Smith v. Reynolds
| Decision Date | 19 February 1942 |
| Docket Number | No. 47 Civil.,47 Civil. |
| Citation | 43 F. Supp. 510 |
| Parties | SMITH v. REYNOLDS, Collector of Internal Revenue. |
| Court | U.S. District Court — District of Minnesota |
Frederic D. McCarthy, of St. Paul, Minn., for plaintiff.
Linus J. Hammond, Asst. U. S. Atty., of St. Paul, Minn., for defendant.
This is an action brought to recover social security taxes claimed to have been erroneously and illegally assessed for the years 1936, 1937 and 1938, amounting in the aggregate, with interest, to the sum of $6,296.93.
The plaintiff has filed returns and paid said taxes under protest, under the provisions of Titles VIII and IX of the Social Security Act, Sections 801 et seq., 901 et seq., 1001 et seq., and 1101 et seq., 42 U.S. C.A. Claim for refund was filed by the taxpayer and more than six months elapsed prior to the commencement of this suit, no decision having been rendered by the Commissioner on said claim for refund.
The facts in this case have been stipulated, and may be summarized as follows:
The Northern Pacific Beneficial Association, hereinafter referred to as the "Association", is a voluntary association of persons, now or formerly working for the Northern Pacific Railway Company, hereinafter referred to as the "Railway Company". The object of the Association, as set out in its constitution, is "the medical, surgical and hospital care of its members".
The constitution of the Association provides that its membership "shall include all employees of the Northern Pacific Railway Company", all members of the Association, and all members of such other corporations in which the Railway Company may own a majority of the stock, and such as the Board of Directors of the Association may decide to receive into its membership under the rules, regulations and constitution of said Association.
The constitution of the Association also provides for membership dues of one per cent. of the employee's monthly earnings, with a minimum of 75 cents and a maximum of $1.50 monthly, and an additional assessment of 25 cents per member per month may be levied when, in the opinion of the Board of Directors the same may be deemed advisable. Provision is also made for members who are retired from the service with a pension to continue their membership in the Association on the payment of one per cent. of their monthly pension allowance, with a minimum of 50 cents and a maximum of $1.50 per month. There is provision made also for the continuance of membership in the Association of such members as may be on leave of absence, upon the payment by such persons of certain monthly assessments.
The by-laws of the Association provide that all persons who accept employment with said Railway Company or Association shall from that date be considered members of the Association, and entitled to its benefits. Membership, however, is dependent upon the payment of prescribed dues, and if members fail to pay the dues imposed upon them in advance they shall "automatically forfeit their membership and rights to benefits."
The by-laws also set out certain exceptions from membership, among which are persons temporarily employed by the Railway Company and persons who, before entering the service, were afflicted with chronic diseases or congenital conditions. The benefits accruing to Association members are medical and surgical care and attention, hospitalization and nursing care, in case of accident or illness. Care outside of the Railway Company's hospitals is also contemplated under certain conditions. Medical and surgical treatment is limited to six months to the members who may be incapacitated for work by illness or accident, except that in certain cases and under certain conditions the time of such care may be extended at the discretion of the Association's chief surgeon. The Association maintains a full-time staff of doctors, nurses and other employees, four general hospitals and one emergency hospital, at different locations along the line of said Railway Company. The Railway Company makes cash contributions of $5,000 each month to the Association, partially as a lump-sum payment for the care of its employees injured as the result of accidents while on duty, and partially as a pure contribution. The proportions to be allocated for each of said purposes does not appear. The Railway Company makes further contributions to the Association in the way of services of certain of its departments. The Association never distributed any money as earnings among its membership. Any money which the Association had on hand has gone into the improvement of its present properties and the extension of its service. It now has a membership of approximately 21,000 persons. It accepts some pay patients, and also some charity cases.
It is the contention of the plaintiff that the Association is organized and operated exclusively for charitable purposes, and that no part of its net earnings inures to the benefit of any private shareholder or individual, and that by reason thereof, it is exempt from making the payments required by the Social Security Act and the Revenue Act of 1936.
On the other hand, the defendant contends that the Association is not organized for charitable purposes, but is organized for the mutual benefit of its membership, and that indirectly the earnings of the Association inure to the benefit of its membership, and that by reason thereof it is not entitled to the exemption claimed.
The Revenue Act of 1936 and the Social Security Act require payments to the government, based on the earnings of employees. Certain corporations, associations and organizations are exempted from the provisions of said Acts.
Section 101(6) of the Revenue Act of 1936, 26 U.S.C.A. Int.Rev.Code, § 101(6), so far as the same is here pertinent, provides:
"The following organizations shall be exempt from taxation under this chapter —
* * * * *
"(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for * * * charitable * * * purposes, * * * no part of the net earnings of which inures to the benefit of any private shareholder or individual, * * *."
The pertinent provision of Section 811 (b) (8), 42 U.S.C.A. § 1011(b) (8), relating to Title VIII of the Social Security Act (employees), and Section 907(c) (7) of the same Act, 42 U.S.C.A. § 1107(c) (7), relating to Title IX (employees) of the Act, the language of each of said Sections being identical, is as follows:
"The term `employment' means any service * * * except —
* * * * *
"Service performed in the employ of a corporation, community chest, fund, or foundation, organized and operated exclusively for * * * charitable * * * purposes, * * * no part of the net earnings of which inures to the benefit of any private shareholder or individual."
Was the Association operated exclusively for charitable purposes?
It is reasonably accurate to state that the word "charity" means a gift without any hope on the part of the donor, based on legal or moral right, of any material benefits being realized therefrom by him. Webster's New International Dictionary states that "charity" means, among other things, "Whatever is bestowed gratuitously on the needy or suffering for their relief; an eleemosynary foundation or institution; an institution founded by a gift and intended for the use of the public, as a hospital, library, school, etc." A charity is a gift without material reward or consideration, and this holds true whether the same was prompted by ulterior motives or not. For definitions of "charitable institution" and "charity", see County of Hennepin v. Brotherhood of the Church of Gethsemane, 27 Minn. 460, 8 N.W. 595, 38 Am.Rep. 298, and Jackson v. Phillips et al., 14 Allen 539, 556, 96 Mass. 539, 566. A charitable institution is one established, maintained and operated for the purpose of taking care of the sick, without any profit or view of profit, but at a loss which has to be made up by benevolent contributions.
Here the Railway Company has made appreciable contributions to the Association each...
To continue reading
Request your trial
-
Missouri Goodwill Industries v. Gruner
...or consideration being realized therefrom. Without some element of a gift, there would be no charity in the legal sense. Smith v. Raynolds, 43 F.Supp. 510; Evangelical Lutheran Synod v. Hoehn, 196 S.W.2d Y.M.C.A. v. City of Philadelphia, 323 Pa. 401, 187 A. 204. (4) Exemptions from taxation......
-
National Chiropractic Ass'n v. Birmingham
...1930, 37 F.2d 880; Uniform Printing & Supply Co. v. Com'r, 1927, 9 B.T.A. 251, 7 Cir., 1929, affirmed, 33 F.2d 445; Smith v. Reynolds, D.C.Minn.1942, 43 F.Supp. 510 (Organization providing medical and hospital benefits to railroad employees); Durham Merchants' Ass'n v. U. S., D.C.N.C. 1940,......
-
Rice v. Hawley
... ... Appeal ... from Circuit Court of Newton County; Hon. Emory E. Smith, ... ... Affirmed. Appeal of the Unknown Heirs of James M. Jobe, ... deceased, et al., dismissed. Appeal of Defendants C. C ... 5 R. C. L. 293; 11 C. J. 313. A ... voluntary association for mutual benefit of its members is ... not a public charity. Smith v. Reynolds, 43 F.Supp ... 510; In re Dol's Estate, 187 P. 428. An Odd ... Fellows Hospital, sponsored by the Odd Fellows Lodge, is not ... a public ... ...
-
Rice v. Odd Fellows Lodge No. 85
...public. 5 R.C.L. 293; 11 C.J. 313. A voluntary association for mutual benefit of its members is not a public charity. Smith v. Reynolds, 43 F. Supp. 510; In re Dol's Estate, 187 Pac. 428. An Odd Fellows Hospital, sponsored by the Odd Fellows Lodge, is not a public charitable organization. I......