*2276 GROSS INCOME. - Petitioner is a trade association incorporated in the State of New York and organized for profit, which profits inure to the benefit of its stockholders. There is no evidence that the dues of stockholders were intended or were accounted for, as contributed additional capital; on the contrary, the dues had no relation to the stockholdings and were paid in consideration of the valuable services of the corporation and of the benefits of membership. Held, the dues paid in by the stockholders should be included in gross income. Pontiac Employees Mutual Benefit Association,15 B.T.A. 74">15 B.T.A. 74, and Employees' Benefit Association of American Steel Foundries,14 B.T.A. 1166">14 B.T.A. 1166, followed.
*1016 These are proceedings for the redetermination of deficiencies in income taxes amounting as follows: for 1922, $154.17; for 1923, $2,056.57; for 1925, $426.82.
The petitioner alleges error in the inclusion in gross income for 1922, 1923, 1924, and 1925 of dues paid in upon the class A stock of the petitioner.
Upon motion*2277 duly made and granted the appeals were consolidated for purposes of hearing and decision.
FINDINGS OF FACT.
The facts, all determined by stipulation, are as follows:
The petitioner is a New York corporation, with its principal office at 118 Pierrepont Street, Brooklyn, N.Y.
The petitioner is a trade association organized as a stock corporation in 1907 for the purposes described in its articles of incorporation as follows:
To unite the retail grocery merchants of the Boroughs of Brooklyn and Queens and elsewhere upon Long Island into a federation, of two classes; CLASS A shall be members owning certificates of stock; CLASS B shall be associates, - non-members, - for the purpose herein set forth.
To foster trade in the interest of those engaged in the retail grocery business and to procure the reformation of abuses relative thereto; to protect the trade from unlawful or unjust exactions, federal, state or municipal, legislative, executive or judicial, or otherwise; to procure uniformity and certainty in the customs and usages of the grocery trade; to settle differences and procure frendly intercourse among the members and associates.
To continue and enlarge the powers*2278 and purpose for which the United Retail Grocers' Association of Brooklyn, a membership corporation, organized and existing under the laws of the State of New York, was created; to bring into *1017 this corporation its members, and to acquire by purchase or otherwise all its assets and property, both real and personal, its rights and good will, and to assume its debts and liabilities; and, thereupon, said United Retail Grocers' Association of Brooklyn, shall cease to exist.
To purchase, or otherwise acquire, hold, lease, sell and deal in real estate in the City of New York, and personal property incidental thereto or connected therewith, and to develop the resources and to turn to account the same and the rights of the corporation in such manner as may be desirable, including improvements thereto by buildings or otherwise.
To purchase, or otherwise acquire, deal in, hold, own, manage, sell, pledge, transfer or otherwise dispose of, goods, wares and merchandise, that may be required in the retail grocery business in the City of New York and Long Island, provided, however, that the shareholders at a special or annual meeting called for the purpose, shall, by a two-thirds*2279 vote, so determine.
To make, purchase, or otherwise acquire, deal in and to carry out any contracts for or in relation to any of the foregoing businesses that may be necessary and lawful under the acts pursuant to which this corporation is organized.
To purchase, acquire, hold and dispose of the stocks, bonds, and other evidences of indebtedness of any corporation domestic or foreign, and issue in exchange therefor its stock bonds or other obligations, except as herein otherwise provided; to possess or exercise in respect thereof, all the rights, powers and privileges of individual owners or holders thereof, and to exercise any and all voting power thereon.
The amount of authorized capital stock is $75,000 consisting of 7,500 shares par value $10 per share. The stock may be held only by members. Only retail grocers are eligible to membership. No limit is to be set to the number of shares which may be held by any one member but no shareholder shall be allowed to vote on more than 10 shares of stock, and no associate shall be allowed to vote on any question affecting the funds, finances or management of the corporation or for officers or directors.
The by-laws provide*2280 among other things that dividends shall be declared to stockholding members in good standing and paid out of the surplus profits of the association at the discretion of the board of directors.
Dues and fees may be assessed, fines imposed and penalties inflicted upon members and associates as provided under the by-laws, without relation to stockholdings. Members' dues are payable as follows: For active members at the rate of $2 per annum, for all other members, save honorary, at the rate of $6 per annum. If the dues of any member shall remain unpaid for 30 days after his name is posted and notices sent, he will be subject to penalties, and shall not be entitled to vote or participate in the affairs of the association. Any member who shall refuse to pay his dues or liabilities to the association, or to obey any decision of the board of directors, or to abide by and comply with the by-laws, rules and regulations, may be expelled from the association by unanimous vote of the board *1018 of directors, and if so expelled a stockholding member is required to surrender his certificates of stock, and all claim to dividends.
In its income-tax returns for the years 1922, 1923, *2281 and 1925 petitioner failed to report dues received from its members described as class A members in its certificate of incorporation and by-laws. The amounts of dues received by it from the class A members during these years were: 1922, $1,224.60; 1923, $1,750; 1924, $1,150.50; and 1925, $3,372.50.
In auditing petitioner's income-tax returns, respondent treated the aforesaid dues received by petitioner from its class A members as taxable income.
OPINION.
TRUSSELL: The petitioner is a trade association incorporated in 1907 pursuant to the Business Corporation Law of the State of New York. The powers, purposes and objects of the petitioner are set out in the findings and need not be repeated here. The petitioner is organized for profit, and the profits inure to the benefit of the stockholders; it is not disputed that the corporation is subject to the Federal income tax. The single issue for decision is whether the "dues" paid in by the stockholders are taxable income as determined by the respondent or contributed capital as claimed by the petitioner. The taxable years are 1922, 1923, and 1925. The year 1924 comes into consideration due to a net loss for that year which*2282 has been allowed as a deduction from net income for 1925.
There are four classes of membership in the petitioner: honorary, nonactive, class (a) active (stockholding), and class (b) active associate (nonstockholding). The honorary members pay no dues and may be dismissed from further consideration. The dues of nonactive members are at the rate of $2 per annum; the dues of active members, class (a) and class (b) are at the rate of $6 per annum. All members are equally entitled to the protection of the association and to the enjoyment of the benefits secured through membership. The privilege of subscribing to the capital stock of the petitioner is open to all members except honorary. The amount of stock allowable to active members is unlimited, but there are various provisions tending to discourage holdings of more than 10 shares. The stockholders alone are entitled to vote in the election of the board of directors and in the affairs of the corporation. Dividends of the surplus profits are authorized at the discretion of the board of directors, payable to the members who are stockholders.
The petitioner admits that the dues paid in by the nonstockholding members are income, *2283 but it contends that the dues paid in by the stockholders are to be distinguished in that there is no quid pro quo. We are unable to agree with this contention. We think *1019 the petitioner overlooks the benefits and the advantages enjoyed alike by all of the sustaining members, and which are clearly distinguishable from the financial benefits and managerial privileges attaching to the capital investment of the stockholders. We have repeatedly held that trade associations are capable of performing valuable services for their members. See . That petitioner was a member of three trade organizations carried on by brewers, and we decided that the dues paid were properly deductible expenses because paid in return for valuable services. In , that petitioner was a member of an organization of manufacturers having for its purpose the gathering of statistics on the importation of hosiery and other merchandise; the keeping of corporations advised as to tariff legislation; and the obtaining from corporations of information as to what they consider to be to*2284 their advantage in this regard; we again held that the dues were paid for valuable services. In , our conclusion was the same with reference to sums paid to an open shop association composed of employers of labor organized to protect themselves from what they believed to be the danger of Union labor. In , we reached the same conclusion relative to dues and fees paid to a brewers' association, which was a large trade organization of the principal brewers of the United States and which used its income for the promotion of the interests of the brewers' industry.
There is no evidence of the intention of the parties to contribute additional capital nor is there any evidence showing that the dues of the stockholders are accounted for on the books of the petitioner as paid-in surplus, or even that they are separately ticketed in any manner. All the dues are clearly paid in for membership, and they have no relation whatever to the stockholdings. The purchase of stock by a member does not later the amount of the dues payable by him, nor does it relieve him of the obligation. Penalties*2285 for failure to pay the dues are as severe upon the stockholder as upon the nonstockholder. There is no essential difference in the character of the dues paid in by any of the various classes of sustaining members.
We have had occasion to consider a similar issue in at least two prior cases. In both of them there would appear to be a better basis than in the instant case for a claim of exclusion from gross income.
In , we decided that members' dues paid to a voluntary mutual benefit association were income to the association.
*1020 In , we considered members' dues paid in to a voluntary mutual benefit association, and in that case the petitioner made an extended argument that the members' dues were not income but rather were contributions of capital. We again decided, however, that the dues were income.
These decisions must be regarded as controlling in the instant case and we, therefore, conclude that the dues paid in to the petitioner by its stockholders should be included in gross income.
*2286 Judgment will be entered for the respondent.