*2971 1. Voluntary unincorporated association of employees held taxable.
2. Amounts of dues or contributions paid to association by members held taxable income. Further held that under the circumstances there was no deduction allowable from gross income as a "reserve required by law" for the contingent liability to members for benefits payable under 234(a)(10) of the Revenue Act of 1918 or under 234(a)(11) of the same, because the petitioner does not satisfy the requirements of the latter paragraph.
*1166 This is a proceeding for the redetermination of deficiencies in income and profits taxes for the calendar years 1919 and 1920 in the *1167 amounts of $1,159.28 and $185.66, respectively. The petitioner alleges error by the respondent in holding the petitioner was not exempt from taxation, in holding the membership contributions or dues as income, in treating the membership contributions held by the petitioner as accumulated surplus or profits, in disallowing as deductions from gross income the annual*2972 increases made to its funds to meet insurance liabilities, in treating the petitioner as an insurance company for taxation but denying it the right to set up a deductible reserve in allowing only actual disbursements in payment of benefits as deductions in lieu of additions to insurance reserves, and in holding the petitioner's activities to be those of a mutual insurance company issuing life, disability and health insurance in one policy but denying it deductions under sections 234(10)(a) and 234(11) of the Revenue Act of 1918.
FINDINGS OF FACT.
The petitioner is a voluntary, unincorporated association of employees of American Steel Foundries (a corporation) and its subsidiaries. Its offices are at Chicago, Ill.
The petitioner, in its income and profits-tax returns for the years 1919 and 1920, reported net income of $1,894.04 and $1,493.62, respectively, consisting of income from investments and interest on bank balances. The respondent, in determining the deficiencies of $1,159.28 and $185.66, added $5,961.39 and $2,362.96 to the income reported for 1919 and 1920. Such amounts of $5,961.39 and $2,362.96 were arrived at by an analysis of the surplus of the petitioner at*2973 the beginning and end of each of the two years in question.
The petitioner was organized in 1911. During the years 1919 and 1920 it had no constitution or by-laws but operated under "Rules and Regulations" which, so far as they are material here, are as follows:
EMPLOYES' BENEFIT ASSOCIATION
American Steel Foundries
OBJECT - Section I.
The object of the Benefit Association is to provide its members with a certain income when sick, or when disabled by accident, but not for disability, nor resulting complications, caused by accident arising out of and in the course of their employment with the American Steel Foundries and subsidiary companies, and to pay to their families certain definite sums in case of death through sickness or accident, but not in case of death caused by accident arising out of and in the course of their employment with the American Steel Foundries and subsidiary companies; to create and maintain a fund which shall belong to the members, be used in payment of benefits to them, and cost them the least money possible considering the benefits received.
*1168 ORGANIZATION - Section II.
1. American Steel Foundries, and subsidiary companies, have*2974 associated themselves with such of their employes as may join with them in the formation of this Benefit Association.
2. The Benefit Association is in the executive charge of a Board of Trustees consisting of members representing the plants and departments of the American Steel Foundries, and subsidiary companies, and a Manager.
BOARD OF TRUSTEES - Section III.
1. There shall be a Board of Trustees not exceeding twenty members to be chosen annually in December, to serve one year from the first day of January next succeeding and until their successors shall take office as follows: * * *
An equal number shall be chosen by the Board of Directors of the Company.
ELECTION.
4. The members of the Board of Trustees chosen by the members of the Benefit Association shall be elected annually by ballot, from each of the Works or Operating Departments, on the first Monday in December. Each member of the Benefit Association shall be entitled to cast one vote, and the votes shall be taken and certified under oath by tellers selected by the Jrustees.
TERMINATION OF MEMBERSHIP.
6. In the event of termination of service with the company of any member of the Board of Trustees, *2975 his membership in the Board shall thereupon terminate.
DUTIES OF BOARD OF TRUSTEES.
9. The Board of Trustees shall appoint and have general supervision over the Manager and of the operation of the Association and see that the Association is conducted in accordance with its regulations.
FUNDS - Section V.
1. The Benefit Fund shall consist of contributions from members of the Benefit Association, income from investments, and money advanced by American Steel Foundries, when necessary to pay benefits as they become due.
2. As American Steel Foundries has agreed with the Trustees of the Benefit Association to pay the operating expenses thereof, and to advance money to cover any deficiency in its funds to meet obligations to members, the contributions from members shall be used only for the payment of benefits due to members of the Benefit Association, except any special payments which may be necessary to protect the interest of the Association, which special payments must be approved individually by the Board of Trustees.
3. The contributions from the members shall be used only for the payment of benefits except for special payments which may be necessary to protect*2976 the interest of the Association, which special payments must be approved individually by the Board of Trustees. If a surplus shall accumulate, it shall remain under the control of the members of the Association through their representatives on the Board of Trustees, and if a deficit arises the Company will make temporary advances to pay the same.
4. No cause of action, either at law or in equity, shall accrue to any member of the Association against the Company, unless until there shall not be *1169 sufficient funds, securities, notes or evidences of indebtedness in the hands of the Treasurer of the Association to fully satisfy the claim of such member.
5. The books shall be open at all times to members.
MEMBERSHIP - Section VIII.
1. All employes of the American Steel Foundries, and subsidiary companies, who apply for membership may become members of the Association and remain such by conforming to the rules and regulations.
2. In referring to employes of the Company, the word "services" shall mean employment by the Company, and the service of any employe shall be regarded as continuous for the time during which he has been continuously in the employ*2977 of the Company.
ELIGIBILITY.
3. Any employe in the service on or before September 1, 1911, may become a member of the Association without medical examination and without age limit at any time prior to January 1, 1912. Thereafter any employe under fifty-five years of age upon passing a satisfactory medical examination, and upon approval of his application by the Manager, may become a member of the Benefit Association in the highest class allowed by his pay. Further, any employe over forty-five years of age, and under fifty-five years of age, may, upon passing a satisfactory medical examination, and upon approval of his application by the Manager, become a member under the same regulations except that the death benefits in such cases shall be only $100.00.
4. Any member may change to any higher class allowed by his pay upon passing a satisfactory medical examination, such change to become effective after thirty days from date of said examination, upon the approval of the Manager.
5. Any member may change to any lower class allowed by his pay by making application therefor in writing to the Manager, which change shall become effective at such time as the Manager shall*2978 determine.
6. Any member whose application for membership was approved prior to September 1, 1911, and who was over 45 years of age at that time, shall become a member in the highest class allowed by his pay and shall be entitled to all the benefits provided for in that class without additional contributions on account of age.
7. Any member whose application for membership was made and approved after September 1st, 1911, and who was over 45 years of age at that time, shall become a member in the highest class allowed by his pay or in any lower class that he may choose, at the rate provided for in the schedule of contributions and benefits; provided, however, that such member shall not be entitled to receive death benefits to exceed $100.00.
CLASSES.
8. There shall be twenty classes of members. The highest class in which an employe may become a member shall be determined by his regular or usual monthly pay as follows:
| Monthly earnings | |
| 1 | $20.00 |
| 2 | 25.00 |
| 3 | 30.00 |
| 4 | 35.00 |
| 5 | $40.00 |
| 6 | 45.00 |
| 7 | 50.00 |
| 8 | 55.00 |
| 9 | $60.00 |
| 10 | 65.00 |
| 11 | 70.00 |
| 12 | 75.00 |
| 13 | 80.00 |
| 14 | 85.00 |
| 15 | $90.00 |
| 16 | 95.00 |
| 17 | 100.00 |
| 18 | 125.00 |
| 19 | 150.00 |
| 20 | 166.66 |
*2979 *1170 9. For employees paid by the hour, piece or in any other way than by the month, the highest class shall be determined by the usual amount of earnings in the month.
10. An employee cannot remain a member in a class higher than that allowed by his pay, and the class to which any member shall belong shall be automatically controlled by the pay received by each member, provided, however, that such change in class shall not take effect until the day said member's advance monthly contributions shall be come due and payable following such reduction in pay, and contributions made in excess of proper class be refunded to member by the Manager, and class reduction be effective as of date of change in rate. This paragraph, however, not to impair in any wise the right of any member under paragraphs 5 and 12 of Section VIII.
11. A new employe's class shall be determined by his rate of pay when entering the service of the Company.
12. A member who is reduced to a lower class on account of age or infirmity, and who has been a member of the Benefit Association for one year, may contribute for additional death benefits not greater in the aggregate than the death benefit*2980 provided for in the class he was eligible to during the two years immediately proceeding such application.
13. The membership of any member guilty of habitual or frequent drunkenness, disreputable or unlawful conduct, or persistent disregard of the regulations while disabled, shall be automatically cancelled, and rendered of no force and effect, and such member shall not be entitled to receive any benefits thereunder. Refund of contribution, if any due, shall be made by the Manager.
TEMPORARY LAY-OFF.
14. Any member who is temporarily relieved from service, through no fault of the member, may, by giving notice and making first payment within seven days of the termination of his membership, continue his membership for not exceeding the next three months in the case of relief from service, or for such period as may be granted by the Company in the care of leave of absence, by paying his contributions each month in advance, it being expressly provided, however, that if such member, during such absence from service, should secure employment elsewhere, such employment, so far as the rules of this Association are concerned, shall be regarded as employment by the Company, and*2981 if said member shall be disabled, either by sickness or accident, arising out of and in the course of such employment, elsewhere, or shall die as the result of such sickness or accident, arising out of and in the course of such employment, elsewhere, this Association shall not be liable in any greater extent than if said member had continued as an employe of the Company.
15. No benefits of any nature whatsoever shall be paid for disability occurring or sickness contracted during the period a member failed to pay contribution in advance.
LEAVING SERVICE.
16. When a member resigns from the service or is discharged, his membership in the Association shall terminate with the period for which the last contribution *1171 is deducted from his pay, and he shall not thereafter be entitled to any benefits except for disability beginning or acquired and reported before such termination of membership, and if such member, during the period of time between such time of discharge and end of the period for which the last contribution is deducted from the member's pay, should take employment with any other person, firm or corporation, and should be disabled either by sickness or accident*2982 arising out of or in the course of such employment, the benefits such member or his beneficiaries shall receive will be controlled as is provided in similar cases in paragraph 14 of Section VIII.
When a member leaves the service, or absents himself from work without notice (unless he afterwards gives satisfactory reasons to the Manager therefor), his membership shall automatically terminate with the last day of his employment, and upon written demand, within thirty days after the day of leaving or absenting himself from service, by said member to the Manager of the Association, said Association shall refund to said member such proportion of said member's last contribution as the period of time between such member's leaving the service and the time when the next contribution is due bears to the total amount of time covered by such last contribution.
17. Any employe leaving the service after notice, or satisfactory reasons afterwards given to the Manager, and who has been a member of the Association for one year, or who was a member of the Association January 1, 1912, and has been in the service three years, one year of which shall be continuous, and as a member of the Association, *2983 may continue his membership as to death benefits only, upon making supplementary application therefor before termination of employment or within five days thereafter, and upon payment of contributions at the rate stated in the schedule of contributions and benefits; provided, however, that the Association shall not be liable for death benefits in excess of the amount said Association would have to pay for death resulting from sickness, as determined by the lowest class to which said member belonged, as determined by his pay during the last year of said member's employment, or of any smaller amount said member shall choose; and provided further that if said member shall be disabled or die as the result of injury received during employment by any other person, firm or corporation, said member or his beneficiaries shall not be entitled to receive any benefits.
REINSTATEMENTS.
18. Any member paying contributions in advance during the entire period of his temporary leave of absence, or during the entire period that he is temporarily relieved from service, may resume membership without medical examination provided, however, that his absence does not exceed ninety consecutive calendar*2984 days.
19. If any member contributing for death benefits only is re-employed, he shall resume full membership according to his age upon passing a satisfactory physical examination.
20. Any member who may be temporarily relieved from the service on account of lack of work, and has continued his membership for death benefits only, shall upon re-entering the service of the Company at the first opportunity, have the right to resume full membership without medical examination in the same class as that in which he carried his membership for death benefits, by making application within thirty days of the date of re-employment and upon approval of same by the Manager. Age limitations of original application shall govern all reinstatements made under this rule.
*1172 PHYSICAL DEFECTS.
22. If any applicant for membership has physical defects which would prevent the approval of his application if presented unconditionally, his application may nevertheless be approved; provided that he execute an agreement in writing, satisfactory to the Manager, to the effect that he shall not be entitled under his membership, to any benefits for disability caused by, arising from, or growing*2985 out of such defects; such agreement to be attached to and made a part of his said application, and such modification of the prescribed forms of application is hereby authorized.
CONTRIBUTIONS - Section IX.
1. The word "Contribution" wherever used in these rules, shall be held and construed to mean such designated portion of the wages payable by the Company to an employe as he shall have agreed in his application that the Company shall apply for the purpose of securing to him the benefits of the Benefit Association, or such cash payments as it may be necessary for a member to make for said purpose.
2. Contributions for full membership shall be made semi-monthly at the following rates:
| Class: | Monthly contribution |
| 1 | $0.30 |
| 2 | .38 |
| 3 | .46 |
| 4 | .54 |
| 5 | .60 |
| 6 | .68 |
| 7 | .76 |
| 8 | .84 |
| 9 | .90 |
| 10 | .98 |
| 11 | $1.06 |
| 12 | 1.14 |
| 13 | 1.20 |
| 14 | 1.28 |
| 15 | 1.36 |
| 16 | 1.44 |
| 17 | 1.50 |
| 18 | 1.88 |
| 19 | 2.26 |
| 20 | 2.50 |
3. Contributions for any month shall be due on the 15th and last day of each month, and shall ordinarily be deducted from the member's wages due on these dates, or on the regular pay days of the company at the Works, or the Operating Department, and shall be for a*2986 full half month without allowances for absence.
4. If any member's contribution is omitted from the pay-roll through error, the fact that such deduction has not been made shall not debar him or his beneficiary from benefits to which they would otherwise be entitled, and contributions shall be deducted from the next pay-roll.
CASH PAYMENT OF CONTRIBUTIONS.
5. When a member has no wages on the pay roll, any contributions due from him must be paid in cash in advance to the Manager, or to the Chief Clerk at the plant at which he was last working. If the contributions are not paid in advance said membership will automatically lapse without notice of any kind to said member, but failure to pay in advance, however, does not prevent a member from resuming his membership as outlined in this Section.
AMOUNT OF CONTRIBUTIONS FOR DEATH BENEFIT ONLY.
6. Members who have left the service of the Company and retain their memberships for death benefits, as herein provided, (see Sec. VII, Rule 17) shall contribute twenty cents per month, in advance, for each one hundred dollars of death benefit, on the basis of the class to which they belonged at the time of leaving the service, but*2987 not on more than $2,000.
*1173 7. All contributions for death benefits only, by members who have left the service, shall be paid in cash in advance, to the Manager.
8. Should the payments of contribution for death benefits only be in arrears for a period exceeding seven calendar days, the membership shall terminate, and the member can in no way be reinstated.
CONTRIBUTIONS DURING DISABILITY.
9. Members shall not make contributions for any time when declared disabled by the Medical Examiner, except as provided in the regulations. When full wages are paid, the usual contribution shall be made.
RENEWING MEMBERSHIP.
10. Any member who has allowed his membership to lapse or terminate by failure to pay his contributions in advance during temporary leave of absence, or during a period while temporarily relieved from service, may be reinstated to full membership without a medical examination, and without paying contributions for the period of such absence, provided such absence does not exceed sixty calendar days.
ARREARS.
11. No benefits of any nature whatsoever shall be paid for disability occurring or sickness contracted during the period in which a*2988 member failed to pay contributions in advance.
MAXIMUM BENEFITS.
12. No member shall be allowed to contribute or receive benefits on the basis of more than $2,000 annual compensation, and if his salary exceeds said amount, his contributions and benefits shall be calculated on said sum.
BENEFITS - SICK AND ACCIDENT - SECTION XI.
1. The following benefits shall be paid to members or beneficiaries entitled thereto, in accordance with the rules and regulations.
SICKNESS BENEFITS.
2. Payment for each working day, except for the first seven days of disability, classed as due to sickness (other than sickness directly claused by an accident arising out of and in the course of the member's service with or employment by, the Company), for a period not longer than fifty-two weeks, at the rate provided for in the Schedule of Contributions and Benefits in the class to which the member belongs.
In computing disability the first day shall not be included, providing the member shall have worked not less than a full half-day on said first day.
A relapse within three weeks shall constitute part of the disability in computing terms of disability.
3. Any member who has received*2989 sickness disability benefits continuously for a period of fifty-two weeks, as provided in Section XI, Rule 2, shall be entitled to no further benefits of any nature whatsoever, and his membership shall cease, unless it is continued for death benefits only, as provided in Section VIII, Rule 17. If after recovery said member resumes active work with the Company, he shall be considered by the Association as a new employe, and shall be subject to all conditions of Section VIII, Rules 3 to 7, inclusive.
*1174 ESTABLISHING CLAIMS FOR SICKNESS BENEFIT.
4. To establish a claim for sickness benefits, there must be positive evidence of acute or constitutional disease sufficient to cause disability.
CAUSES OF DISABILITY WHICH SHALL BE CLASSED AS DUE TO SICKNESS.
5. Disability resulting from infection of a cut, abrasion, scratch, puncture, or other wound, or from any injury, not immediately disabling, and not reported at the time of the occurrence of the accident causing the injury, or from poison, however taken into or acting upon the body, or from any overdose of medicine, or drug taken by mistake, or from surgical operation necessary for the removal of some defect which*2990 would otherwise probably produce disability, or from sunstroke, or frostbite, shall be classed as due to sickness.
ACCIDENT BENEFITS.
6. Payment for each working day, except for the first seven days of disability, classed as due to accident, but not for disability, nor resulting complications, caused by accident arising out of and in the course of the member's service with, or employment by, the Company, for a period not longer than fifty-two weeks, at the rate provided for in the Schedule of Contributions and Benefits in the class to which the member belongs.
In computing disability the first day shall not be included, providing the member shall have worked not less than a full half-day on said first day.
A relapse within three weeks shall constitute part of the disability in computing terms of disability.
7. Any member who has received accident disability benefits continuously for a period of fifty-two weeks, as provided in Section XI, Rule 6, shall be entitled to no further benefits of any nature whatsoever, and his membership shall cease, unless it is continued for death benefits only, as provided in Section VIII, Rule 17. If after recovery said member resumes*2991 active work with the Company, he shall be considered by the Association as a new employee, and shall be subject to all conditions of Section VIII, Rules 3 to 7, inclusive.
8. Members injured or disabled by accident arising out of and in the course of their services with or employment by the Company, shall not receive benefits of any nature whatsoever from the Employes' Benefit Association.
ESTABLISHING CLAIMS FOR ACCIDENT BENEFITS.
9. To establish a claim for accident benefits the accident must be reported immediately upon its occurrence, and there must be external, positive and visible evidence of physical injury by accident sufficient to cause immediate disability. In cases of alleged sprain, strain, wrench, and the like, where physical proof of disabling injury is lacking, the member must furnish substantial history satisfactory to the Manager, of violence accidentally inflicted sufficient and liable to cause disabling injury, otherwise accident benefits will not be allowed.
BENEFITS AFTER TERMINATION OF SERVICE.
10. No benefits shall be paid on account of sickness beginning or injury occurring after termination of service, nor on account of death occurring in*2992 such time, unless directly due to the sickness or injury and occurring during the disability existing at the time of such termination of service, or unless a member *1175 continues his membership in respect to death benefit only, in accordance with Section VIII, Rule 17.
BENEFITS - SPECIAL - Section XII.
IN CASE OF SERIOUS ACCIDENTS.
FEET AND HANDS.
1. If a member receives accidental injuries (other than injuries caused by accident arising out of and in the course of the member's service with, or employment by, the Company) producing the immediate severing of, or necessitating, in the opinion of the Medical Examiner of the Association, the amputation of a hand or foot, at or above the wrist or ankle, he shall receive the amount provided in the Schedule of Contributions and Benefits in the class to which the member belongs. In case of loss of both hands or both feet, or of one hand and one foot, he shall receive twice the above benefits, or the amount provided in the Schedule of Contributions and Benefits in the class to which the member belongs.
EYES.
2. If a member receives accidental injuries (other than injuries caused by accident arising out of and in*2993 the course of the member's service with, or employment by, the Company) resulting in the total and irrecoverable loss of sight of one eye, he shall receive the amount provided in the Schedule of Contributions and Benefits in the class to which the member belongs.
For the total and irrecoverable loss of the sight of both eyes, he shall receive the amount provided in the Schedule of Contributions and Benefits in the class to which the member belongs.
LUMP SETTLEMENTS.
3. In case of any grave injury or chronic sickness where the member desires to accept a lump sum in lieu of the benefits which might become due to him or on his account, and in full of all obligations of the Benefit Association arising from his membership, the Manager shall have authority to make full and final settlement with such member on such terms as may be agreed upon in writing. All such settlements shall be reported to the Board of Trustees at its next meeting.
LIMITATIONS.
4. No member shall be entitled to receive benefits for sickness and accident disability at the same time.
BELAPSE.
5. In case of relapse in sickness or accident disability occurring within three weeks, the first seven*2994 days of such relapse shall not be deducted in computing time of sick or accident benefits.
PAYMENTS.
6. Benefits on account of continued disability shall be paid semi-monthly.
7, Benefits for short periods of disability shall be paid as soon as the amount can be determined.
8. Benefits shall be paid only to the disabled member, or in accordance with his written order, when approved by the Manager, or to his legal representative.
*1176 9. When, in the opinion of the Medical Examiner, a member is mentally incompetent, disability benefits due him may, at the discretion of the Manager, be paid to his wife, or to some member of his family, or to his employing officer, for the use and benefit of the member, and such payment shall be a bar to any subsequent claim on the part of the member or his legal representative for the amounts so paid.
10. Benefits shall be paid in conformity with the financial methods of the Company in orders drawn by the Manager, upon his receiving such documents respecting claims as may be required by him.
BENEFITS - DEATH - Section XIII.
DEATH FROM SICKNESS.
1. Death due to sickness shall be defined as death caused by all causes*2995 not specifically mentioned as death from accident, except sickness directly resulting from accident arising out of and in the course of the member's service with, or employment by, the Company, or other person, firm or corporation, when allowed by these rules, and except further, death benefits shall not be paid when death occurs within six months from the date of acceptance of the member's application caused by any form of tuberculosis, or any of the following chronic diseases; Nephritis, (a) uremia, (b) dropsy, (c) arteriosclerosis; diabetes; cirrhosis of liver; asthma, (a) cardiac, (b) bronchial; syphilis; rheumatism, if previous attacks can be shown; heart lesions, if not due to acute infections. The decision as to whether a member dies from tuberculosis or a chronic disease shall rest with the Medical Examiner of the Association.
Benefits shall not be paid for death caused by any sickness originating after examination and before the date on which membership becomes effective.
Payment in case of death due to sickness shall be the amount provided for in the Schedule of Contributions and Benefits in the class to which the member belongs.
DEATH FROM ACCIDENT.
2. Death*2996 due to accident shall be defined as death resulting directly and solely from accident, and independent of all other causes, but not by accident arising out of and in the course of any service with, or employment by, the Company, or other person, firm or corporation, when allowed by these rules.
Benefits shall not be paid for death caused by any accident originating after examination and before the date on which membership becomes effective.
Payment in case of death due to accident shall be the amount provided for in the Schedule of Contributions and Benefits in the class to which the member belongs.
3. Accident benefits shall not extend to any death caused by an accident, unless there shall be external and visible marks upon the body of physical injuries sufficient to cause death, nor to any accidental death resulting from, or caused directly or indirectly, wholly or in part, by fits of any kind, epilepsy or vertigo, somnambulism, strangulated hernia or from operation of hernia, or poison (however taken into or acting upon the body), or any overdose of medicine or drug taken by mistake, or any form of gas, nor to accidental death resulting from reckless or unnecessary exposure*2997 to danger, nor to death due to accident received directly or indirectly from maintaining illicit relations with any woman, or any other unlawful conduct, nor to death by suicide, whether the member was sane or insane.
Death due to other causes shall be classed as due to sickness - it being the intention, except where modified elsewhere, of these Rules and Regulations, *1177 to provide for payment in all cases of death upon the basis of death due to sickness, unless coming within the specific definition of death due to accident.
4. The beneficiaries or dependents of members whose death resulted from accident arising out of and in the course of their service with, or employment by, the Company will not receive death benefits of any nature whatsoever from the Employes' Benefit Association.
ESTABLISHING CLAIMS FOR DEATH BENEFITS.
5. Claims for death benefits must be made within one year after the death of member.
PAYMENT OF DEATH BENEFITS.
6. Death benefits, together with any unpaid disability benefit, shall be payable to the beneficiary of a deceased member upon proof of claim.
7. If before payment of benefits to a beneficiary, said beneficiary shall be*2998 legally charged by indictment or otherwise, with the crime of murder or manslaughter of the deceased member, payment of the death benefits to said beneficiary shall be automatically suspended until the final determination of the guilt or innocence of said beneficiary upon said charge by the courts of law having jurisdiction thereof; which final determination shall be conclusive upon the beneficiary and the Association.
In the event said beneficiary is found guilty, no benefits shall be paid to said beneficiary in which event any remaining beneficiary, nothing in these rules otherwise preventing, shall be entitled to receive said benefits.
8. A part of the death benefit (not to exceed one hundred dollars) may, at the discretion of the Manager, be paid before final settlement, to meet funeral or other urgent expenses incident to the death of any member; said payment may be made to such person or persons as the Manager may determine, without specific direction so to do from the beneficiaries.
SUICIDE.
9. If a member commits suicide before the end of the first year of his membership, his beneficiary shall be entitled to receive only such an amount as the member has contributed*2999 for membership, if, however, a member commits suicide after his first year of membership, his beneficiary shall receive only sickness death benefits.
10. If a member attempts suicide, thereupon and without any action by the Manager, his membership shall immediately cease and terminate. He shall not be entitled to any benefits whatsoever.
CONTROVERSY - Section XIV.
EVIDENCE.
1. In any controversy, claim demand, suit-at-law, or other proceeding between any member, his beneficiary or legal representative, and the Benefit Association, the certificate of the Manager as to any facts appearing in the records of the Benefit Association, or of American Steel Foundries, or subsidiary companies, or that any action has or has not been taken by the Board of Trustees, or the Board of Directors, shall be prima facie evidence of the facts therein certified.
2. All questions or controversies of whatsoever character arising in any manner or between any parties or persons in connection with the Benefit Association, *1178 or the operation thereof, whether as to any claim for benefits preferred by any member, or his legal representative, or his beneficiary or beneficiaries, or*3000 any other person or persons, or whether as to the construction of language or meaning of the rules, or as to any writing, decision, instructions or acts in connection with the operation of the Benefit Association, or the rights of members therein, shall be first submitted to the Manager, who shall as promptly as possible make his decision thereon and notify the person so making said claim, which decision shall be final and conclusive upon the parties, subject only to appeal as hereinafter provided.
3. If any member, his legal representative or beneficiaries, shall feel aggrieved by any decision of the Manager, such person may, within thirty days after the rendering of such decision by the Manager, appeal therefrom by filing an informal instrument in writing, clearly setting forth the objections to the Manager's decision, however, with the Chairman of said Board of Trustees. Whereupon, a committee of three of the members of the Board of Trustees shall be appointed in the following manner: One by the Chairman of the Board of Trustees, the other by the member, his legal representative or beneficiary, which two trustees shall appoint a third Trustee. In the event the said two Trustees*3001 cannot agree upon a third Trustee, they shall select, from among all of the remaining Trustees by lot, said Third Trustee. In the event the claimant declines to appoint a Trustee, the Chairman of the Board of Trustees may appoint a Trustee from among those Trustees elected by the member of the Employes' Benefit Association, who shall, for the purpose of appeal, be deemed to have been appointed by such member, his legal representatives or beneficiaries, and the two Trustees shall select a Third Trustee as above provided. The selection of said committee shall take place as promptly as possible after the lodging with said Chairman of the Board of Trustees of said appeal. Whereupon, said committee shall notify the Manager and said member, his legal representatives or beneficiaries, of the time when, not to exceed thirty days after their appointment, and place where, but in the city wherever the plant where the member is or was last employed is located, the contesting parties may be heard upon such appeal, at which time and place it shall be the duty of both parties to appear, either in person or by representative, and fully present their respective claims and the evidence in support*3002 thereof.
At the conclusion of said hearing, said committee shall make its report to the Board of Trustees, as a whole, which report shall be lodged with the Chairman of the Board of Trustees, by which report the said committee shall determine the respective rights of the parties, and particularly make a finding of facts with reference to the contentions made by the respective parties, which finding of facts, as to the matters therein set forth, shall be final and conclusive upon the parties in all proceedings had thereafter, either before the Board of Trustees or in any suit at law or in equity. Said report and findings of fact shall be signed by at least two of said members of said committee.
4. In the event said member, his legal representative or beneficiaries, shall feel themselves aggrieved by the finding of said committee, they shall, within ten days after the rendition thereof, notify the Chairman of the Board of Trustees by informal writing, but particularly setting forth their cause of complaint, whereupon, the proceedings had before said special committee shall come up for review before the Board of Trustees at their next regular meeting.
Upon said hearing, said*3003 Board of Trustees shall act solely upon the proceedings had before said committee as evidenced by their report and findings of fact. At said hearing either party may appear in person or by representation *1179 to argue their complaint, and for no other purpose, and upon the conclusion of said hearing said Trustees, (but not including those Trustees that composed the committee above referred to) shall vote upon the allowance or disallowance of the claim made, and the determination of a majority of those Trustees present and entitled to vote shall be final and binding upon all parties without exception or further appeal.
5. It is the intention hereby that these Rules and Regulations with reference to Appellate procedure shall be construed as follows:
(a) In those States where it is not competent for parties to contract so as to deprive themselves of the right to seek aid in courts of law or equity (1) the procedure provided herein shall be regarded as a condition precedent to the institution of any suit at law or in equity; (2) the proceedings before said committee shall be regarded as a submission to arbitration; and (3) the findings of said committee shall be regarded*3004 (a) as an award; (b) as findings of fact specially submitted to them; which award and findings of fact shall be conclusive upon the parties in any proceeding at law or in equity.
(b) In those States where it is competent for the parties to fix a tribunal other than courts of law and in equity for the determination of their respective rights, the decision of the Manager or Committee of Trustees, if no appeal is taken therefrom, or if appealed thereto, the decision of the Board of Trustees, shall be final and conclusive upon the parties.
AMENDMENTS. - Section XV.
1. Amendments to the regulations of the Benefit Association may be proposed to the Trustees at any regular meeting by any member of the Board. Amendments so proposed may be acted upon with the consent of a majority of the Trustees.
2. Any amendment so adopted shall be binding upon the Company, and the members of the Benefit Association, and all persons claiming through them, from the date specified in the announcement thereof.
The following changes were made in the "Rules and Regulations" by amendments in 1920:
Section VIII - 12. Changed to read as follows:
A member who on account of age or infirmity, *3005 is reduced to a subordinate position with the company, resulting in reduced earnings, and who has been in the employ of the company for ten consecutive years, and a member of the Association for five consecutive years, may retain full membership for all purposes in the class held at the time of said reduction, by payment of contributions for that class.
Section VIII - 14. Changed to provide for continuation of membership as to death benefits only, even after three months lay-off and reinstatement of full membership after reemployment.
Section VIII - 16. First paragraph amended to read as follows:
When a member resigns from the service or is discharged, his membership in the Association shall terminate forthwith, and he shall not thereafter be entitled to any benefits, except for disability beginning or acquired and reported before such termination of membership, but may within thirty days after the last day of employment, demand of the Manager of the Association a refund of such portion of the last contribution as the period of time between said member's leaving the service and the time when the next contribution is due bears to the total amount of time covered by such last*3006 contribution.
*1180 Section VIII - 17. Change made as to time of service.
Section VIII - 19. Provision added as to member over 45 years old.
Section IX - 2. Provision made for fractional months.
Section IX - 3. Due date changed.
Section IX - 4. Addition of provision saving defense to Association though deduction has been made.
Over 2,000 employees of the American Steel Foundries and its subsidiaries had applied for membership and had become members of the petitioner by the end of 1919. Such applications were on a written form, contained a statement of the applications to a medical examiner and a medical examiner's certificate, designated a beneficiary, authorized the employer to deduct a certain sum per month from the applicant's wages, and chose the benefits of a certain designated class. The application provided that the applicant should be bound by the regulations of the association and contained a blank for approval of the application at the office of the manager of the association. In such approval the member was issued an identification card containing his name, address and certificate of membership numer and a certificate of membership reading*3007 as follows:
EMPLOYES' BENEFIT ASSOCIATION OF AMERICAN STEEL FOUNDRIES CERTIFICATE OF MEMBERSHIP
Chicago, Ill.,
This Certifies That is a member of the Employes' Benefit Association of American Steel Foundries, and is entitled to benefits in accordance with the Rules and Regulations thereof. This membership takes effect on the date shown above. (See schedule of Contributions and Benefits on reverse side.)
No. Class No. Manager
No other evidence of membership was issued to the members and no policies of insurance were issued.
The petitioner has never qualified as an insurance organzation under State or Federal laws and does not file insurance reports with State insurance officials. There has never been any occasion for the American Steel Foundries to advance necessary money in the event of a deficit. The receipts of the petitioner are from fees paid by members and the interest upon invested funds so received. Disbursements are confined to the matters provided in the "Rules and Regulations". The American Steel Foundries paid the expenses of operating the association, such as salaries of officers and clerks, stationery, printed matter, etc.
The following tables show*3008 the number of members of the petitioner, with ages and amounts of maximum liability for benefits at the close of the years 1919 and 1920.
| 1919 | ||||
| Number of members | Amount of benefits | |||
| Age | Full membership | Death benefits only | Full membership death part | Death benefits only |
| 16 | 11 | $9,180.00 | ||
| 17 | 7 | 8,100.00 | ||
| 18 | 24 | 19,620.00 | ||
| 19 | 35 | 35,460.00 | ||
| 20 | 34 | 35,600.00 | ||
| 21 | 46 | 47,480.00 | ||
| 22 | 60 | 61,360.00 | ||
| 23 | 54 | 57,700.00 | ||
| 24 | 66 | 66,720.00 | ||
| 25 | 61 | 70,340.00 | ||
| 26 | 75 | 88,420.00 | ||
| 27 | 63 | 2 | 76,000.00 | $1,440.00 |
| 28 | 90 | 1 | 100,620.00 | 780.00 |
| 29 | 75 | 88,760.00 | ||
| 30 | 76 | 81,020.00 | ||
| 31 | 63 | 68,320.00 | ||
| 32 | 72 | 1 | 82,000.00 | 1,080.00 |
| 33 | 66 | 1 | 73,780.00 | 1,500.00 |
| 34 | 71 | 76,460.00 | ||
| 35 | 60 | 69,620.00 | ||
| 36 | 79 | 1 | 91,860.00 | 750.00 |
| 37 | 56 | 66,740.00 | ||
| 38 | 67 | 71,940.00 | ||
| 39 | 56 | 1 | 66,380.00 | 1,200.00 |
| 40 | 43 | 51,300.00 | ||
| 41 | 37 | 1 | 48,100.00 | 1,000.00 |
| 42 | 50 | 57,860.00 | ||
| 43 | 45 | 3 | 52,180.00 | 2,900.00 |
| 44 | 49 | 60,920.00 | ||
| 45 | 41 | 1 | 28,140.00 | 1,800.00 |
| 46 | 44 | 1 | 28,320.00 | 2,000.00 |
| 47 | 35 | 4 | 23,020.00 | 3,360.00 |
| 48 | 39 | 21,860.00 | ||
| 49 | 32 | 5 | 13,760.00 | 4,320.00 |
| 50 | 34 | 1 | 16,740.00 | 1,500.00 |
| 51 | 19 | 2 | 7,980.00 | 2,720.00 |
| 52 | 19 | 11,100.00 | ||
| 53 | 12 | 1 | 3,700.00 | 960.00 |
| 54 | 11 | 3 | 10,260.00 | 4,200.00 |
| 55 | 6 | 2,080.00 | ||
| 56 | 13 | 1 | 6,600.00 | 1,500.00 |
| 57 | 9 | 5,860.00 | ||
| 58 | 10 | 4 | 8,800.00 | 2,880.00 |
| 59 | 8 | 1 | 9,620.00 | 1,800.00 |
| 60 | 8 | 1 | 8,360.00 | 1,200.00 |
| 61 | 6 | 2 | 5,480.00 | 1,140.00 |
| 62 | 3 | 2 | 3,200.00 | 1,680.00 |
| 63 | 7 | 1 | 2,080.00 | 480.00 |
| 64 | 3 | 1 | 2,880.00 | 840.00 |
| 65 | 4 | 4,460.00 | ||
| 66 | 3 | 1,180.00 | ||
| 67 | 3 | 920.00 | ||
| 68 | 1 | 360.00 | ||
| 69 | 3 | 2 | 2,220.00 | 760.00 |
| 72 | 1 | 1,080.00 | ||
| 74 | 1 | 480.00 | ||
| 76 | 2 | 2,360.00 | ||
| 77 | 1 | 780.00 | ||
| 78 | 1 | 360.00 | ||
| 79 | 1 | 100.00 | ||
| 1,965 | 50 | 2,015,140.00 | 46,630.00 | |
| 1920 | ||||
| 16 | 17 | 20,760.00 | ||
| 17 | 29 | 35,220.00 | ||
| 18 | 48 | 56,880.00 | ||
| 19 | 80 | 97,720.00 | ||
| 20 | 97 | 123,900.00 | ||
| 21 | 125 | 170,760.00 | ||
| 22 | 159 | $233,780.00 | ||
| 23 | 140 | 191,340.00 | ||
| 24 | 143 | 202,720.00 | ||
| 25 | 156 | 213,400.00 | ||
| 26 | 126 | 181,380.00 | ||
| 27 | ||||
| 153 | 214,540.00 | |||
| 28 | 152 | 216,320.00 | ||
| 29 | 138 | 188,300.00 | ||
| 30 | 142 | 1 | 200,260.00 | $1,800.00 |
| 31 | 112 | 153,420.00 | ||
| 32 | 120 | 162,960.00 | ||
| 33 | 109 | 1 | 156,360.00 | 1,080.00 |
| 34 | 113 | 2 | 164,480.00 | 3,000.00 |
| 35 | 134 | 214,120.00 | ||
| 36 | 116 | 157,800.00 | ||
| 37 | 102 | 143,800.00 | ||
| 38 | 116 | 171,080.00 | ||
| 39 | 109 | 146,300.00 | ||
| 40 | 102 | 143,200.00 | ||
| 41 | 62 | 86,280.00 | ||
| 42 | 68 | 2 | 97,800.00 | 3,000.00 |
| 43 | 68 | 107,000.00 | 900.00 | |
| 44 | 87 | 1 | 121,560.00 | |
| 45 | 60 | 45,020.00 | ||
| 46 | 52 | 2 | 24,180.00 | 2,880.00 |
| 47 | 55 | 1 | 26,600.00 | 600.00 |
| 48 | 54 | 1 | 25,340.00 | 1,200.00 |
| 49 | 44 | 23,620.00 | ||
| 50 | 45 | 5 | 15,160.00 | 4,140.00 |
| 51 | 30 | 1 | 13,080.00 | 960.00 |
| 52 | 27 | 3 | 13,160.00 | 4,500.00 |
| 53 | 15 | 9,060.00 | ||
| 54 | 18 | 2 | 5,040.00 | 3,000.00 |
| 55 | 8 | 1 | 9,960.00 | 1,800.00 |
| 56 | 6 | 3,000.00 | ||
| 57 | 14 | 1 | 8,800.00 | 1,500.00 |
| 58 | 8 | 3 | 5,760.00 | 2,040.00 |
| 59 | ||||
| 10 | 8,700.00 | |||
| 60 | 8 | 1 | 9,620.00 | 1,800.00 |
| 61 | 8 | 3 | 8,360.00 | 1,620.00 |
| 62 | 7 | 6,200.00 | ||
| 63 | 2 | 1,680.00 | ||
| 64 | 6 | 2,600.00 | ||
| 65 | 3 | 2 | 2,880.00 | 1,320.00 |
| 66 | 4 | 1 | 4,460.00 | 600.00 |
| 67 | 2 | 760.00 | ||
| 68 | 3 | 920.00 | ||
| 69 | 1 | 420.00 | ||
| 70 | 3 | 1 | 2,220.00 | |
| 600.00 | ||||
| 71 | 1 | 540.00 | ||
| 73 | 1 | 1,200.00 | ||
| 76 | 1 | 660.00 | ||
| 77 | 2 | 2,100.00 | ||
| 78 | 1 | 780.00 | ||
| 79 | 1 | 420.00 | ||
| 80 | 1 | 100.00 | ||
| 3,636 | 43 | 4,652,900.00 | 43,280.00 |
*3009 *1182 The petitioner, in keeping its books of account and in making its returns, treated the payments from members as reserved for future use by setting up the entire aggregate contributions, after deducting payments made to members during the year, as a reserve for future payments.
*1183 OPINION.
SIEFKIN: In brief, the petitioner makes two contentions. First, that it is exempt; and, second, that if it is not exempt, the contributions, fees, or dues of members should either be not considered as income at all or the petitioner should be entitled to a deduction equal to the amount of the receipts.
It is our opinion that the petitioner is not exempt. To be entitled to exemption it must bring itself within the exemption clauses of the taxing statute, which, in this proceeding, are found in section 231 of the Revenue Act of 1918. That section is composed of 14 paragraphs. The petitioner states in its brief:
While the taxpayer cannot point to any particular paragraph of this section which enumerates organizations of the precise character of the taxpayer, it does not follow that the taxpayer is nevertheless taxable. The object and purpose of Section 231 was*3010 to exempt certain types of organizations which (except for the exemption) might be construed to be taxable. The activities of the petitioner, however, are of a character so evidently outside the scope or purview of a business organization, and the contributions of the members are so clearly capital contributions, that the Association feels it unnecessary to assimilate its position and status to the organizations referred to in Section 231.
We can not agree. Where Congress specifies exemption to certain organizations the organization seeking exemption must bring itself clearly within the exemption granted and there is no reason for another group of exemptions not expressed. See ; ; ; .
It is evident that the petitioner has confused the conception of exempt status for the association with the conception that certain receipts may not constitute income. *3011 This is apparent because the petitioner filed returns as a voluntary unincorporated association and reported as income the amounts received from its invested funds. If the petitioner is entitled to exempt status, even such amounts would be exempt. See . We hold that the petitioner does not have exempt status.
The second contention rests upon the petitioner's belief, for which there is support in the evidence and in the testimony of an undoubtedly qualified actuary, that it was under a constantly growing liability by the receipt of such monies.
The question then is, whether there is anything in the facts stated, construed under the Revenue Act of 1918, that will justify the petitioner in excluding the monies received by it from income or, what *1184 results in the same thing, in deducting an amount as a reserve for an accrued liability.
It is our opinion that there is no adequate reason given for excluding the receipts. The petitioner says that they are capital contributions. This assertion ignores the distinction between the members and the association. The latter is a separate taxable*3012 entity and payments to it by members under the rules and regulations of the Association, become part of the general funds of the Association and may be used for any legitimate purpose expressed in the rules and regulations. Included in such purposes may be, for example, legal expenses in contesting the claim of any member. It is clear, therefore, that payments are not capital contributions in the sense that they must be kept intact and earmarked. Instead, they become part of the current assets of the association, usable for general association purposes.
We may concede that the testimony of the actuary who testified in this proceeding is correct, but his testimony goes no farther than this; that accumulations necessary to cover the contingent liability of the association (computed by the usual method of estimating insurance liabilities) should amount to over $400,000 for 1919, whereas the association had about $46,000, and should amount to over $900,000 for 1920, when the surplus, in fact, was about $54,000. Even so, we would not be justified in holding that the amounts received by the association either did not constitute income or that the association had an equivalent deduction*3013 without authority for such holding in the taxing act, the Revenue Act of 1918. The justification for similar deductions in the case of an insurance company is found in section 234(a)(10) and (11), which states:
(10) In the case of insurance companies, in addition to the above: (a) The net addition required by law to be made within the taxable year to reserve funds (including in the case of assessment insurance companies the actual deposit of sums with State or Territorial officers pursuant to law as additions to guarantee or reserve funds); and (b) the sums other than dividends paid within the taxable year on policy and annuity contracts;
(11) In the case of corporations issuing policies covering life, health, and accident insurance combined in one policy issued on the weekly premium payment plan continuing for life and not subject to cancellation, in addition to the above, such portion of the net addition (not required by law) made within the taxable year to reserve funds as the Commissioner finds to be required for the protection of the holders of such policies only.
We agree with the respondent that section 234(a)(10) does not permit the deduction, since there is no net*3014 addition "required by law". The basis of the petitioner's contention is that good insurance accounting, not the law of any State or state authority, requires the reserve. See , in which it was held that even though state officials denominated *1185 a fund to meet certain accrued but unsettled loss claims as a "reserve fund", the Federal Act did not permit the deduction as a "reserve required by law". There, as here, it was undoubtedly good insurance accounting to set up a liability for the contingency, but here we must hold, as the Supreme Court held there, that the creation of such a liability does not justify a deduction from income. Nor does the petitioner come within section 234(a)(11) since its policies do not continue for life and are subject to cancellation. See section VIII-14, 16, 17, of the Rules and Regulations, set forth in our findings of fact. Nor are its policies issued on the weekly premium plan. The petitioner is not entitled to a deduction or a reserve under section 234(a)(11). See *3015 .
Reviewed by the Board.
Judgment will be entered for the respondent.
SMITH and TRUSSELL dissent.
STERNHAGEN did not participate.