Trustees of Graceland Cem. Imp. F. v. United States

Decision Date30 May 1975
Docket NumberNo. 446-69 — 449-69.,446-69 — 449-69.
Citation515 F.2d 763
PartiesTRUSTEES OF the GRACELAND CEMETERY IMPROVEMENT FUND v. The UNITED STATES. TRUSTEES OF the GRACELAND CEMETERY IMPROVEMENT FUND, qua Trustees of the Graceland Cemetery Improvement Fund — General Fund v. The UNITED STATES. TRUSTEES OF the GRACELAND CEMETERY IMPROVEMENT FUND, qua Trustees of the Graceland Cemetery Improvement Fund — Lot Owners' Fund v. The UNITED STATES. TRUSTEES OF the GRACELAND CEMETERY IMPROVEMENT FUND, qua Trustees of the Graceland Cemetery Improvement Fund — Marshall Field Fund v. The UNITED STATES.
CourtU.S. Claims Court

COPYRIGHT MATERIAL OMITTED

Sharon L. King, Chicago, Ill., attorney of record for plaintiff. Walter J. Hartmann, Robert W. Kleinman and Isham, Lincoln & Beale, Chicago, Ill., of counsel.

Patricia B. Tucker, Washington, D. C., with whom was Asst. Atty. Gen. Scott P. Crampton, for defendant. Theodore D. Peyser and Donald H. Olson, Washington, D. C., of counsel.

Before SKELTON, NICHOLS and BENNETT, Judges.

As Amended on Denial of Rehearing and Rehearing En Banc May 30, 1975.

OPINION

SKELTON, Judge.

This case is the consolidation of four closely related causes of action all seeking a refund of federal income taxes for the tax years ending April 30, 1962, 1963, 1964, and 1965. It comes before us under stipulation of facts for determination of the plaintiffs' right to recover taxes allegedly overpaid, reserving the question of quantum for further proceedings. Three of the four plaintiffs represent "trust" entities created by the Internal Revenue Service for the purpose of assessing tax during the years in question. For protective purposes only, the principal plaintiff, the Trustees of Graceland Cemetery Improvement Fund (hereinafter referred to as plaintiff or Improvement Fund), filed petitions in the names of these IRS defined entities, although it continues to maintain that these "trusts" do not exist and therefore should not be taxed. The necessary facts stipulated to by the parties are incorporated in our opinion below.

The Improvement Fund was organized and incorporated by a special act of the Illinois legislature, approved February 16, 1865. It was established as a nonshare-holding special charter Illinois corporation whose principal purpose is the perpetual care and maintenance of the Graceland Cemetery located in Chicago, Illinois. Membership in the corporation arises by virtue of ownership of a lot in the Graceland Cemetery; each member is entitled to one vote at meetings called pursuant to the Act of Incorporation to fill vacancies on the Board of Trustees of the Graceland Cemetery Improvement Fund. This elected Board has at all times served without salary or other compensation and has been vested with the management of the Improvement Fund.

The Graceline Cemetery Company (hereinafter Cemetery Company or Company), incorporated separately from the Improvement Fund, is a special charter Illinois corporation created February 22, 1861, by act of the Illinois legislature. The Cemetery Company is a stockholding corporation which, since its inception, has operated the Graceland Cemetery for profit. In addition to selling burial lots and providing interment services, the Cemetery Company operates a crematory and sells space for the temporary and permanent storage of cremated remains. No officer, director, or shareholder of the Cemetery Company has ever served as a member of the Board of Trustees of the Improvement Fund. Moreover, the Improvement Fund and the Cemetery Company each has its own office and all bank accounts, financial records or other books are kept separate.

In accordance with Section 1 of the Improvement Fund's Act of Incorporation of 1865, the Cemetery Company is obligated to pay over to the Improvement Fund ten percent of the proceeds from the initial sale by the Cemetery Company of lots in the Graceland Cemetery. Under the Act of Incorporation these revenues are to be designated as a permanent fund of at least $50,000. The investment income from this fund and any amounts in excess of $50,000 are committed to the perpetual preservation and improvement of the grounds and structures of Graceland Cemetery.

In addition to the income representing ten percent of the sale of lots, the Improvement Fund is authorized by Section 9 of the Act of Incorporation to receive funds through grants, bequests, or donations for the improvement and care of particular lots. Such funds are to be expended for uses consistent with the purpose of perpetual maintenance and in accordance with specific terms of the original grant.

For each tax year since 1943 including the tax years in question here, the plaintiff filed a single corporate income tax return in the name "Trustees of the Graceland Cemetery Improvement Fund." In its returns the Improvement Fund reported as income the amounts received from the Cemetery Company representing ten percent of the proceeds of lot sales plus the income and gains and losses from the investments made. The amounts received from lot owners under Section 9 for specific care, however, were not included as income. In addition, plaintiff (1) claimed the 85 percent investment dividends received deduction available to corporations under section 243(a)(1) of the Internal Revenue Code of 1954, (2) deducted depreciation on capital improvements made on property owned by it, and (3) deducted payments made for cemetery maintenance expenses and care of lot expenses.

Upon audit, the Internal Revenue Service determined that the income reported by the plaintiff was actually received by and taxable to three different "trusts" defined by the Service: (1) "The Trustees of the Graceland Cemetery Improvement Fund — General Fund" (hereinafter, General Fund), constituting a trust allegedly created for the investment of the ten percent proceeds from lot sales received from the Cemetery Company, (2) "The Trustees of the Graceland Cemetery Improvement Fund — Marshall Field Fund" (hereinafter, Marshall Field Fund), a representative trust created as a result of contributions made under Section 9 for the special care of the Marshall Field lot (the IRS considered each contribution made under Section 9 for the care of a particular lot to constitute a separate taxable trust, but chose the Marshall Field lot, being the largest, for purposes of testing the new tax theory) and, (3) "The Trustees of the Graceland Cemetery Improvement Fund — Lot Owners' Fund" (hereinafter, Lot Owners' Fund), constituting an association of all trusts created by contributions and bequests made under Section 9, such as the Marshall Field Fund, and taxable as a corporation.

In determining the deficiencies to be charged to each of these allegedly taxable entities the IRS denied the three trusts deductions for depreciation, cemetery maintenance, or the cost of care of individual lots. Moreover, the General Fund being a trust was not allowed to claim the corporate dividend received deduction. In determining the taxable income to the Marshall Field Fund, the IRS taxed this trust on income received in the form of a pro rata dividend from the Lot Owners' Fund. The deficiencies assessed were:

                                          GENERAL FUND
                -------------------------------------------------------------------
                  For the Year Ended April 30    Assessed    Assessed      Total
                                                Deficiency   Interest
                -------------------------------------------------------------------
                1962_________________________   $38,773.06  $14,171.29   $52,944.35
                1963_________________________    46,595.06   14,234.47    60,829.53
                1964_________________________    38,359.92    9,417.10    47,777.02
                1965_________________________    58,095.16   10,776.23    68,871.39
                                             ______________________________________
                                               $181,823.20  $48,599.09  $230,422.29
                -------------------------------------------------------------------
                                         MARSHALL FIELD FUND
                -------------------------------------------------------------------
                     For the Year Ended April 30     Assessed   Assessed    Total
                                                    Deficiency  Interest
                -------------------------------------------------------------------
                1962______________________________    $382.99    $139.98    $522.97
                1963______________________________     280.67      85.74     366.41
                1964______________________________     452.61     111.11     563.72
                1965______________________________     334.55      62.06     396.61
                                                  _________________________________
                                                    $1,450.82    $398.89  $1,849.71
                -------------------------------------------------------------------
                                          LOT OWNERS' FUND
                -------------------------------------------------------------------
                  For the Year Ended April 30    Assessed    Assessed      Total
                                                Deficiency   Interest
                -------------------------------------------------------------------
                1962_________________________   $37,380.91  $14,015.28   $51,396.19
                1963_________________________    29,345.31    9,241.76    38,587.07
                1964_________________________    38,341.15    9,774.37    48,115.52
                1965_________________________    32,017.09    6,241.14    38,258.23
                                             ______________________________________
                                               $137,084.46  $39,272.55  $176,357.01
                -------------------------------------------------------------------
                

For protective purposes the IRS assessed a deficiency against the Trustees of Graceland Cemetery Improvement Fund on the basis of a denial of the plaintiff's deductions for maintenance costs and depreciation. This deficiency totaled:

                ---------------------------------------------------------------------
                  For the Year Ended April 30      Assessed    Assessed     Total
                                                  Deficiency
...

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