Monterey Public Parking Corp. v. United States, 71-1880.

• Decision Date: 28 June 1973
• Docket Number: No. 71-1880.,71-1880.
• Citation: 481 F.2d 175
• Parties: MONTEREY PUBLIC PARKING CORPORATION, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

481 F.2d 175 (1973)

MONTEREY PUBLIC PARKING CORPORATION, Plaintiff-Appellee, v. UNITED STATES of America, Defendant-Appellant.

No. 71-1880.

United States Court of Appeals, Ninth Circuit.

June 28, 1973.

Richard Halberstein, Washington, D. C. (argued), Fred B. Ugast, Acting Asst. Atty. Gen., Tax Div., Dept. of Justice, Washington, D. C., James L. Browning, Jr., U. S. Atty., San Francisco, Cal., Meyer Rothwacks, Bennet N. Hollander, Tax Div., Dept. of Justice, Washington, D. C., for defendant-appellant.

Kenneth A. Ehrman (argued), Monterey, Cal., for plaintiff-appellee.

Before HAMLIN and ELY, Circuit Judges, and KELLEHER,^* District Judge.

KELLEHER, District Judge:

Appellant seeks reversal of the District Court's judgment, after trial, granting appellee a refund of income taxes for three prior years upon a finding that the appellee is exempt from federal income taxes under Int.Rev.Code of 1954, § 501 (c)(3) and (4)¹ as either a corporation organized and operated exclusively for charitable purposes, or as a civic league or an organization "not organized for profit but operated exclusively for the promotion of social welfare."

In substance, appellant contends that to the extent the trial court failed to examine separately the taxpayer's claims of exemption, the court erred in its application of the law to the facts because each section describes distinct entities entitled to exemption for distinctly different reasons. Appellant argues that: (1) Section 501(c)(3) "organized and operated exclusively for charitable purposes" means that the primary purpose of the corporation be of a charitable nature and that anything more than an insubstantial or an incidental non-charitable purpose dictates non-exemption; and (2) under Section 501(c)(4) "not organized for profit but operated exclusively for the promotion of social welfare" means that the taxpayer must be primarily engaged in promoting the common good and general welfare of the community and that, on the basis of the applicable regulation, Treas.Reg. § 1.501(c)(4)-1(ii), a taxpayer is not primarily operated for the promotion of the general welfare if its primary activity "is carrying on a business with the general public in a manner similar to organizations which are operated for profit." An application of these allegedly proper legal standards to the instant fact situation, appellant contends, demands the conclusion that the District Court's finding of exemption was clearly erroneous.

The trial court found that:

". . . the distinction between the two subsections of § 501 is more apparent than real. It is true that applicable regulations seem to allow the carrying on of a business for profit by a (c)(3) organization, while barring such operations for (c)(4) organizations. The Regulations are, of course, given considerable weight by the Courts. Citation and footnote omitted But the Regulations must be seen in light of applicable case law, which, in this area at least, has concentrated more on the philosophy behind § 501 as a whole, rather than on variations in the language thereof. Citations omitted

"Thus, if this Court were convinced that plaintiff\'s organizers, by giving themselves special advertising rights, or by restricting the validation stamp system to certain businesses, were in fact primarily interested in their own ends rather than in those of the public, exemption under neither (c)(4) nor (c)(3) would be possible. Similarly, the operation of a commercial enterprise not in furtherance of an exempt purpose would bar consideration under both subsections. Footnote omitted If they are not, the case law under both subsections has made it clear that they will not destroy the exemption claimed. Citations omitted

"This Court cannot say that plaintiff corporation, organizationally or

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