a pro forma decree corporation and so remains at the present.
On the same date the Association was formed as a voluntary association, the Plymouth Securities Company (hereinafter referred to as Plymouth) was organized for profit as a business trust. At the time of its organization Plymouth owned certain real property located in St. Louis County, Missouri, known as the Laurel Hill Cemetery. This tract of land, originally consisting of 160 acres, over the years has been reduced in size to 110 acres at the date of this litigation. At the present, Laurel Hill Cemetery has approximately 5,000 lot owners owning 33,000 grave spaces. There have been over 8,500 burials in the cemetery.
On the very day of their organization Plymouth and the Association entered into an agreement whereby, among other things, (1) Plymouth agreed to lay out, plat, develop and improve Laurel Hill Cemetery under plans approved by both parties to the agreement; (2) Plymouth agreed to deed to the Association all walks, driveways, roads, sewers, entrances, buildings and parks; (3) Plymouth agreed to convey to the Association all cemetery lots bearing numbers ending with the numeral naught; (4) Plymouth agreed to deposit ten percent of the sales price of all cemetery lots it sold with the Association; and (5) the Association, in consideration of the above gifts and conveyances, agreed to create a perpetual care fund from the proceeds of the sale of lots and to assume the care and maintenance of sections of the cemetery of not less than twenty-five acres, when they were fully developed, provided the Association had a perpetual care fund of at least $100,000.00 for each section of twenty-five acres.
In 1945, Ray L. Johnson and Robert W. Maysack entered into a contract to purchase the assets of Plymouth including the Laurel Hill Cemetery real estate and cemetery equipment, records and supplies. In 1946, Johnson and Maysack formed a corporation entitled Laurel Hill Memorial Gardens, Inc. (hereinafter referred to as the Cemetery Company) as a profit making corporation. The two men then assigned their rights under the 1945 contract with Plymouth to the newly organized Cemetery Company. The Cemetery Company presently owns Laurel Hill Cemetery and operates such for profit. Any dividends paid from the net earnings of the Cemetery Company are paid to private shareholders and individuals.
In July of 1946, the Association entered into an "Agency Agreement" with the Mutual Bank and Trust Company of St. Louis. This agency agreement arranged for property owned by the Association to be held by the bank subject to letters of instruction received from the Association's Executive Committee. The bank or a successor corporation acted as a custodian and depository agent of Association property from 1946 until August of 1966, when that property was placed in trust with St. Louis County National Bank. During the years 1954 through and including 1961, the assets of the Association's account consisted primarily of notes secured by first deeds of trust of real estate, treasury bills, treasury bonds and other United States Government securities, as well as certificates of deposit with Savings and Loan Associations.
The Association in 1952 filed an application for exempt status under Section 501(c)(13) of the Internal Revenue Code. When this application was denied by the Internal Revenue Service the Association filed a protest of the action. Though attempts were made to resolve questions regarding plaintiff's requested tax-exempt status, the Service ultimately denied such status to the plaintiff.
In 1950, Johnson and Maysack formed Memorial Enterprises, Inc. (hereinafter referred to as Memorial). From 1950 to 1958, Memorial employed eight to twelve persons who performed all services necessary to operate Laurel Hill Cemetery on a day-to-day basis. Memorial paid its employees, then billed the Cemetery Company for services rendered. Over the same period of time the Cemetery Company had no employees on its payroll other than Johnson and Maysack. The Association had no salaried employees during the years involved in this litigation.
After 1958, the Cemetery Company paid salaries directly to those individuals formerly employed by Memorial and considered them its own employees. The services provided by Cemetery Company employees from 1959 through 1961 were those previously provided by the employees of Memorial and included the opening and closing of graves; lawn, road and walkway maintenance; grave market installation and maintenance; and drainage and irrigation.
During the years in suit the Association maintained neither a checking nor a savings account in any bank or similar organization. Interest and dividends from the property comprising the perpetual care fund (in the custodial account) were disbursed to the Association by checks which were then endorsed over to the Cemetery Company. These funds were deposited to the general bank account of the Cemetery Company, from which were paid all the disbursements for the bills of the Cemetery Company. Exact figures on costs actually incurred for other operational expenses during the years 1954 through 1961 are not available. However, the parties have estimated that the cost of providing care and maintenance for Laurel Hill Cemetery during this period amounted to between $29,000 and $40,000 per year, or forty to fifty-five per cent of the total cost per year for all services provided.
During the years in suit there were no books of account, general ledgers, or similar financial records kept by or for the Association reflecting income or expenses. This situation, at least in part, led to the institution of a class action suit by certain cemetery lot owners, members of the Association by virtue of lot ownership, against Johnson and Maysack for alleged misdeeds in connection with their management of the Cemetery Company, the Association and Laurel Hill Cemetery. The cemetery lot owners by their action sought, (1) an accounting and determination of rights, interests and ownership of perpetual care funds; (2) payment of perpetual care funds to the County Council; (3) the appointment of a receiver; and (4) that defendants be enjoined from engaging in certain activities. The St. Louis Court of Appeals denied such relief, but did, however, order Johnson and Maysack removed from their offices as trustees of the Association.
In 1958, Johnson and Maysack each contracted with Pennsylvania Avenue Cemetery Company (hereinafter referred to as Pennsylvania Avenue) to sell one hundred percent of the stock of Memorial. In 1967, the various stockholders of Pennsylvania Avenue acquired the ownership of all of the Cemetery Company's stock by separate transactions with Johnson and Maysack.
This action is to recover income taxes, penalties and interest for the years 1954 through 1957, and 1960 and 1961. The plaintiff paid the following amounts for the following years:
Claims for Refund were filed by the plaintiff with the Internal Revenue Service claiming the following amounts:
1954 $ 2,596.51
1955 4,525.03
1956 2,637.48
1957 4,427.32
1960 2,306.98
1961 3,372.99
__________
TOTAL: $19,866.31
The disposition of plaintiff's refund action turns upon the resolution of issues raised by both plaintiff and defendant. First, it must be determined whether plaintiff is precluded from raising grounds in its suit for refund which allegedly vary from those listed in its claim (Form 843) for refund. Second, the Court must determine whether the perpetual care fund is a tax-exempt organization under Section 501(c)(13) of the Internal Revenue Code. Third, the issue arises whether the...
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