dissenting: Let there be no mistake about this case; it involves a tax avoidance scheme of massive proportions whereby large amounts of business income are accorded favored tax treatment merely because a comparatively minor portion thereof finds its way into the hands of a charitable institution. All too often in cases of this character, the argument in support of such schemes is accompanied by the suggestion that the remedy is one for Congress rather than in the courts, and the effort to apply an existing statute to the situation is pejoratively characterized as “judicial legislation.” Well, in spite of the difficulties in formulating a comprehensive legislative solution to the problem, Congress has done something about it. Congress has already amended the statute (in 1950) by adding provisions relating to “feeder organizations.” These new provisions have been incorporated in section 502 of the 1954 Code which provides:
SEO. 502. FEEDER ORGANIZATIONS.
An organization operated for the primary purpose of carrying on a trade or business for profit shall not be exempt under section 501 on the ground that all of its profits are payable to one or more organizations exempt under section 501 from taxation. For purposes of this section, the term “trade or business” shall not include the rental by an organization of its real property (including personal property leased with the real property).
These provisions, fairly construed, cover the present case.
The continued activity of acquiring and leasing such a multiplicity of businesses as are involved herein itself constitutes “carrying on a» trade or business,” and the statute makes clear that exemption from tax does not result merely because all of petitioner’s profits may be “payable to one or more [exempt] organizations * * * ”. The statute adds, however, that the term “trade or business” shall not include “the rental by an organization of its real property (including personal property leased with the real property)But these latter provisions were obviously intended to relate to the passive rental of real estate and related personal property, as pointed out more fully in Judge Sterrett’s dissenting opinion herein. What we have here is the “leasing” of entire businesses, and, at least in the case of some of the “leases”, there was no showing that the “rentals” received were in any way related to real estate or that the real estate played any significant part in the operation of the business. The “rentals” represented merely a share of the net profits derived from the active conduct of the leased enterprise as a whole without regard to any real estate that may have been included. Plainly, they were not intended as consideration for the use or occupancy of real estate.
Bearing in mind the general objective sought to be achieved by the statutory provisions in question, the amounts here in issue can hardly be characterized as rentals from real estate and related personal property. In my view, a fair reading of section 502 is dispositive of the case against petitioner,1 and sound judicial administration is not enhanced by a restrictive and inhospitable interpretation of legislative language.
Withey, Atkins, and Irwin, //., agree with this dissent.If sec. 502 is applicable, petitioner is completely deprived of status as an exempt organization, and it becomes unnecessary to consider secs. 511-513 dealing -with the imposition of tax on “unrelated business income” of organizations which are otherwise exempt.