Schuster v. Nichols

• Decision Date: 03 June 1927
• Docket Number: No. 2450.,2450.
• Citation: 20 F.2d 179
• Parties: SCHUSTER v. NICHOLS, Internal Revenue Collector.
• Court: U.S. District Court — District of Massachusetts

20 F.2d 179 (1927)

SCHUSTER v. NICHOLS, Internal Revenue Collector.

No. 2450.

District Court, D. Massachusetts.

June 3, 1927.

Henry Herrick Bond and Ralph E. Tibbetts, both of Boston, Mass., for plaintiff.

Marcus Morton, Jr., Asst. U. S. Atty., of Boston, Mass., for defendant.

BREWSTER, District Judge.

This is an action brought to recover income taxes, amounting in the aggregate to $14,085.14, assessed upon the plaintiff's income, which taxes were paid under protest. Claims for refund were duly filed and denied. The facts are not in dispute. Briefly stated, they are as follows:

The plaintiff filed his returns of net income for the calendar years 1918, 1919, 1920, and 1921. In his return for each of said years he deducted from his gross income certain amounts which he had contributed during the years in question to the East Douglas Evergreen Cemetery Company, of East Douglas, Mass., claiming these deductions as contributions to a charitable corporation. The amounts deducted from his income for each of the years in question on account of such contribution were as follows: For the year 1918, $5,000; for the year 1919, $13,494.87; for the year 1920, $12,276.44; for the year 1921, $977.24.

On review of the plaintiff's return for each of the said years, the Commissioner of Internal Revenue disallowed these deductions, as a result of which an additional tax was assessed against the plaintiff for each year as follows: 1918, $3,190.32; 1919, $6,546.30; 1920, $3,737.51; 1921, $371.74.

The East Douglas Evergreen Cemetery Company is a corporation created by special act of the Legislature of the commonwealth of Massachusetts, enacted March 27, 1858 (chapter 128, Special Laws 1858). The corporate purposes were set forth in section 3 of the act, which reads as follows:

"Sec. 3. The said corporation shall take and hold the real estate aforesaid for a rural cemetery or burial ground, and for the erection of tombs, cenotaphs or other monuments for, or in the memory of, the dead; and for this purpose shall have power to lay out the same in suitable lots or subdivisions for family or other burying places; to plant and embellish the same with trees, shrubbery and other rural ornaments; to inclose and divide the same with suitable walls and fences; and to construct and annex thereto such suitable buildings, appendages and other conveniences, as said corporation shall from time to time deem expedient."

The act further empowered the corporation to acquire and hold real estate in the town of Douglas for the purposes of the corporation, and to grant and convey "to any person or persons the sole and exclusive right of burial" in any of the lots or subdivisions, and to erect tombs and cenotaphs "upon such terms and conditions, and subject to such regulations, as said corporation shall prescribe, which right, so granted and conveyed, shall be held for the purposes aforesaid, and for no other." Under the statute the real estate was to be exempt from public taxes so long as it remained dedicated to cemetery purposes.

The by-laws of the corporation vested in a board of trustees authority to lay out, appraise, and sell at not less than the appraisal value burial lots, and to improve the grounds inclosed for the purpose of a cemetery as the proceeds of sales would permit. All lot owners were members of the corporation, and there was no limitation in the charter or bylaws as to the persons who might purchase lots. No capital stock was ever issued, and no dividends ever paid to members. Nothing appears in the special act, or in the by-laws, to indicate that the corporation had any purpose to provide, gratuitously, suitable burial ground for the poor or indigent, who could not afford to pay. It was suggested at the hearing that lots had been conveyed for which the purchase price had not been paid, but the evidence to support this claim was not definite or convincing, and it amounted to no more than that perhaps in a few instances lots had been bought for which the purchase price had not been fully paid. I am unable to find any justification for the conclusion that the corporation had, in fact or in law, a purpose to assist the poor and needy.

The corporation acquired land in the town of Douglas, which was divided into burial lots, and has ever since been dedicated to cemetery purposes. Lots were conveyed subject to the condition that they were to be used for no purpose other than for burial of the dead. The cemetery has been improved and beautified out of proceeds derived from the sale of lots and gifts made by benefactors, among which latter were the contributions of the plaintiff. It is respecting these contributions, made in the years 1918 to 1921, both inclusive, that plaintiff now asserts a right to a deduction from his gross income for the corresponding taxable years.

The statutes upon which plaintiff's claim is based are the Revenue Act of 1918 (section 214a 11, Act of February 24, 1919, c. 18, 40 Stat. 1066 Comp. St. § 6336 1/8g), and the Revenue Act of 1921 (section 214a 11 B, Act of November 23, 1921, c. 136, 42 Stat. 227 Comp. St. § 6336 1/8g).

The pertinent provisions common to both acts may be summarized as follows:

In computing net income, there shall be allowed as deductions contributions or gifts made within the taxable year to any corporation organized and operated exclusively for "charitable" purposes up to a maximum amount.

The controversy between the parties to this action arises over the scope and meaning of the word "charitable" as used in the Revenue Acts.

The plaintiff argues that the word "charitable," as used in the statute, is not to be confined to mere relief of poverty, or distress, or almsgiving, but that it carried a wider signification which embraced any purpose which had for its end the improvement and promotion of the general welfare. Jackson v. Phillips, 14 Allen (Mass.) 539; New England Sanitarium v. Stoneham, 205 Mass. 335, 91 N. E. 385; Molly Varnum Chapter, D. A. R., v. Lowell, 204 Mass. 487, 90 N. E. 893, 26 L. R. A. (N. S.) 707.

This broader definition would undoubtedly obtain in an equity court dealing with a charitable trust within the intent and...