*2463 1. In the computation of the taxable estate of a decedent the full amount of a charitable bequest is deductible without reducing such amount by state inheritance or transfer taxes which may be payable therefrom.
2. A bequest to the Waterbury Medical Association held not to be deductible under section 403(a)(3), Revenue Act of 1921, in computing the net taxable estate of a decedent.
*174 The Commissioner asserted a deficiency in Federal estate taxes in the amount of $4,666.80 on the estate of Frank E. Castle. The petitioner brings this proceeding for a redetermination of the tax liability. It is alleged that the respondent erred (1) in holding that the Waterbury Medical Association is not a corporation organized and operated exclusively for scientific or educational purposes within the provisions of section 403(a)(3) of the Revenue Act of 1921; and (2) in reducing the value of that part of the estate passing under the residuary clause of the will by deducting the sum of $21,732.93, representing the amount of inheritance*2464 taxes paid various States by the executor of the estate.
FINDINGS OF FACT.
The petitioner is a Connecticut corporation located at Waterbury, Conn., and brings this proceeding as the executor under the will of Frank E. Castle, who died September 4, 1923, a resident of Waterbury, Conn.
The will of Frank E. Castle provided for numerous specific bequests to individuals and recognized charities and recites in part as follows:
Second - * * *, To Waterbury Medical Association, my office furniture and furnishings, my entire library and surgical instruments.
Third - I give and bequeath to The Waterbury Medical Association of Waterbury, Connecticut, the sum of twenty-five thousand ($25,000) dollars, the same to be used by said Association in accordance with the provisions of Article Eight of the Constitution and By-Laws of said The Waterbury Medical Association, for building Fund and for said purpose only.
* * *
Fourteenth - All *175 the rest, residue and remainder of my estate, I direct shall be divided into six (6) parts or portions, and of said residue, I give, devise and bequeath as follows:
* * *
Three (3) parts or portions to said Waterbury Medical Association, *2465 to be added to the specific legacy provided in paragraph Third hereof, the same to be used for the purpose and in the manner directed in said paragraph Third.
In carrying out the terms of this will, my Executor is directed to sell or make such other disposition of my real estate as to my said Executor may seem wise, and my said Executor is further directed to pay all succession taxes legally chargeable to my estate out of the residue, so that the specific legacies, except as herein otherwise provided, may be paid in full.
* * *
The Waterbury Medical Association (hereinafter called the Association) was an association of physicians and surgeons of Waterbury, Conn., and the surrounding towns. It was founded in 1857 and was organized May 20, 1908, as a corporation without capital stock, under the provisions of what is now section 3534 of the General Statutes of the State of Connecticut, revision of 1918, having to do with the organization of corporations not conducted for profit. The purpose of the Association as set out in its certificate of incorporation is as follows:
Third: That the purpose or object of the corporation is to establish the practice of medicine and surgery*2466 in the City of Waterbury upon a respectable footing, to devise and carry into effect measures for the mutual improvement of the members of said Association, and to promote a good understanding and harmonious intercourse with each other.
The Association has no social activities. Its activities consist of monthly meetings at which technical papers on medical matters are read and discussions had between members. It sometimes sponsors lectures on subjects pertaining to public health to which the general public is invited. Its meetings and lectures are open to nurses and internes of the hospitals. No admission is charged to its lectures and its lecture rooms are used only for the purposes of the Association and are never rented. It maintains a library of books and medical periodicals which are used by its members without charge.
At the monthly meetings of the Association held in 1922 and 1923 papers were read as follows:
January 12th, 1922, Doctor M. J. Lawlor read a paper on "Ectopic Gestation."
February 9th, 1922, Doctor J. L. Harvey presented a paper on "X-ray as an Aid in Clinical Diagnosis", exhibiting a series of X-ray photographs in connection therewith.
March 9th, *2467 1922, no paper was read, but there was a discussion of cases arising in the practice of Doctors Swenson, Farley, Barber, Jr., and Good.
April 13th, 1922, Doctor W. L. Barber read a paper on the "Problem of High Blood Pressure." Discussion was also had of a case of Peptutary disturbance arising in the practice of Doctor Gosselin. Doctor H. J. Root read a paper on "Hypertrophic Pyloric Stenosis."
*176 May 11th, 1922, Doctor James C. Fox of New Haven read a paper on the "Treatment of Neorosyphylis." Doctor W. L. Barber, Jr., read a paper on "Acidosis Surgically Considered." Doctor Crane read a paper on the Albert Abram Clinic, San Francisco.
June 8th, 1922, Doctor Cole B. Gilson of Meriden read a paper on the "Diagnosis and Treatment of Pulmonary Tuberculosis in Children." Doctor Bringman read a paper on "Unusual Bone Pathology as Demonstrated by the X-ray."
September 14th, 1922, Doctor Thomas Russell of New Haven read a paper on the "Use of Radium in Surgery." Doctor E. W. Goodenough read a paper on "Nutrition Measures and Methods of Professor Clement Pirfuet."
November 9th, 1922, Doctor Samuel Lloyd read a paper on the "Thyroid."
December 14th, 1922, Doctor Robert*2468 J. Crop read a paper on "Primary Closure of Compound Fractures."
January 11th, 1923, Annual Meeting, address of Doctor D. B. Deming, subject not given.
February 8th, 1923, Doctor Charlton Wallace of New York read a paper on the "Treatment of the Industrial Injured as Carried on at the Reconstruction Hospital," which was illustrated by moving pictures. Doctor George Russell presented a case of diverticulars of the aesophagus.
March 8th, 1923, Doctor David R. Lyman of New Haven read a paper on the "Value of X-ray in the Diagnosis and Treatment of Pulmonary Tuberculosis," illustrated by a series of X-rays of chest conditions.
April 12th, 1923, Doctor John E. Lane, Clinical Professor of Dermatology in the Medical Department of Yale University, read a paper on "A Lantern Slide Talk on Dermatology."
May 10th, 1923, Doctor Robert B. Osgood, Professor of Orthopedic Surgery of the Harvard Medical School, read a paper on "Chronic Non-tuberculosis Arthritis." Doctor Gosselin read of a case of tumor of the spinal cord, which had been operated on with good results.
June 4th, 1923, Doctor M. E. Alexander read a paper on "The Value of Blood Chemistry Determinations in the Diagnosis*2469 and Treatment of Metabolic Diseases."
September 13th, 1923, Doctor Herbert Thoms of New Haven read a paper on the "Discussion of Post Partum Care."
October 11th, 1923, Doctor Charles L. Larkin read a paper on the "Present Status of Treatment of Peritonitis, with an Original Contribution."
November 8th, 1923, Doctor Samuel Goldberg of New Haven read a paper on "Chronic Nephritis." Governor Templeton of the State of Connecticut spoke on the Medical Practice Act and the investigation of the Eclectic Board of Medical Examiners.
December 13th, 1923, Doctor Mark Bringman read a paper on "The Roentgen Diagnosis of Gastro-intestinal Diseases," which was illustrated by X-ray films.
The constitution and by-laws of the Association provide in part as follows:
ARTICLE IV
Members: SECTION 1. Any physician of this city or any adjoining town, who has had one continuous year of professional residence in said city or town, and who is eligible to membership in the Connecticut Medical Society, may be a candidate for membership in this Association.
* * *
SECTION *177 6. Honorary members may be elected provided that they have been nominated by the Executive Committee, and provided*2470 Sections 4 and 5 of this Article have been complied with. Such Honorary members shall have all the privileges of membership, except that they shall not be required to pay dues, and shall not vote or hold office.
SECTION 7. Physicians of this State outside this city and the adjoining towns who are eligible to membership in the Connecticut Medical Society may become Associate members of this Association provided they have been duly recommended by the Executive Committee and pay an annual tax of two and one-half dollars.
* * *
ARTICLE VI
Duties of Members: SECTION 1. It shall be the duty of each member to aid the Association in its scientific and literary work; to read papers, take part in discussions, report in writing abstracts of interesting cases, demonstrate unique clinical cases, and to show interesting pathological specimens; to offer suggestions to the officers for the literary or social improvement of the Association; to assist the President in enforcing the Constitution, By-laws, and Rules of Order; and, if possible, to serve on all committees to which he is appointed.
SECTION 2. The Principles of Ethics of the American Medical Association are hereby adopted*2471 as a part of the Constitution of this Association.
* * *
ARTICLE VII
Dues: SECTION 1. The annual dues of the Association shall be five dollars, payable in advance.
* * *
SECTION 3. The Executive Committee by its unanimous action may remit in whole or in part the dues of any member in the Association whom they feel is unable to pay them.
ARTICLE VIII
Building Fund: SECTION 1. The building Fund, which shall consist of donations, and such appropriations of money as shall from time to time be added to it by a two thirds vote of the Association, and shall accrue from interest thereon, shall be placed in charge of the Executive Committee, which shall hold it in trust for the Association, and invest it according to the statutes of the State of Connecticut governing the investment of trust funds.
SECTION 2. The Building Fund is hereby appropriated and set apart for the purpose of providing, at some future time, by the purchase or otherwise, for the uses of the Association a suitable building, or apartments, and such accessories as the interests of the Association may require; and shall not be used for any other purpose.
SECTION 3. After this object shall have been*2472 accomplished; any surplus of income or receipts shall be carried to the account of a general fund, the income of which may be used for the general purposes of the Association.
SECTION 4. Whenever it shall be deemed expedient, the Association, at a meeting called for that purpose, may by a vote of two-thirds of the members *178 present, appropriate money from the Building Fund for the objects named in Section 2; and do such other acts as may be necessary to secure to the association its rights and interests involved in pursuance of the objects therein named.
SECTION 5. Moneys so appropriated shall be drawn from the Fund only on a warrant signed by two members of the Executive Committee.
ARTICLE IX
Library: SECTION 1. There shall be maintained for the use of the members of this Association, a library, which shall be known as the Library of the Waterbury Medical Association.
SECTION 2. This library shall be maintained by such donations of money, books, journals, and pamphlets, as may be contributed by members and friends, together with such funds as the Association may, at the Annual Meeting, or at any regular meeting warned for the purpose, appropriate money*2473 from the treasury.
The Association has no regulations with regard to fees to be charged or hours of labor, and such fees and such hours differ materially among the various members of the Association.
Prior to the death of the decedent the Association had no permanent home or quarters, but met wherever it was possible and convenient. Owing to lack of funds it had no library of any considerable extent, and it did not take any current medical journals. After receiving the bequests here in question, it acquired a building in which were maintained lecture room, reading room, and library which were used for the purposes of the Association. It also kept on file leading current medical publications.
The petitioner originally filed an estate-tax return and claimed as exempt a gift to the Waterbury Medical Association in the amount of $207,216.85. This was composed of the following items:
| Under paragraph second of the will | $50.00 |
| Under paragraph third of the will | 25,000.00 |
| Under paragraph fourteenth of the will | 182,166.85 |
| Total | 207,216.85 |
The total residue as set forth under the original return was $364,333.69, of which the share of the Waterbury Medical*2474 Association was $182,166.85. The Commissioner of Internal Revenue reduced the residue by deducting therefrom inheritance taxes paid various States in the amount of $21,732.93, thus making a residue of $342,600.76, of which the share of the Waterbury Medical Association was $171,300.38. The Commissioner thereupon determined the total gifts to the Waterbury Medical Association under the will to be $196,350.38, comprised of the following items:
| Under paragraph second of the will | $50.00 |
| Under paragraph third of the will | 25,000.00 |
| Under paragraph fourteenth of the will | 171,300.38 |
| 196,350.38 |
*179 He refused to deduct this amount from the gross estate on the ground that the Waterbury Medical Association is not such an association as contemplated by section 403(a)(3) of the Revenue Act of 1921. By his action in deducting the state inheritance taxes from the residue of the estate and disallowing the exemption of the gift to the Waterbury Medical Association, the Commissioner increased the net taxable estate from $6,215, as originally returned, to $224,298.30.
OPINION.
PHILLIPS: Two issues are presented in this proceeding: (1) Whether in determining*2475 the value of the net estate, the petitioner is entitled under the provisions of section 403(a)(3) of the Revenue Act of 1921 to deduct from the gross estate the value of the bequests to the Waterbury Medical Association, and (2) whether, in determining the value of the residuary estate, the bequests to charitable institutions and the Waterbury Medical Association, the amount of inheritance taxes paid various States by the executor may first be deducted. We will consider the latter issue first.
The applicable provisions of the statute are found in section 403(a)(3) of the Revenue Act of 1921 which reads:
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 -
* * *
The amount of all bequests, legacies, * * * to or for the use of the United States, any State, Territory, any political subdivision thereof, or the District of Columbia, for exclusively public purposes, or to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, including the encouragement of art and the prevention of*2476 cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private stockholder or individual, or to a trustee or trustees exclusively for such religious, charitable, scientific, literary, or educational purposes.
Under the will of the decedent one-half of the residuary estate was left to admitted charities and the other half to the Waterbury Medical Association, whose character is at issue in this proceeding. The respondent reduced the value of the residuary estate bequeathed to charitable corporations by deducting therefrom the inheritance taxes paid various States by the executor, and contends that, inasmuch as the will directed that such taxes should be paid from the residuary estate, this action was proper. Such action is contrary to the decisions of the courts in ; ; *180 , and to the decisions of the Board in *2477 , and . It is interesting and perhaps important to note that in the Revenue Act of 1924 there was a provision to accomplish the result now urged upon us by the respondent, but that this was replealed by section 323 of the Revenue Act of 1926. The deductions for charitable bequests should be computed without adjustment for state inheritance taxes.
The Commissioner held that the Waterbury Medical Association did not fall within the class of corporations enumerated in section 403(a)(3) of the Act, quoted above, and that the taxable estate should be computed without allowing as a deduction the amount bequeathed to that Association.
In his brief respondent first urges that "statutes exempting properties from taxation must be strictly construed and the intention to grant immunity must be clear beyond reasonable doubt." We have had occasion to point out that the section in question does not grant an exemption from tax, but rather a deduction to be taken in computing the taxable estate. "The taxpayer here is not claiming special exemption from tax imposed*2478 upon all others, but the benefit of a factor of measurement allowed to all. And the only question is whether the circumstances are within the fair intendment of the language used to describe the deduction." .
We are of the opinion that the Association was not "organized and operated exclusively" for the purposes set out in the statute. The testimony discloses that much of its activity was directed toward keeping its members informed of new developments and interesting cases and in this respect it may be said to have been operated for the education of its members. It its operations were confined to this sole form of activity it would still be necessary to look to the purposes for which it was organized. The statute is concerned not only with the activities actually undertaken by the corporation to which the bequest is made but to the activities which, under its constitution and by-laws, the corporation may undertake. The purposes of this Association are stated in its certificate of incorporation to be threefold: (1) To establish the practice of medicine and surgery in the city of Waterbury upon a respectable footing; *2479 (2) to devise and carry into effect measures for the mutual improvement of the members, and (3) to promote a good understanding and harmonious intercourse with each other. These purposes are not such as are made the test of the deduction. . See also ; .
Decision will be entered under Rule 50.