*2536 1. Held that a transfer of certain stock was intended by the decedent to take effect after his death and that the respondent properly included the value of such stock in the gross estate.
2. Held that certain Masonic bodies were not organized and operated exclusively for charitable and educational purposes and that an endowment bequest to them should not be excluded from the gross estate. Bert R. McReynolds,1 B.T.A. 815">1 B.T.A. 815, cited and followed.
*719 This is a proceeding for the redetermination of a deficiency in estate tax asserted by the respondent in the amount of $20,396.84. The petitioner asserts error, first, in the respondent's inclusion in the gross estate of its decedent of the value of certain shares of stock alleged to have been transferred by the decedent either by gift or sale prior to his death, and second, in the denial of the deduction from the gross estate of a bequest to various Masonic bodies as a bequest to charitable uses.
FINDINGS OF FACT.
The petitioner, the City National*2537 Bank of Dallas (hereinafter referred to as the Bank), is a national banking corporation, organized and existing under the laws of the United States and having its principal place of business at Dallas, Tex. It is the duly appointed, qualified and acting executor of the estate of Louis A. Pires, who died July 3, 1922, a resident of Dallas.
On January 16, 1922, and thereafter until his death, Pires was the largest individual stockholder of the Bank. He was then 81 years of age, unmarried, and lived alone at the Dallas Club. His shares of stock in many companies and his other valuable papers were kept by him in his individual safety box in the vaults of the Bank, no one *720 but himself having access to such papers. This situation had existed before the date mentioned and continued to exist up to the time of his death.
Pires was a friend of William Bacon and Elizabeth Bacon, his wife. He had been frequently entertained by them and the most cordial relations existed between them. Pires spent the night of January 15, 1922, at the Bacon home. Before leaving on the next morning he said to Mrs. Bacon:
"I want to give you something." Mrs. Bacon replied, "No, I don't want*2538 you to give me anything." Pires then said, "I will sell you something at a bargain." Mrs. Bacon replied, "It will have to be a mighty good bargain." Pires thereupon dictated to Mrs. Bacon and she typewrote an instrument in triplicate of which the following is a copy:
JANUARY 16, 1922.
To Whom It May Concern:
I hereby state that I have this day sold to Mrs. Elizabeth Bacon for a sum of money which I have this day received from her three hundred shares (300) of bank stock of the City National Bank of Dallas, Texas, same to be transferred to her within ten days from the date of my death.
(Signed) L. A. PIRES.
Pires then signed the instrument in duplicate, demanded $10 of Mrs. Bacon, which she paid him, and delivered to her the carbon original of the said instrument. He retained the original of the same.
Pires then told Mrs. Bacon that he would explain the matter to Tenison, then chairman of the board of the Bank, and would leave his copy of the instrument with Tenison. He further instructed her that after his death all she would have to do would be to see Tenison about the matter. Pires never gave the instrument, or any other of similar import, to Tenison, nor did*2539 he ever speak to the later about it. No such paper was found among the effects of the decedent.
Immediately after execution of the instrument mentioned, Pires and Mrs. Bacon went to the Bank, where he deposited to her credit the $10 she had given him. He then remarked to Briggs, vice president of the bank, that Mrs. Bacon had just become a stockholder or depositor of the Bank, versions of the parties differing as to just what was said.
The stock was not transferred of record from Pires to Mrs. Bacon in the lifetime of the decedent. It was not voted by anyone between January 16, 1922, and July 3, 1922. A quarterly dividend on it was paid April 1, 1922. It was paid to and kept by Pires. Another quarterly dividend accrued July 1, 1922, and was credited to his account by the Bank's officers. At that time Pires was ill in a sanitarium. *721 He died July 3, 1922, without knowing of the last mentioned dividend transaction.
Subsequent to Pires' death Mrs. Bacon called upon officials of the Bank and inquired whether Pires had left the first original of the instrument of transfer with Tenison or had explained the matter to him. She requested that the stock mentioned*2540 in the instrument be recognized as hers and transferred of record to her. Officials of the Bank had no knowledge nor record of the transaction. They declined to transfer the stock.
February 10, 1923, Mrs. Bacon, joined by her husband, William Bacon, brought suit against the Bank, as executor, in the District Court of Dallas County, Texas. In this suit the plaintiff asserted her ownership of and the right to have transferred to her, 300 shares of the stock of the Bank as described in the instrument above mentioned and also asserted her right to receive the dividends accruing thereon.
November 13, 1923, the suit, by agreement of the parties, was compromised, the matter of compromise reported to the proper probate court and approved, and final judgment entered in the said suit. Subsequent to Pires' death and prior to the judgment mentioned, a 100 per cent stock dividend had been declared by the Bank. By the terms of the compromise Mrs. Bacon recovered judgment for one-half of the shares sued for and one-half of the dividends accruing thereon after the death of Pires.
Pursuant to the provisions of the final judgment, the Bank recognized Mrs. Bacon to be the owner of the shares, *2541 issued the same to her, and paid to her the dividends accrued on such stock since the death of Pires. Because of the stock dividend mentioned, Mrs. Bacon received 300 shares, the Bank retaining 300 shares. The two lots aggregating 600 shares were the original shares referred to in the instrument of transfer as increased by the 300 shares embraced in the stock dividend. The effect of the transaction was for Mrs. Bacon to recover title and possession of 150 shares of the original stock as the same existed at the time of Pires' death.
The value of the 300 shares received by Mrs. Bacon was $112,500 at the time of the transfer and at the time of Pires' death. The respondent has included the value of the said shares in the decedent's gross estate.
The last will and testament of Louis A. Pires was admitted to probate September 6, 1922. After making provision for payment of his debts, permanent care of his grave and certain specific bequests to individuals, this will provided:
Fourth: After all of the above bequests are paid and satisfied, I give, devise and bequeath, as endowments, to the Masonic Bodies of which I may be *722 a member in Dallas, Texas, at the time of any*2542 death; to St. Paul Sanitarium, of Dallas, Texas; to Buckner Orphans' Home of Dallas County, Texas; and Southern Methodist University of Dallas, Texas, respectively, share and share alike, all of my remaining property, real and personal, in Texas, or elsewhere, save and except a house and lot in Shreveport, Louisiana; and the four orders or bodies shall agree among themselves as to how said property shall be held, managed or divided (sales of personal property, or real estate not to be made on depressed market) the property to be accepted and held as endowments by the respective beneficiaries; said Masonic Bodies, as aforesaid, being charged with the permanent care of my grave.
The Masonic bodies in Dallas, Tex., of which Pires was a member at the time of the execution of his said will (and at the time of the execution of a codicil in all respects confirming the said will) and at the time of his death, were the following:
Dallas Lodge No. 760, Ancient Free and Accepted Masons
Dallas Chapter No. 47, Royal Arch Masons
Dallas Council No. 18, Royal and Selected Masters
Dallas Commandery No. 6, Knights Templar
Dallas Lodge of Perfection No. 7
Lone Star Chapter of Knights Rose*2543 Croix No. 4
Dallas Council of Knights Kadosh No. 2
Dallas Consistery No. 2
Masonry, as practiced in Texas at the time of the death of Pires, and at all times since, consisted of two rites; the one known as the York Rite, and the other as the Scottish Rite. The first four bodies mentioned were of the York Rites; the other four were of the Scottish Rite.
The Twenty-sixth Legislature of Texas, by act approved May 23, 1899, comprising Chapter 138 of the General Laws passed at its regular session, provided for the incorporation of the Grand Bodies of Masonry. The said act also provided for the incorporation of subordinate bodies of the Grand Lodge by appropriate resolutions of such bodies.
The Most Worshipful Grand Lodge of Texas, A.F. and A.M., of which Dallas Lodge No. 760 is a subordinate body, existed for several years prior to the act above mentioned under a charter issued by the Grand Lodge of Louisiana. In December, 1900, it incorporated under the said act. The Grand Royal Arch Chapter of Texas, of which Dallas Chapter No. 47 is a subordinate body, likewise incorporated under the said act in March, 1900. The Grand Commandery, Knights Templar of Texas, of which Dallas*2544 Commandery No. 6 is a subordinate body, has also incorporated under the said act, the date of its incorporation not appearing. The purpose clauses in the incorporation acts of each of the last three bodies mentioned are substantially alike. So far as material they provide:
* * * This corporation is formed for charitable and benevolent purposes, and to cement bonds of good fellowship and brotherly love among its members and adherents * * *.
*723 The Grand Council of Royal and Select Masters of Texas, of which Dallas Council No. 18 is a subordinate body, existed long prior to the act mentioned as a Grand Council for Texas, acting by and under authority granted to it, and for like purposes to those outlined in the charter of the Grand Royal Arch Chapter of Texas. The Grand Council has not incorporated. Its purposes declare it to have been formed for charitable and benevolent purposes and to cement bonds of fellowship and brotherly love among its members and adherents. All four Masonic bodies of the York Rite described above are subject to the supervision and control of their respective Grand Bodies and were duly chartered by such Grand Bodies at the time of Pires' death.
*2545 All of the Masonic Bodies of the Scottish Rite of which Pires was a member in Dallas, Tex., at the time of his death, were then, and are now, subordinate bodies created under and existing by virtue of charters given them by "The Supreme Council (Mother Council of the World) of the Inspectors General Knights Commanders of the House of the Temple of Solomon of the Thirty-third Degree of the Ancient and Accepted Scottish Rite of Free Masonry of the Southern Jurisdiction of the United States of America." That body was incorporated as a District of Columbia corporation by an act of Congress approved March 13, 1896, which declares:
SEC. 2. That the said corporation shall have the power to take and hold personal estate and such real estate as shall be necessary and proper for the promotion of the fraternal and benevolent purposes of said corporation, which shall not be divided among the members of the corporation, but shall descend to their successors for the promotion of the objects aforesaid.
* * *
SEC. 5. That said corporation shall not engage in any business for gain, the purposes of said corporation being fraternal and benevolent.
After the probate of Pires' will, his*2546 heirs-at-law, E. C. Pires and others, brought suit in the District Court of Dallas County, Texas, on August 13, 1923, challenging the right of the Masonic Bodies to take, hold and administer the devises and bequests given them by the will, the grounds of the contest being as follows:
1. That the Legislative Act providing for the incorporation of the Grand Bodies, and other like institutions, was void.
2. That the Masonic Bodies in Dallas, Texas, of which Mr. Pires was a member at the time of his death, were legally incapable of taking permanent endowments.
3. That the endowment bequests made by Mr. Pires to such Masonic Bodies by his will were not bequests to charitable uses.
Answers and cross suits were filed and it appears that all interested parties were in court. The effect of the action was to obtain a *724 construction of the will. Final judgment was entered as of June 2, 1924. As a special issue the following was submitted to a jury:
Special Issue No. 1: Are the funds of the Masonic Bodies, defendants herein, used exclusively for charitable and educational purposes? (Answer yes or no.)
The jury answered, "Yes."
The court thereupon found, among*2547 other things, that the eight Masonic Bodies of which Pires was a member in Dallas, Tex., at the time of his death,
are each and all duly chartered and existing bodies under the laws of Texas and under the Constitution, laws and edicts of their respective Grand bodies; and are each and all purely charitable organizations; and that their funds are used exclusively for charitable and educational purposes; and that they were at the time of the execution of said will by L. A. Pires, and since then have been, such charitable and educational organizations and institutions, and each is the trustee of charitable and educational trusts, and each capable of acting as such, and of taking and administering the endowments provided for them by said testator in his last will.
After directing that debts, gifts, legacies and bequests made by other provisions of the will, and expenses of administration, taxes and other legal charges be paid and satisfied, the court further ordered that the Masonic Bodies mentioned herein collectively take a one-fourth interest in the estate (St. Paul's Sanitarium, Buckner Orphans' Home, and Southern Methodist University each taking a fourth) and,
That each and*2548 every such distributee accept and hold the share and property given, devised and bequeathed to it under said last will and testament as endowments for the several and respective uses and purposes for which each such distributee is organized and operated.
The major charitable and educational activities of the Grand Bodies of Masonry in Texas, prior to and at the time of the death of Pires and since that time, consist of the maintenance of homes to care for indigent and aged Masons, their wives and widows; the indigent children of deceased Masons and for tubercular children The Grand Commandery Knights Templar of Texas creates and administers a fund to assist indigent young men in obtaining college or university educations by making unsecured loans to worthy applicants, the loans being repayable at such future times as the necessities of the borrowers make possible.
The Scottish Rite Masonic Bodies herein mentioned as beneficiaries maintain a crippled children's hospital, caring for indigent crippled children of all creeds and sects and without fees of any kind. With other Scottish Rite Bodies in Texas they maintain the Scottish Rite Dormitories at Austin, Tex., furnishing a home*2549 to female students at the University of Texas. They also maintain a student *725 loan fund. The dormitories and loan fund are operated at less than cost.
The Masonic Bodies in Dallas maintain a general charitable work in what is known as "The Almoner's Fund." Through it general charitable distributions are made, largely to persons having no Masonic affiliations. These bodies also maintain and administer a general fund in what is known as "A Masonic Relief and Employment Bureau," giving assistance to indigent persons seeking employment.
All of the activities above detailed are supported by fees, dues, assessments, voluntary contributions, etc., from the memberships of the various bodies and from endowments and other gifts for permanent uses.
The eight Masonic beneficiaries involved were not at and prior to the death of Pires, and are not now, maintained in whole or in part for any pecuniary interest or profit of any of their members. None of the funds of the said bodies (except current and usual dues charged members and from which operating expenses are paid), none of their property, and none of the gifts to them, at and prior to Pires' death, or since, could or*2550 can, without violation of Masonic usage and custom of long standing, be distributed to any individual or used for any purpose except work authorized by their organic laws.
No individual, firm or corporation could then or can now receive any earnings in the shape of dividends or in dues, fees or other income from property held or owned by any or all of the said bodies. No salaries were then or are now paid to any person except secretaries and building caretakers and necessary clerical staffs. Many of the most experienced and influential citizens of Dallas devote substantial portions of their time to Masonic charities and educational work without pay.
All of the Masonic beneficiaries involved were in existence for many years prior to the death of Pires. The current and usual dues and fees they severally imposed upon their respective members were so regulated that they sufficiently covered all of the purely Masonic activities of the said bodies and the requirements of the Grand Bodies. In addition, such dues and fees provided large funds for the strictly charitable and educational activities of the said bodies.
For a long time prior to the death of Pires, and since his death, *2551 all funds and endowments given to any of the Masonic beneficiaries mentioned herein were devoted to one or more of the charitable and educational activities of Masonry in Texas. No part of such endowment funds has ever been devoted to any other purpose.
Hella Temple, Nobles of The Mystic Shrine, is not a Masonic Body, strictly speaking, of either the York or Scottish Rites, but is composed *726 of Masons of both Rites. Pires was a member of Hella Temple. Since his death it has been decided by the Masonic beneficiaries mentioned herein that Hella Temple should be permitted to participate in the administration for charitable uses of the endowment devised to them by Pires.
The respondent has denied that the bequest to the Masonic beneficiaries herein mentioned was a bequest to religious, charitable, scientific, literary or educational uses. He has included the value of the said bequest, $370,364.01, in the decedent's gross estate for tax purposes.
OPINION.
LOVE: The petitioner contends that the transfer of certain shares of stock of the City National Bank of Dallas to Mrs. Elizabeth Bacon, as detailed herein, was effectuated during the lifetime of its decedent and*2552 therefore that the value of such shares can not properly be included in the decedent's gross estate. The transfer during the decedent's lifetime is alleged to have been effected by an instrument reading as follows:
I hereby state that I have this day sold to Mrs. Elizabeth Bacon for a sum of money which I have this day received from her three hundred (300) shares of bank stock of The City National Bank of Dallas, Texas, [39 words] same to be transferred to her within ten days from the date of my death [15 words]. (Parenthesized words added.)
The petitioner asks that the first thirty-nine words of this instrument be accepted as a complete conveyance of title to the said shares; the last fifteen words to be taken merely as an instruction as to the time that the transfer should be recorded on the stock books of the Bank.
Considering all the attendant facts, we believe that the chief merit of this somewhat specious argument lies in its ingenuity. That the decedent was a man of considerable business acumen is evident from the whole record. His intent that the "sale" to Mrs. Bacon should take effect after his death is to our minds well evidenced by his retention of the dividend*2553 paid to him on the stock on April 1, 1922. The "sale" was as he described it a "bargain" and we believe it no reflection on his generosity to old friends that he should, as he did, postpone the transferee's enjoyment of the stock until his death.
There is no evidence that the transferee in her suit to enforce the provisions of the instrument quoted asserted any right to ownership of the stock before Pires' death or to such dividends as accrued prior to that event. This indicates a construction of the instrument by the transferee similar to that given it by the decedent, *727 and we think taken jointly with the latter, evidences the understanding of the parties.
In view of the foregoing, we shall not discuss the provision of section 402(c) of the Revenue Act of 1921, that a "transfer * * * except in case of a bona fide sale for a fair consideration in money or money's worth * * * made by a decedent within two years prior to his death without such a consideration, shall, unless shown to the contrary, be deemed to have been made in contemplation of death * * *." Nothing in the record can be taken to establish that the transaction discussed would not in any event fall under*2554 the restrictions of this section.
It follows that the respondent's inclusion in the gross estate of such of the stock of the Bank as passed to Mrs. Bacon by reason of the instrument of January 16, 1922, and the subsequent compromise of her action against the executors of the estate of L. A. Pires, is approved.
The petitioner contends that the bequest to the Masonic Bodies is deductible as a bequest to charitable and educational uses under section 403(a)(3) of the Revenue Act of 1921, which provides:
SEC. 403. That for the purpose of the tax the value of the net estate shall be determined -
(a) In the case of a resident, by deducting from the value of the gross estate -
* * *
(3) The amount of all bequests, legacies, devises or transfers * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, * * * or to a trustee or trustees exclusively for such religious, charitable, scientific, literary or educational purposes. This deduction shall be made in case of the estate of all decedents who have died since December 31, 1917; * * * (Italics ours.)
The petitioner especially depends*2555 upon the italicized portion of section 403.
In denying the deduction of the bequest to the Masonic Bodies the respondent's deficiency letter states:
While it may be true that the funds bequeathed the Masonic Bodies will be used for charitable purposes, yet, under the will, the bequests are not restricted to charitable uses and may be used for the general purpose of the bodies. In view of this fact, no adjustment is made.
A jury in the District Court in Dallas County decided the issue of fact, contested in that court, that the Masonic Orders have involved were and are purely charitable institutions. That decree, however, being on an issue of fact, and not one of substantive law, is not binding on this Board.
We must look into the situation, de novo, and determine whether or not those orders meet the requirements of the Federal tax statutes.
*728 The deductions allowed by section 403(a)(3) of the Revenue Act of 1921, consist of "bequests, legacies, devises or transfers * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary or educational purposes." It is evident that the orders here involved*2556 do not come within any of the classes named, unless it be that of "charitable."
It will be noted that the decedent's will does not limit his bequests to charitable purposes, but simply bequeaths one-fourth of the residue of his estate to the eight Masonic Orders of which he was a member. We must therefore look to the organic laws of those orders to determine their purposes. The organic purposes of "The Supreme Council" (Mother Council of the World) are for the promotion of fraternal and benevolent virtues. The organic purposes of the subordinate lodges, those here involved, are similar to those of the "Mother Council," that is, "for charitable and benevolent purposes, and to cement the bonds of good fellowship and brotherly love among its members and adherents."
Benevolence is not charity. The promotion of the bonds of good fellowship and brotherly love is not charity. Such endeavors, such purposes, are noble in character and worthy of the patronage of the noblest of humankind, but they are not charitable in the sense contemplated by the tax statutes. The tax statutes limit deductions to organizations whose purposes are exclusively charitable (aside from those clearly not*2557 to be considered here) and therefore such organizations as strive to accomplish charitable as well as other purposes, however, noble in character those other purposes may be, do not meet the requirements of the statutes.
We must therefore approve the action of the Commissioner in disallowing the claimed deductions in respect to bequests to those Masonic Orders. See .
Judgment will be entered under Rule 50.