*1327 1. Petitioner in 1936 and 1937 made all mortgage loans except one to borrowers who were not stockholders. Ownership of stock in petitioner is the method of acquiring membership and the terms "member" and "stockholder" mean the same. Held, that petitioner is not exempt from Federal income tax under section 101(4) of the Revenue Act of 1936, since substantially all of its business was not confined to making loans to members.
2. Petitioner sold real property acquired through foreclosure, giving a deed and taking a small cash payment, an installment note for the balance, and a purchase money mortgage. It appeared that petitioner loaned the balance to the vendee by issuing its own check for the balance, but that step was for accounting purposes only. Held, petitioner is taxable only on gain to the extent that gain was realized in the taxable years, and petitioner may report income from deferred payments in the manner set forth in article 44-4 of Regulations 94.
*472 The Commissioner*1328 determined deficiencies in income tax and excess profits tax for the year 1936 in the respective amounts of $4,161.86 and $394.04, and for the year 1937 in the respective amounts of $3,028 and $122.18. The first question is whether or not substantially all of petitioner's business is confined to making loans to members so as to entitle petitioner to exemption from Federal income tax under the provisions of section 101(4) of the Revenue Act of 1936. If petitioner is not exempt from income tax, the second question is whether or not petitioner is taxable in 1936 and 1937 on the entire gain from property sold under installment payment notes and mortgages where cash payments received in the taxable years were around 15 percent of the sales price.
FINDINGS OF FACT.
Issue 1. - Petitioner is a corporation and it was organized on January 20, 1888, as a building and loan association under the provisions of Ohio statutes, Revised Statute 3833, 83 Ohio Laws 116. During the taxable years petitioner carried on its business at Martins Ferry, Ohio.
Since the creation of the office of superintendent of building and loan associations under the laws of the state of Ohio in the year 1891, *1329 the petitioner has filed annually its report to the said superintendent as a building and loan association. Petitioner is recognized by such superintendent as a domestic building and loan association.
The authorized capital stock of petitioner in the taxable years was $200,000, of par value of $100 per share, and during the taxable years the entire issued and outstanding stock was 960 shares or $96,000. The outstanding stock was fully paid during the taxable years. It was the only class of stock issued and outstanding. At the end of the year 1936 the outstanding stock of petitioner was held by 28 stockholders, and at the end of the year 1937 by 27 stockholders.
Petitioner received deposits, designated time deposits, bearing interest at the rate of 4 percent per annum. At the end of 1936 the total amount of such deposits was $280,198, and at the end of 1937 the total of such deposits was $290,092.48. Petitioner also received deposits designated as savings accounts. At the end of 1936 and 1937 the total of such savings accounts was $550,474.53 and $629,412.95, respectively.
Petitioner obtains its funds for the operation of its business principally from time deposits, *1330 capital stock reserve, and undivided profits.
*473 Petitioner's financial condition, as indicated by its balance sheets, was as follows:
| December 31, 1936. | |
| Assets | |
| Cash | $39,093.45 |
| Bonds | 118,225.00 |
| Deposits in other bldg. and loan assns | |
| Loans on mortgage security | 753,980.87 |
| Loans on certs. or passbooks | 852.08 |
| Loans on other security | |
| Due from borrowers for insurance and taxes | 1,204.20 |
| Real estate - office building | 28,000.00 |
| Other real estate owned | 59,081.47 |
| Real estate sold on contract | 15,000.76 |
| Furniture and fixtures | 150.00 |
| Total assets | 1,015,587.83 |
| Liabilities | |
| Due borrows - unfinished building acct | |
| C. of D. and accrued int. - time deposits - 4% | $280,198.00 |
| Savings accounts | 550,474.53 |
| Contingent profit on R.E. sold on contract | 4,419.50 |
| Contingent profit on R.E. sold by mortgage | 13,409.93 |
| Total liabilities | 848,501.96 |
| Running stock and dividends | |
| Paid-up stock and dividends | 96,000.00 |
| Permanent stock and dividends | |
| Special reserve fund | |
| Reserve fund | 30,183.71 |
| Undivided profits fund | 40,902.16 |
| Total capital | 167,085.87 |
| Total liabilities and capital | 1,015,587.83 |
| December 31, 1937. | |
| Assets | |
| Cash | $38,251.52 |
| Bonds | 69,500.00 |
| Deposits in other bldg. and loan assns | |
| Deposits in other financial institutions | |
| Loans on mortgage security | 964,899.10 |
| Loans on certs. or passbooks | 301.34 |
| Loans on other security | |
| Due from borrowers for insurance and taxes | 949.34 |
| Real estate - office building | 27,000.00 |
| Other real estate owned | 27,849.70 |
| Real estate sold on contract | 7,142.47 |
| Furniture and fixtures | 150.00 |
| Total assets | 1,136,043.47 |
| Liabilities | |
| Due borrowers - unfinished building acct | $9,337.73 |
| C. of D. and accrued int. - time deposits - 4% | 290,092.48 |
| Savings accounts | 629,412.95 |
| Contingent profits | 29,604.88 |
| Total liabilities | 958,448.04 |
| Running stock and dividends | |
| Paid-up stock and dividends | 96,000.00 |
| Permanent stock and dividends | |
| Special reserve fund | |
| Reserve fund | 36,318.64 |
| Undivided profits fund | 45,276.79 |
| Total capital | 177,595.43 |
| Total liabilities and capital | 1,136,043.47 |
*1331 Under the provisions of artiule IV of its constitution membership in petitioner is obtained by ownership of stock and a person is a member and stockholder in petitioner to the extent of the balance of his credits on record on account of his stock. Dividends out of earnings are payable only to members.
Under the provisions of section 24 of its bylaws petitioner may make loans, as authorized by law, to its members and to others. The ownership of stock in petitioner is not a prerequisite to obtaining a loan. Mortgage loans may be made, upon approval by the board of directors, on the security of a first mortgage.
The loans on mortgages made by petitioner in 1936 were made to borrowers who were not stockholders of petitioner, with the exception *474 of one instance where a loan was made to one of petitioner's stockholders. In 1937 all of the loans on mortgages made by petitioner were made to borrowers who were not stockholders. During the year 1936 the total amount of loans on mortgages which were made by petitioner was $257,759.95, and the total of loans made on passbooks and certificates of deposit was $200. During 1937 the total amount of loans on mortgages made*1332 by petitioner was $378,838.97 and the total of loans on passbooks and certificates of deposit was $283.
In the notes and mortgages received by petitioner in 1936 and 1937 there is no statement declaring that the borrower is a member of petitioner, or that he desires to become a member of petitioner.
Borrowers of petitioner who are not stockholders do not share in the profits and losses of petitioner, and they do not have a voice in the affairs of petitioner.
In 1936 and 1937 substantially all of petitioner's mortgage loans were made to persons who were not members. Substantially all of petitioner's business is not confined to making loans to members.
Issue 2. - In the normal course of its business petitioner acquires real property through foreclosure. Under the law of Ohio (sec. 9655 B, General Code), petitioner, as a building and loan association, can not hold such real property for more than five years, unless permission is given by the state superintendent. Therefore, petitioner regularly and as an incident to the conduct of his business sells real property acquired under foreclosure. In most instances such property is sold under terms whereby an initial payment*1333 of from $100 to $300 is paid in cash and the balance is paid in monthly installments over a period of ten years or more. Sales are made under land contracts or by delivery of a deed and receipt of a mortgage and note. This proceeding does not involve sales made under land contracts, but only mortgage sales. In the sales involved only first mortgages were received by petitioner, and the properties were not encumbered by other mortgages.
Petitioner keeps its books and accounts for sales of real property in conformity with the methods required by the state superintendent of building and loan associations. His procedure permits building and loan associations to dispose of real property acquired under foreclosure under land contract sales or under sales involving transfer of a deed and taking back a purchase money mortgage for a major or greater part of the sales price. But experience has shown that such down payment sales of property, called "shoe-string" sales, do not always pay out and the superintendent does not allow an association to enter in its actual earnings any "paper profits" or unrealized profits from such sales. Only realized profit from cash payments made by the*1334 vendee may be taken into earnings. In order to carry *475 out this restriction, the superintendent requires the association to set up and carry on its books a contingent profits account. The sale transaction, regarded as an uncompleted transaction, is entered in a land contracts account or a loan account, depending on the type of the transaction, and the offsetting account or "contra item" is the contingent profits account. As cash payments are made by the vendee under the land contract or note and mortgage, as the case may be, the payments are credited first to restore to reserves any costs incident to the acquisition of the property under foreclosure, then to recover cost of the property, and after all costs have been recovered from cash payments from the vendee, made on the installment method, the cash payments thereafter are allowed to be credited to earnings and put into undivided profits.
In 1936 and 1937 in all the sales of real property wherein petitioner gave a deed and received from the vendee installment note and mortgage for the purchase price above cash down payment, it set up the transactions in its books in accordance with the above prescribed accounting*1335 procedure.
During 1936 petitioner disposed of 13 pieces of real property. It received cash payments for the total sales price in 1936 in two transactions and reported those transactions in its income tax return for 1936, reporting income from one and a loss from the other. It did not report in its income tax return the remaining eleven transactions because the cash payment collected in 1936 in each instance was less than the cost to petitioner of each property, according to its books. Petitioner treated the note and mortgage it held in each instance as not having any fair market value.
During 1937 petitioner disposed of 13 pieces of real estate and reported three of those transactions in its income tax return, reporting income from one and losses from two. During 1937 petitioner received the entire sales price through cash payments from the vendee in these three transactions. Petitioner did not report the remaining ten transactions in its imcome tax return for the same reason as given above for 1936.
In all transactions involving the above sales of real property in 1936 and 1937 where mortgages were given to petitioner, the following steps were taken at the closing of*1336 each sale, and the procedure is typical of petitioner's usual procedure. The closing was held in petitioner's office. The vendee made an initial payment and executed a monthly installment note for the balance due, such amount being the difference between the contract or sales price and the down payment made in cash. The vendee executed a mortgage to secure the note, the form of the note being included in the body of the mortgage deed. Petitioner executed and delivered to the vendee a deed in return *476 for the mortgage. The note executed in each instance is in the following form:
Monthly Payment Mortgage Loan $ No.
Martins Ferry, Ohio , 19
In consideration of a loan this day made to the undersigned, on the terms and conditions hereinafter expressed, I, we, or either of us, promise to pay to the order of THE FIDELITY SAVINGS & LOAN COMPANY at its office in the city of Martins Ferry, Ohio the sum of dollars ( ) with interest thereon at the rate of per cent, ( %), per annum, principal and interest payable in monthly installments of not less than dollars, ( $ ), on or before the last day of each calendar month after the date hereof, until all of said sum and interest*1337 is paid.
* * *
This note is secured by mortgage upon real estate and it is further stipulated and agreed that: * * *; or in event any of the monthly payments aforementioned be due and unpaid for a period of thirty days; then or in either of such events, or in event, after one year from the date hereof, the owner of this note so demands, by written notice of thirty days duration by letter directed to, and mailed to the last known address of any maker of this note or any owner of any real estate mortgaged to secure payment of the same, the unpaid principal of said note and any and all sums then or thereafter due in accordance with the terms hereof, shall therefore become due and payable if and when the owner of this note so elects, (notice of such election being hereby waived) and thereafter shall bear interest at the rate of 8% per annum, payable semiannually, and said owner of this note may enforce payment of all said sums by action at law, foreclosure of such mortgage or by any other process of law.
At the closing one additional step was taken in each instance. Petitioner issued its own check in the amount of the note. The check was made payable either to cash or petitioner*1338 or to the vendee. If payable to the vendee he endorsed it immediately to petitioner. The check so issued says on its face that it is to the "account of loan." The vendee in no instance obtained real possession of the check, which was always in petitioner's control. Petitioner deposited the check in its own bank account immediately thereafter and the deposit canceled out the charge against its bank account. Petitioner and the vendee did not treat or regard the step involving the issuance and deposit of petitioner's check as payment by the vendee of any part of the sales price of the real property referred to in the vendee's note and mortgage. The vendee received credit on petitioner's books only for the cash down payment and subsequent cash installment payments. The use of petitioner's check did not reduce the vendee's debt. It served only an accounting purpose to meet the requirements of the accounting procedure prescribed by the state superintendent, as set forth above. Petitioner regarded the use of its check as merely a memorandum for bookkeeping purposes. Petitioner did not receive payment of the entire sales price of the real property disposed of by the issuance and *1339 *477 deposit of its own check, which did not have any effect as between petitioner and the vendee.
The notes and mortgages received by petitioner in 1936 and 1937 from vendees in the transactions involved did not have any fair market value at the date of receipt by petitioner. Such notes and mortgages can not be sold except upon obtaining consent from the state superintendent. There is no established market in Ohio for notes and mortgages owned by building and loan associations. A building and loan association could not purchase such notes and mortgages from another building and loan association in 1936 and 1937 for an amount to exceed 66 2/3 percent or 75 percent, respectively, of the appraised value of the property. The notes and mortgages taken by petitioner in the transactions in question in 1936 and 1937 were in amounts of 85 percent or more of petitioner's book value of the properties, in most cases. Petitioner did not receive any payments for each piece of real property sold in 1936 and 1937 except the cash payments made by the vendees at the closing and during the year under the installment notes. The checks issued by petitioner at the closing did not constitute*1340 receipt by it from each vendee of part of the sales price or of the balance of the sales price.
Petitioner did not receive payment in full in 1936 and 1937 in the respective eleven and ten transactions in which it received notes and mortgages from the vendees. Petitioner made its income tax returns for the years 1936 and 1937 on the cash receipts and disbursements basis.
OPINION.
HARRON: Issue 1. - Petitioner contends that it is exempt from Federal income tax under the provisions of section 101(4) of the Revenue Act of 1936. 1
In the pleadings respondent denies that petitioner is a building and loan association, but in his brief respondent limits his argument to the contention that petitioner is not exempt from taxation under the statute because it fails to meet one of the qualifications therein, namely, that substantially all of its business is confined to making loans to its members. Respondent*1341 contends that, since practically all of the borrowers of petitioner in the taxable years were not members, it follows that petitioner is not exempt under the statute. Respondent relies upon .
We do not decide whether or not petitioner is a building and loan association within the meaning of the statute. The question is the narrower question and it relates to the status of those to whom petitioner *478 made loans, to the point of whether or not they were members. The Congress, since the Revenue Act of 1921, has confined the benefit of the exempting statute to those building and loan associations "substantially all of the business of which is confined to making loans to members." ; affd., ; Assuming, arguendo, that petitioner is a building and loan association 2 within the terms of the statute, there remains the test, which must be met, of whether or not petitioner comes within the class to which Congress has limited the*1342 exemption. Since respondent has denied that petitioner comes within the exempted class, the burden of proof is upon the petitioner to prove that it does.
*1343 First, consideration must be given to the meaning of the term "members" appearing in the statute, because petitioner says that it "considered" all borrowers to be members. The term is not defined, but it has ordinary meaning, generally understood, and such ordinary meaning is presumed to have been intended by Congress under the rules governing interpretation and construction of statutes. Also, since the Ohio statute authorizing the organization of building and loan associations and controlling the way in which the business thereof may be conducted does not specifically define the term "member" of a building and loan association, it must be assumed that under the state law that term has its ordinary meaning. 3
Petitioner is a corporation. Generally, building and loan associations are organized in the corporate form. Reference*1344 is made to the work of a recognized writer on the subject, Joseph Sundheim, The Law of Building and Loan Associations, 3d ed., 1933, p. 4. He defines such association as a private corporation for profit, and he points out *479 that, as was said in , "such an organization is, in fact and in law, a partnership with corporate rights in which every stockholder is a member." See also 12 C.J.S., p. 397, P3. Since such associations are organized on many diverse plans, what constitutes membership is not a matter for generalization, but in each case it is a matter for proof. However, when such association is organized as a corporation it may be said that ordinarily membership in the association is acquired by ownership of stock, 9 C.J. 932, and a stock certificate is prima facie evidence of membership. 12 C.J.S. 422. "The essential feature of membership is the ownership of stock." Sundheim, supra, pp. 23, 24. Sundheim points out that the terms "member", "shareholder", and "stockholder" are used indiscriminately but mean the same, and that there is no substantial difference between a member and a stockholder. In *1345 ; , the court said: "Membership in a building and loan association is acquired in the same manner by which membership is acquired in other corporations by becoming the holder of stock." See also, ; .
Membership in such association is a formal matter. The general rule is that the act of becoming a member implies a contract intelligently entered into. 9 C.J. 932; 12 C.J.S. 419; Sundheim, supra, pp. 23, 24. As in the case of a stockholder, a member (the same thing) enjoys rights and liabilities. The members of a building and loan association, whether or not they are borrowers, have a mutual interest in its affairs, and, sharing alike in its profits, must assist alike in bearing its losses. Such relationship is to be distinguished from the debtorcreditor relationship which exists between such an association and borrowers who are not members. "It [a building and loan association] is wholly unlike a savings society where the borrower is not a member or otherwise interested*1346 in its business. Having no voice in the management nor interest in the earnings of the society, the borrower and it sustain the simple relation of debtor and creditor." ; .
Membership is not implied from the mere fact that a loan is obtained from a building and loan association, ; even where loans are restricted to members, : ; and even where stock is issued, if the borrower had no desire or intention of becoming a member and the stock was issued under a misunderstanding, and where the loan contract itself creates no other relation than that of borrower and lender. The fact that a borrower executes a mortgage on his property to secure a loan does not make him a member. .
*480 In this case petitioner contends that under its articles of incorporation it is authorized to make loans only to members by the terms of article third, 4 stating*1347 the purpose of the corporation, which, it is contended, has never been amended. The petitioner's constitution defines a member as a stockholder. With the exception of one loan in 1936, all of the mortgage loans made in 1936 and 1937 were made to persons who were not stockholders, and, hence, they were not members. Petitioner's bulaws authorize the lending of funds "to its members and others." (Italics supplied.) Presumably the constitution and bylaws under which petitioner now carries on its business were adopted after the enactment of the Russell Law, 99 Ohio Laws 528, May 11, 1908, which has been the basic statute governing building and loan associations in Ohio since then. See Page's Ohio General Code, annotated, vol. 6, pp. 744-770; secs. 9643 to 9675. Under section 9645 the constitution and bylaws must be approved by the state superintendent of building and loan associations. Presumably such approval was obtained by petitioner. We do not need to determine whether or not petitioner has exceeded its authority in making loans to nonmembers, or whether or not such loans are ultra vires. The crucial point here is, and the record is clear on the point, that petitioner*1348 made all of its mortgage loans (except one) in the taxable years to nonmembers. There is no merit whatever to petitioner's contention that since (if) its charter limits loans to members, then ipso facto, all borrowers are members. Nor can any weight be given to the argument that all borrowers were "considered to be members", for the following reasons. Petitioner has not shown that all borrowers were at law members. The note and mortgage executed by borrowers does not state that the borrower is a member, or a stockholder, or that he desires to become such, or that he has made application for membership. Petitioner, by its bylaws, may pay dividends only to stockholders; it pays dividends only to stockholders. In general, petitioner's bylaws set forth the usual rights and liabilities of stockholders and do not confer any of such upon borrowers who are not stockholders. The paragraph which is set forth in the margin 5 appears on the note which each borrower is required to execute, but on its face it does not carry any implication, *481 contractual or otherwise, which could constitute a nonstockholding borrower a member of petitioner.
*1349 The petitioner has failed to prove that all of its mortgage borrowers (except one) were members in the taxable years. Such borrowers were no more than debtors, the relationship was only a debtor-creditor relationship.
The statute limits the class of domestic building and loan associations exempt from Federal income tax to those "substantially all the business of which is confined to making loans to members." (Italics supplied.) The evidence in this case does not show how many depositors petitioner had, or how many of its 27 or 28 members were depositors, but it does show that the combined time deposits and savings deposits in 1936 and 1937 aggregated totals of $830,672 and $919,504, respectively. Also, that totals of first mortgage loans outstanding in 1936 and 1937 were $754,010 and $964,905, respectively. The burden of proof upon petitioner is to show that substantially all of its business is confined to making loans to members. If substantially all of its business consists of making loans to nonmembers, and if substantially all of its receipts are from nonmembers, petitioner does not come within the exempted class. Petitioner has failed to introduce any evidence other*1350 than the summary statements of financial condition relating to its deposit and savings account activities, and this lack of evidence constitutes a partial failure to meet the burden of proof upon it. The evidence introduced relating to mortgage loans made in the taxable year is such that petitioner has failed to overcome the prima facie correctness of respondent's determination.
Petitioner relies upon The question considered by the Court of Claims and the Supreme Court was only whether or not that company was such an association as came within the term "building and loan association." The question did not extend to whether or not substantially all of its business was confined to making loans to members, the courts being satisfied that such requirement had been met. The Court of Claims pointed out that mortgage loans were made as follows: 1921, to members, 177; to nonmembers, 30; 1922, to members, 175; to nonmembers, 10; 1923, to members, 262; to nonmembers, 1. The Court of Claims said in its opinion that "since the passage of the 1921 act plaintiff company has substantially complied with its provisions. *1351 " The question presented in this case is other than the question decided in the Cambridge Loan & Building Co. case.
It is held that petitioner is not entitled in the taxable years to the benefit of the exemption allowed by section 101(4). Respondent is sustained.
Issue 2. - The question is whether or not petitioner realized income in 1936 and 1937 from sales under note and mortgage of pieces of *482 real property in which the cash payments made in the taxable year by the vendees were less than the total sale prices, for the balance of which the vendees gave monthly installment notes to petitioner. In 1936 the total of the sale prices of eleven of such properties was $33,850 and the total of cash payments received was $5,442.12. In 1937 the total of the sale prices of ten of such properties was $41,700 and the total of cash payments received was $9,183.79. Respondent has determined that with respect to the above transactions, which are the ones involved in this issue, petitioner received payment of the entire selling prices because a loan was made at each closing for an amount equal to the difference between the cash down payment and the total selling price, *1352 and respondent's position is that any cash payments received thereafter were repayments of such loans. Respondent has added to petitioner's net income in each taxable year, as realized income from profits, the difference between the adjusted cost to petitioner of each property and the total selling price. Petitioner does not appear to contest the determinations made relating to adjustments in costs of each property. Petitioner also appears to acquiesce in two determinations relating to two sales in which petitioner was paid the entire selling prices and realized gains. Effect must be given under a Rule 50 recomputation to these apparent agreements by petitioner as shown in the stipulation of some of the facts.
The "loan" which respondent refers to is found in the step followed at each closing whereby petitioner issued its check in an amount covering the balance due upon receipt of the cash down payment. The procedure and the reasons therefor are set forth fully in the findings of fact. The record on the point consists of testimony of petitioner's secretary-treasurer and an official of the state of Ohio, the incumbent superintendent of building and loan associations. Their*1353 testimony shows that the issuance of petitioner's check as a "loan" was solely for accounting purposes. The record is silent on the point whether a loan account was set up for each vendee. It probably was. But such account was a mere bookkeeping matter. Petitioner did not give up money by the use of its check in each transaction, and, likewise, petitioner did not receive money. Petitioner was not enriched. The vendee's debt was not reduced. The use of petitioner's check was a surplusage. It was not necessary. It could have been omitted. The intent and design in each transaction was to permit the vendee to acquire property on a small cash down payment and to pay the balance of the selling price in small monthly installments over a period of several years. Payments were deferred. In most instances the cash down payment was about 15 percent, or less, of the total price, and the note and mortgage was for 85 percent, or more.
*483 Taxation is concerned with realized gains. . It is the general contemplation of the statutes that a tax shall be levied on profits which are realized and not deferred. *1354 ; . In 1936 and 1937 petitioner did not realize profits on all the sales. It realized profits or income where the total cash collected in each year exceeded the basis of the property. Under Rule 50 this will be worked out. But in general, petitioner could not realize all the gain in each taxable year. Gain was to be realized only as the deferred payments were received. Accordingly, it has been found as a fact that petitioner did not receive the entire selling prices in the taxable years. It is held that respondent erred in adding to petitioner's taxable income amounts equal to total profit to be realized only if each vendee met his obligations throughout in the future. In each taxable year petitioner is taxable only upon the amounts by which the total cash payments collected from the vendees exceed the cost of each property to petitioner, without giving effect to the step designated as a "loan."
Respondent has not contended that the notes and mortgages given by each vendee had any fair market value on the dates received. Petitioner introduced evidence to show that*1355 they did not have any fair market value. We agree and have made such finding of fact.
Respondent does not contend, in the alternative, in the event his theory is rejected, that petitioner may not report income from the transactions in question in the manner allowed by his regulations for reporting income from deferred-payment sales. See arts. 44-3 and 44-4, Regulations 94. Petitioner has endeavored to correctly report income under that method. 6 It has treated the obligations of the vendee as having no fair market value and it has reported as income the payments in cash which have exceeded the basis of the property sold. However, according to tables attached to a stipulation, petitioner has erred in its computation of the basis of certain pieces of property, and, in such instances it realized income in the taxable years which it has not reported. For example: Richter property - petitioner's estimate of cost is $640; respondent's adjusted cost is $384.37; the cash collected in 1936 is $519.70. If petitioner acquiesces in the respondent's correction of the basis, it received income from that transaction in 1936 in the amount of $135.33. Effect shall be given to *484 *1356 such corrections in a recomputation under Rule 50. Also, there is nothing to indicate that petitioner may not properly report income in accordance with article 44-4 of Regulations 94, under the holding made in the main issue.
Decision will be entered under Rule 50.
Footnotes
1. SEC. 101. EXEMPTIONS FROM TAX ON CORPORATIONS.
The following organizations shall be exempt from taxation under this title. -
* * *
(4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; * * * ↩
2. Sundheim, The Law of Building and Loan Associations, 3d ed., points out that building and loan associations operate under several different plans known as "Terminating", "Permanent", and the "Dayton or Ohio" plan. Of the latter type of association he says, p. 16: "There has developed in the State of Ohio a modification of the permanent plan (of building and loan associations) which has many distinctive features of its own. Under this plan there are no regular periodical payments. The member pays any amount, at any time he pleases, and dividends are apportioned periodically based on the amount actually paid in. No initiation fee is charged and, of course, no fines or forfeitures are exacted for nonpayment, as there is no obligation to pay. Many of the associations operating under this plan accept deposits upon which a fixed rate of interest is paid, the same as a savings bank, and which do not share in any losses, being preferred to shareholders in case of insolvency. This kind of association, while, no doubt, producing good results, more nearly resembles a bank than a building and loan association; * * *"
See also, , where the court pointed out that the company in that case, organized under the laws of Ohio applicable to building and loan associations, doing its business so that 80 percent of its receipts and 97 percent of its loans were transactions with nonmembers, and putting aside the attribute of mutuality, resembled more the ordinary savings bank than a building and loan association. ↩
3. Sec. 9643. [Ohio General Code.] Definition of terms.↩ A corporation for the purpose of raising money to be loaned to its members, and others, shall be known in this chapter (G.C. §§ 9643 to 9675) and in the laws relating to the department of building and loan associations, as a "building and loan association" or as a "savings association. * * *
4. Third: Said corporation is formed for the purpose of raising money to be loaned among its members for use in buying lots or repairing houses, or other purposes, under and in accordance with the provisions of section 3833 of the Revised Statutes and the other corporation laws of Ohio applicable to such a corporation. ↩
5. The loan represented by this note and the mortgage securing payment of the same is made pursuant to the constitution and by-laws of The Fidelity Savings & Loan Company, which are hereby referred to and adopted herein as a part hereof, and it is further stipulated and agreed that said constitution and by-laws may be altered, amended or repealed as may now or hereafter be authorized by law; that the same when and as so altered, amended or repealed are hereby ratified and made a part hereof; and that this loan and the rights of the parties hereto shall be governed by the terms and conditions now or hereafter expressed in such constitution and by-laws. ↩
6. ART. 44-4. Deferred-payment sale of real property not on installment plan. - * * *
If the obligations received by the vendor have no fair market value, the payments in cash or other property having a fair market value shall be applied against and reduce the basis of the property sold, and, if in excess of such basis, shall be taxable to the extent of the excess. Gain or loss is realized when the obligations are disposed of or satisfied, the amount being the difference between the reduced basis as provided above and the amount realized therefor. * * * ↩