*3499 The petitioner, upon the evidence, held not to be a building and loan association within the meaning of section 231(4) of the Revenue Act of 1921.
*610 This is a proceeding for the redetermination of a deficiency in income taxes for the calendar year 1922, in the amount of $250. The *611 total amount of tax in controversy is $5,815.92, which includes $5,565.92 already assessed, a claim for the abatement of which was denied by the respondent.
The error assigned is the holding of the respondent that the petitioner, during the year in question, was not a domestic building and loan association within the meaning of the Revenue Act of 1921.
FINDINGS OF FACT.
Petitioner was incorporated on August 30, 1893, under the laws of the State of Ohio with its principal office at Minster, Ohio.
The constitution of the petitioner provided:
This Association is organized for the purpose of raising money to be loaned to its members and others, and for such other purposes as are authorized by law.
During the year 1922, petitioner purchased mortgages*3500 aggregating $66,800, and the mortgagees were required to, and did become members by subscribing for and acquiring stock.
During the year 1922, petitioner made loans to members secured by real estate mortgages in the amount of $70,631.19, loans to members secured by pass-book stock in the amount of $600, and loans to members secured otherwise than by mortgages on real estate or stock of the association in the amount of $5,000, and made loans to nonmembers during the year in the amount of $800.
Petitioner had mortgage loans outstanding at the end of the years 1921 and 1922 in the respective amounts of $1,090,987.50 and $1,058,212.20.
The number of shares of loan stock outstanding at the beginning and end of the year 1922 was 10,910 and 10,583 shares, respectively; and during the year $18,456.30 was credited on this stock.
A charge of 10 cents per share was made to subscriptions of running or paid-up stock during the year as an initiation fee to defray the expense of printing mortgages, etc.
The rate of interest on farm mortgage loans was 6 per cent; and on other loans the interest rate varied from 6 per cent to 8 per cent.
Farm mortgage-loan payments were generally*3501 made semiannually on January 1, and July 1, although borrowers had the privilege of making payments in a minimum amount of $25 or more at any time during the year.
Loans on homes were payable weekly or monthly, at the option of the borrower at the rate of 25 cents per week on each $100 borrowed.
During the year 1922, approximately 80 per cent of petitioner's income was derived from loans outstanding during the year 1922 *612 to nonmembers or nonstockholders based upon the amount of loans outstanding at the end of the year.
Petitioner's balance sheet at the end of the year 1921 was as follows:
| December 31, 1921 | |
| Assets: | |
| Cash | $3,750.28 |
| Loans | 1,107,917.50 |
| Furniture and fixtures | 2,230.10 |
| Real estate | 6,377.22 |
| Real estate sold on contract | 580.00 |
| Office building | 5,824.26 |
| Accounts receivable | 79.84 |
| Bonds and war savings stamps | 6,716.80 |
| Deposits on building and loans | 31,000.00 |
| 1,164,476.00 | |
| Liabilities: | |
| Running stock | 967,218.02 |
| Paid-up stock | 74,800.00 |
| Credits on loans | 74,926.94 |
| Contingent profit | 72.43 |
| Credits on pass books | 1,038.89 |
| Reserve fund | 24,832.81 |
| Undivided profits | 11,586.91 |
| 1,164,476.00 |
Petitioner's balance*3502 sheet at the end of the year 1922, was as follows:
| December 31, 1922 | |
| Assets: | |
| Cash on hand | $12,263.46 |
| Loans on mortgage security | 1,058,212.20 |
| Loans on stock certificate or pass-book security | 1,700.00 |
| Loans on all other security | 19,000.00 |
| Furniture and fixtures | 2,007.09 |
| Real estate | 31,577.22 |
| Real estate sold on contract | 3,280.00 |
| Real estate office building | 5,824.26 |
| Due from borrowers for insurance and taxes | 39.47 |
| Deposits in other building and loan associations | 20,000.00 |
| Deposits in other financial institutions | 22,000.00 |
| 1,175,903.70 | |
| Interest due and uncollected | 10,601.74 |
| Liabilities: | |
| Running stock and dividends | 964,938.37 |
| Credits on mortgage loans | 96,966.26 |
| Credits on other loans | 7,438.30 |
| Credit on real estate sold on contract | $363.15 |
| Paid up stock and dividends | 72,000.00 |
| Reserved fund | 27,214.75 |
| Undivided profit fund | 4,938.07 |
| Borrowed money and accrued interest | |
| Contingent profit on real estate sold on contract | 844.80 |
| Credits on pass-book loans | 1,200.00 |
| Total | 1,175,903.70 |
| Interest due and uncollected | 10,601.74 |
| Disbursements: | |
| Loans on mortgage security | 137,431.19 |
| Loans on stock certificate or pass-book security | 600.00 |
| Loans on all other security | 5,800.00 |
| Withdrawals of running stock and dividends | 235,717.80 |
| Withdrawals of paid-up stock | 9,500.00 |
| Borrowed money | 19,500.00 |
| Deposits in other financial institutions | 48,000.00 |
| Insurance and taxes paid for borrowers | 42.30 |
| Real estate (purchase price) | 29,754.85 |
| Real estate on contract | 4,100.00 |
| Dividends on paid-up stock | 3,630.89 |
| Interest on borrowed money | 72.93 |
| Salaries of officers and directors | 4,859.00 |
| Office held, rent and legal services | 807.70 |
| All other expenses | 1,727.84 |
| Taxes | 2,835.38 |
| Mortgage credits transferred to repay loans | 15,022.46 |
| Contingent profits transferred | 122,78 |
| Pass-book loan credits transferred | 336.37 |
| Distribution (reserve fund) | 2,381.94 |
| Distribution (undivided profits) | 6,648.84 |
| Dividends transferred to repay loan | 8.78 |
| Total | 528,901.05 |
| Cash on hand | 12,263.46 |
| Total | 541,164.51 |
| Receipts: | |
| Dues on running stock | 186,749.99 |
| Paid-up stock | 6,700.00 |
| Credits on mortgage loans | 31,911.45 |
| Loans on mortgage security repaid | 170,206.49 |
| Loans on stock certificate or pass book security repaid | 1,100.00 |
| Loans on all other security repaid | 1,530.00 |
| Borrowed money | 19,500.00 |
| Real estate sold | 4,554.85 |
| Real estate sold on contract | 1,400.00 |
| Insurance and taxes refunded by borrowers | 82.67 |
| Interest | 57,276.81 |
| Pass-book, initiation, and membership fees | 152.25 |
| Rents from company's real estate | 274.51 |
| Deposits in other building and loan associations withdrawn | $5,000.00 |
| Deposits in other financial institutions withdrawn | 32,000.00 |
| Sale of bonds | 6,494.18 |
| Dues on pass-book loans | 497.48 |
| Court costs refunded | 404.77 |
| Credits on loans on other security | 1,234.45 |
| Contingent profit on real estate | 895.15 |
| Deposit-box rents | 69.35 |
| Credits on real estate sold on contract | 139.22 |
| Insurance refunded to company | 9.83 |
| War stamps sold | 200.00 |
| Distributions | 9,030.78 |
| Total | 537,414.23 |
| Cash on hand at close of last fiscal year | 3,750.28 |
| Total | 541,164.51 |
*3503 *614 The loans made by the petitioner were for a period of 5 years, but when the security was good loans were allowed to run on indefinitely.
OPINION.
SIEFKIN: The sole question to be decided in this proceeding is whether, during the year 1922, the petitioner was a building and loan association within the meaning of section 231(4) of the Revenue Act of 1921, which provides:
SEC. 231. That 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; and cooperative banks without capital stock organized and operated for mutual purposes and without profit.
The evidence discloses that of the total loans made by the petitioner during the year 1922, only $800, slightly over 1 per cent, constituted loans made to nonmembers of the association but that during the same year, approximately 80 per cent of petitioner's income was derived from loans outstanding during the year 1922, to nonmembers or nonstockholders.
In our opinion this large percentage of the income attributable to transactions with nonmembers requires that*3504 the petitioner be held not exempt since substantially all its business is not confined to making loans to members. See .
Reviewed by the Board.
Judgment will be entered for the respondent.