*2961 Contributions by petitioner corporation to the civic fund of a city held, under the particular facts of the case, not to have been ordinary and necessary expense of the year in which paid or incurred.
*529 This proceeding involves the redetermination of a deficiency in income and profits taxes for the year 1920 in the amount of $90,891.40. The only error alleged is that respondent erred in refusing to permit the deduction of certain amounts subscribed by petitioner to the Civic Fund of Middletown, Ohio, and also of a certain amount paid by petitioner to said municipality.
FINDINGS OF FACT.
Petitioner is an Ohio corporation with its principal offices at Middletown, Ohio. It was organized in 1899 and began business February 7, 1901. It is the manufacturer of special analysis sheet metal, high grade sheet metal, iron and steel. At the date it began business, Middletown had a population of about 9,000 people. In 1920 its population had grown to approximately 23,000 and it now has a population of between 30,000 and 35,000. It is essentially*2962 a *530 manufacturing city. In 1901 petitioner employed in the neighborhood of 350 men. In 1920 it employed about 4,500 and is now employing approximately 10,000 persons. Petitioner was in 1913 the largest business enterprise in the city and by 1920 it and its employees had become approximately one-half of the community. Most of the employees of petitioner may be classified as skilled labor. It is to its interest to retain its old employees who have become familiar with the business and to prevent a large turnover in its personnel. It sought stability in labor conditions. Almost from the beginning, it has been petitioner's policy to make its employees contented in order to produce greater efficiency and avoid losing their services. To achieve this end it began prior to 1913 a consistent policy of what is generally termed welfare work but what its officers call "mutual interest work." Although long and disastrous strikes have occurred in neighboring towns and petitioner's employees have been solicited to strike, it has never suffered a strike and has had a very small labor turnover. It organized a company which assisted its employees in the purchasing of homes. This*2963 enterprise was entered into with the hope that it would result in less turnover in labor than if its employees were not attached by home ties to the neighborh0od. Middletown was overflowed in 1913 by what is generally known as the Dayton flood. The factories of the city, including petitioner, turned out with all their forces and equipment to clean up the town and thus avert an epidemic. This joint effort brought directly before the officers of petitioner the question of community conditions and the effect of such conditions upon their business. The World War further impressed them with the idea of community cooperation. Prior to 1920 there was in the City of Middletown a very small Y.M.C.A. building and a small hospital. For the purpose of making the town more desirable to live in and thereby encouraging its employees to purchase homes and become citizens of the town, petitioner's president in the latter part of 1919 presented to the chamber of commerce of the city, a plan to raise the sum of $1,000,000 for the purposes hereinafter set forth, and a Civic Fund Campaign Committee was appointed. At a meeting of the Committee held on January 29, 1920, a resolution was adopted, the*2964 pertinent parts of which read:
WHEREAS In a meeting of the Chamber of Commerce held at the Elk's Temple, Tuesday evening, Jan. 20, 1920, a motion prevailed authorizing the President of the Chamber of Commerce to appoint a committee to confer with the Directors of the Chamber of Commerce in regard to the advisability of raising a civic fund of $1,000,000 and
WHEREAS The motion further provided that the said committee, with the Directors of the Chamber of Commerce be authorized to act in the event of a favorable decision, therefore be it,
RESOLVED It is the unanimous decision of the Civic Fund Committee and the Directors of the Chamber of Commerce in joint conference assembled this *531 twenty-ninth day of January, nineteen hundred twenty, that a civic fund campaign be conducted under the joint direction of an executive committee, which committee shall be composed of eight members appointed by the President of the Chamber of Commerce, all of whom shall be members of the general civic fund committee, and the Directors of the Chamber of Commerce, whoever they may be, and be it further
RESOLVED That it is the sense of this meeting, that a fund of not less than $1,000,000*2965 will be required to undertake and accomplish the civic program hereinafter enumerated, and be it further,
RESOLVED That the fund when subscribed shall be used for the following purposes,
(a) To provide the necessary additions to Middletown Hospital
(b) To assist the Board of Education in increasing the compensation of the teachers of the Public Schools
(c) To extend the present system of parks and playgrounds
(d) To enlarge the new home of the Girls' Club
(e) To provide a fund for the Public Library
(f) To erect a Community Memorial Building dedicated to Soldiers, Sailors and Marines of the World War
(g) To provide permanent headquarters in the Community Building for the Local Post of the American Legion
(h) To construct a new Y.M.C.A. building
(i) To give the City Commission such financial assistance as that body may need for the conduct of its affairs, pending the proposed remedial legislation affecting taxation, and
(j) To provide funds for such other activities respecting the Community Development as the Chamber of Commerce may hereafter determine, and be it further,
RESOLVED That all appropriations shall be authorized by a majority vote of the executive*2966 committee of fifteen members, * * *
Thereafter it was determined that the amount of $500,000, which was one-half of the whole amount to be raised, should be allocated to industries of the city and that each industry should contribute upon the basis of capital investment, number of employees and sales, and the following schedule of percentages was adopted:
| Industry | Percentage |
| 1. Advance Bag Co | 5 |
| 2. American Rolling Mill Co | 60 |
| 3. American Tobacco Co | |
| 4. Barklew Elec. Mfg. Co | 1/2 |
| 5. Bevis & Shartle Mach. Co | 1 |
| 6. Caldwell & Iseminger Co | 1 |
| 7. Cullman Bros | |
| 8. Crystal Paper Co | 2 |
| 9. Denny Lumber Co | 1/2 |
| 10. F. O. Diver Milling Co | |
| 11. Fairbanks Fiber Box Co | |
| 12. C. C. Fouts Co | |
| 13. Gardner & Harvey Interest | 8 |
| 14. Harding Paper Co | 1 |
| 15. Interstate Folding Box Co | 1 |
| 16. P. Lorillard Co | |
| 17. Miami Cycle & Mfg. Co | 2 |
| 18. Middletown Ice & Coal Co | 2 |
| 19. Middletown Lumber Co | |
| 20. Midwest Casting Co | |
| 21. Nashua Gummed & Coated Paper Co | 1 |
| 22. O. K. Paper Pail Co | |
| 23. Ohio Corrugated Culvert Co | |
| 24. W. B. Oglesby Paper Co | 3 |
| 25. Raymond Bag Co | 1 |
| 26. Rauh & Mack Shirt Co | |
| 27. Sabin Robbins Paper Co | 1/2 |
| 28. Shartle Bros. Machine Co | 2 |
| 29. P. A. Sorg Paper Co | 3 |
| 30. Wardlow-Thomas Paper Co | 2 |
| 31. Willard Middletown Mach. Co | 1 |
| 32. Wrenn Paper Co | 2 |
| 33. Weber and Butterfield Tool Co |
*2967 *532 Under the above allocation petitioner on March 20, 1920, executed the following subscription:
CHAMBER OF COMMERCE FORMS
Used in Civic Fund Campaign and approved by General Committee.
INDUSTRIAL SUBSCRIPTION PLEDGE
In consideration of subscriptions received and to be received, we, the undersigned, do hereby promise to pay to the Middletown Chamber of Commerce Three hundred Thousand Dollars ($300,000) being 60 per cent of Five Hundred Thousand Dollars ($500,000) assumed by the Industrial Departmen of the Chamber of Commerce in its meeting of Jan. 21st, 1920. It is understood that the fund when created will be used,
(a) To provide the necessary additions to Middletown Hospital.
(b) To assist the Board of Education in increasing the compensation of the teachers of the Public Schools.
(c) To extend the present system of parks and play grounds.
(d) To enlarge the new home of the Girl's Club.
(e) To provide a fund for the Public Library.
(f) To erect a Community Memorial Building.
(g) To provide permanent headquarters in the Community Building for the Local Post of the American Legion.
(h) To construct a new Y.M.C.A. Building.
(i) To give*2968 the City Commission such financial assistance as that body may need for the conduct of its affairs, pending the proposed remedial legislation affecting taxation, and
(j) To provide funds for such other activities respecting the Community Development as the Chamber of Commerce may hereafter determine,
The undersigned agrees to pay to the Chamber of Commerce, the above sum as follows - in twenty four (24) equal monthly installments.
3/20/20
THE AMERICAN ROLLING MILL CO.
CHARLES R. HOOK Vice-President.
Thereafter the amount of $600,000 was allocated to the industries and thereupon petitioner executed on March 25, 1920, the following subscription:
GENERAL SUBSCRIPTION PLEDGE.
In consideration of other subscriptions made by citizens of Middletown, Ohio, for the purpose of creating a Civic Fund, to
(a) Provide the necessary additions to Middletown Hospital.
(b) Assist the Board of Education in increasing the compensation of the teachers of the Public Schools.
(c) Extend the present system of parks and play grounds.
(d) Enlarge the new home of the Girls' Club.
(e) Provide a fund for the Public Library.
(f) Erect a Community Memorial Building dedicated*2969 to Soldiers, Sailors and Marines of the World War.
(g) Provide permanent headquarters in the Community Building for the Local Post of the American Legion.
(h) Construct a new Y.M.C.A. Building.
*533 (i) Give the City Commission such financial assistance as that body may need for the conduct of its affairs, pending the proposed remedial legislation affecting taxation, and
(j) Provide funds for such other activities respecting the Community Development as the Civic Fund Campaign Executive Committee may hereafter determine.
THE UNDERSIGNED
Agrees to pay to the Chamber of Commerce the sum of $60,000 payable as follows - During 1922 Beginning
(Solicitor Signed THE AMERICAN ROLLING MILL CO.
MARCH 25, 1920.
CHARLES R. HOOK, Vice-President.
(It is agreed that the period covered by the payments shall not exceed two years.)
On November 12, 1920, the Civic Fund Executive Committee adopted the following appropriation schedules:
| Project | Requested | Total appropriation |
| Hospital | $232,000.00 | $155,000.00 |
| Board of Education | 133,000.00 | 70,000.00 |
| Parks | 24,300.00 | 20,000.00 |
| Recreation Association | 21,200.00 | 21,200.00 |
| Girls' Club | 75,000.00 | 70,000.00 |
| Public Library | 15,000.00 | 15,000.00 |
| Community Building | 225,000.00 | 145,000.00 |
| Y.M.C.A. | $400,000.00 | $385,000.00 |
| City Commission | 60,000.00 | 52,000.00 |
| American Legion | 2,000.00 | 2,000.00 |
| Boy Scouts | 17,360.00 | 17,360.00 |
| Girls Scouts | 9,000.00 | 9,000.00 |
| Road of Remembrance | 3,500.00 | 3,500.00 |
| Contingent fund | 60,299.55 |
*2970 On May 1, 1923, the Civic Fund Executive Committee revised appropriations as follows:
| Beneficiary | Original appropriation | Revised appropriation |
| American Legion | $2,000.00 | $2,000.00 |
| Board of Education | 70,000.00 | 54,299.13 |
| Boy Scouts | 17,360.00 | 19,360.00 |
| City Commission | 52,000.00 | 25,000.00 |
| Community Building | 145,000.00 | 195,000.00 |
| Girl Scouts | 9,000.00 | 9,000.00 |
| Hospital | 155,000.00 | 155,000.00 |
| Girls' Club | 70,000.00 | 70,000.00 |
| Public Library | 15,000.00 | 10,000.00 |
| Park Commission | $20,000.00 | $23,000.00 |
| Road of Remembrance | 3,500.00 | 3,500.00 |
| Recreation Association | 21,200.00 | 37,521.57 |
| Y.M.C.A | 385,000.00 | 385,000.00 |
| Contingent | 34,940.00 | 11,319.30 |
| Total | 1,000,000.00 | 1,000,000.00 |
As of May 1, 1925, the appropriations, disbursements and balances were as follows:
| Appropriation | 1920 | 1921 | 1922 | 1923 | |
| American Legion | $2,000.00 | $2,000.00 | |||
| Board of Education | 54,299.13 | 34,799.13 | $19,500.00 | ||
| Boy Scouts | 19,360.00 | 4,900.00 | 5,785.00 | $6,675.00 | |
| City Commission | 25,000.00 | 25,000.00 | |||
| Community Building | 195,000.00 | 63.69 | 295.45 | $3,046.17 | |
| Girl Scouts | 9,000.00 | 1,319.84 | 7,680.16 | ||
| Girls' Club | 70,000.00 | 17,025.00 | 12,233.07 | ||
| Hospital | 155,000.00 | 374.04 | 3,500.00 | 79,885.64 | 68,560.03 |
| Public Library | 10,000.00 | 2,971.40 | 1,000.00 | 1,291.99 | 4,736.61 |
| Park Commission | 23,000.00 | 2,694.60 | 7,327.04 | 11,140.44 | 1,937.92 |
| Road of Remembrance | 3,500.00 | 3,500.00 | |||
| Recreation | 37,521.57 | 4,091.27 | 17,108.28 | 6,241.47 | 10,080.10 |
| Y.M.C.A. | 385,000.00 | 25,500.00 | 9,438.00 | 176,515.69 | 167,499.79 |
| Contingent | 11,319.30 | 339.00 | 7,289.28 | ||
| 1,000,000.00 | 107,150.28 | 88,432.17 | 282,384.68 | 275,382.97 |
| 1924 | 1925 | Total withdrawals | Balance May 1, 1925 | |
| American Legion | $2,000.00 | |||
| Board of Education | 54,299.13 | |||
| Boy Scouts | 19,360.00 | |||
| City Commission | 25,000.00 | |||
| Community Building | $106,895.55 | $9,383.10 | 110,315.86 | $72,570.69 |
| Girl Scouts | 9,000.00 | |||
| Girls' Club | 29,258.07 | 40,741.93 | ||
| Hospital | 2,680.29 | 155,000.00 | ||
| Public Library | 10,000.00 | |||
| Park Commission | 23,000.00 | |||
| Road of Remembrance | 3,500.00 | |||
| Recreation | 37,521.57 | |||
| Y.M.C.A. | 6,046.52 | 385,000.00 | ||
| Contingent | 3,238.00 | 287.19 | 10,866.50 | 165.61 |
| Total | 118,860.36 | 9,670.29 | 874,121.13 | 113,478.23 |
*534 Petitioner's books are and were kept on an accrual basis and the total subscription of $360,000 was set up on its books in the year 1920 as a liability for that year. Of the total subscription the sum of $170,000 was paid in the year 1920. The final payment on the subscription was made in the latter part of 1923. The "Road to Remembrance" is a war memorial. The tobacco companies which did not subscribe to the Civic Fund employed in 1920 between 1,200 and 1,500 men. In 1920 petitioner paid to the City of Middletown the sum of $24,000. The net*2972 income of petitioner for the year 1920 as computed by respondent was $4,286,365.19.
OPINION.
MILLIKEN: The first and major question presented in this proceeding is whether the subscriptions made by petitioner in 1920 to the Civic Fund of the City of Middletown in the total amount of $360,000 are deductible from its gross income under the provisions of section 234(a)(1) of the Rvenue Act of 1918. The material provision of that section is -
SEC. 234. (a) That in computing the net income of a corporation subject to the tax imposed by section 230 there shall be allowed as deductions:
(1) All the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business, including a reasonable allowance for salaries or other compensation for personal services actually rendered, and including rentals or other payments required to be made as a condition to the continued use or possession of property to which the corporation has not taken or is not taking title, or in which it has no equity.
It is to be noted that the above provision includes rentals and, with certain restrictions, salaries, both of which are business expenses in a business*2973 and an accounting sense. Paragraphs (2) and (3) of subdivision (a) of the same section provide, with certain limitations, for the deduction of interest and taxes, both of which are universally deemed business expenses and for the deduction of *535 which there was no necessity of particular specifications if they are included in the statutory concept of "ordinary and necessary business expenses." We further find that section 214(a)(1) of the same Act permits an individual taxpayer to take precisely the same deductions that are permitted to a corporation by section 234(a)(1). Further light is thrown on this statutory concept by the provisions of section 214(a)(11), which reads:
SEC. 214. (a) That in computing net income there shall be allowed as deductions:
* * *
(11) Contributions or gifts made within the taxable year to corporations organized and operated exclusively for religious, charitable, scientific, or educational purposes, or for the prevention of 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 the special fund for vocational rehabilitation authorized by section 7 of the*2974 Vocational Rehabilitation Act, to an amount not in excess of 15 per centum of the taxpayer's net income as computed without the benefit of this paragraph. Such contributions or gifts shall be allowable as deductions only if verified under rules and regulations prescribed by the Commissioner, with the approval of the Secretary. In the case of a nonresident alien individual this deduction shall be allowed only as to contributions or fights made to domestic corporations, or to such vocational rehabilitation fund.
No provision similar to the above is to be found in section 234. Since the right to take a deduction must be found in the words of the statute it necessarily follows that a corporation is not entitled to the deduction provided by section 214(a)(11). That such was the clear intent of Congress is further shown by the fact that while the revenue bill, which ultimately became the Revenue Act of 1918, was under consideration, an amendment was offered to the effect that corporations might take deductions of contributions as in the case of individuals and that this amendment was defeated. See *2975 , and ; . When the bill resulting in the Revenue Act of 1921 was under consideration the House Bill contained a provision extending to corporations the same right of deduction of contributions that was extended to individual taxpayers, with the limitation that the amount of deduction should not exceed 5 per cent of net income. The Senate struck out this provision (Con. Rep. 486, 67th Cong., 1st sess., p. 36), and from that date to this corporations have been denied the right to take such deductions. Since paragraphs (1) of subdivision (a) of section 214 and section 234 are precisely the same in effect and almost precisely the same in verbiage, it follows that they must be given the same meaning - that is, any expense which would not be allowed to an individual under section 214(a)(1) is not allowable to a corporation *536 under section 234(a)(1) and that the reverse is equally true. It is obvious, however, that the insertion of paragraph (11) of subdivision (a) in section 214 and the absence of any such provision in section*2976 234, shows an intention on the part of Congress that the term "ordinary and necessary business expenses," when applied to voluntary contributions, should be given a much more limited and restricted meaning than if that paragraph did not appear in the statute.
Counsel for petitioner has called our attention to numerous decisions by the Board wherein we have permitted deductions of contributions as business expenses. The deductibility of contributions depends largely on the facts of each particular case. The primary purpose of the Civic Fund Campaign was to secure sufficient capital with which to erect certain buildings in Middletown, and which were thereafter to be maintained and supported by further annual contributions. The hospital, the community building and the Y.M.C.A., finally erected and completed subsequent to the year 1920, were to be structures which would serve the public for years to come. The same is to a less degree true of many of the other beneficiaries. Petitioner's contributions fell due over a period of nearly three years and the last payment was not in fact made until the latter part of 1923. There is also the serious question of whether the $360,000 in*2977 question can be said to be attributable to the process of earning income during the year 1920, so that the entire amount can be charged to this one particular year, with benefits to accrue in later years, without resulting in a distortion of income for the particular year.
One can not say what direct benefit followed to petitioner from its contributions to the Civic Fund. It is no doubt true that any contribution to a local charitable organization or anything which benefits the entire community does, in some degree, benefit the contributing corporation. It is likewise no doubt true that the contributions of petitioner were commendable and should be encouraged but their deductibility from income must be provided for by Congress. We can not supply the legislative authority therefor.
This brings us to the question of whether or not the contributions totaling $360,000 made by petitioner to the City of Middletown, were "ordinary and necessary business expenses" within the meaning of that term as used in the Revenue Act. While petitioner contributed to that fund what appears to be a large amount, both absolutely and relatively, the fact remains that it did not contribute more in*2978 proportion to its ability to pay than the others contributed. The amount of $400,000 was raised by popular subscription outside of the industries. Every citizen and industry of Middletown share in the benefits to be derived from the expenditure of the fund. The benefits which petitioner derived were of the same character as those which flowed to *537 every other corporation and citizen of the community. While we have no doubt that petitioner did derive benefit from these civic improvements, we are of opinion that the benefit was indirect rather than direct. The Civic Fund appears to have been nothing more nor less than a community fund or foundation, similar to the funds mentioned in section 214(a)(11) of the Revenue Act of 1921, and in similar provisions of subsequent revenue acts, contributions to which are deductible, subject to the limitations therein provided, by individual taxpayers but not by corporations.
While the contributions may have been business expenses in a business and accounting sense, it is our opinion that they do not fall within the classification "ordinary and necessary expenses" as that phrase is used in section 234 of the Revenue Act of 1918.
*2979 Petitioner in its petition seeks to take a deduction in the amount of $24,000 paid to the City of Middletown, Ohio, and states as the ground for its contention that one of its plants was erected in 1911 outside of the corporate limits of the city; and that one of the inducements offered the company to build its plant just outside of the corporate limits was a promise by the city authorities that the plant site would not be taken into the city and the taxpayer thus escaped liability for tax. It is further alleged that the city authorities became dissatisfied with the agreement and sought to incorporate the plant within the city limits; that after a controversy between petitioner and the municipal authorities, and to eliminate the discussion, petitioner paid the City of Middletown $24,000 and thus succeeded in keeping its plant outside of the city limits. No proof was taken which substantiates this allegation. After stating that there was such a controversy, petitioner's president was asked:
Q. Was it in connection with that discussion, that you made this payment of $24,000 for the deficit of the city offices?
A. Well, it might have been, but I couldn't remember that far*2980 back as to whether it was more than just one of the things considered. I don't know. That might have been a fact. I couldn't tell you not. I know what the general argument was.
Q. Was that payment made in 1920? A. Yes; it was made at the time. Q. How was the $24,000 fixed - how was the amount of it fixed?A. Like everything else; it was our proportion of the total amount to be raised.
By Mr. BROWN:
Q. You mean to meet a deficit of the city? A. Yes.By Mr. ARMITAGE:
Q. Did the other industries contribute to it?A. I think they did. I am not sure as to that. That was something we agreed to pay to help out that difficulty.
*538 On recross-examination the same witness testified:
Q. And the facts in regard to this $24,000 payment were that the city was going back on that agreement, or wanted to back out of it? Wasn't that so?
A. No, the $24,000 represented our part of the deficit that had to be helped out, and the argument about the plant coming in or out was one that was more or less on the boards for a good many years.
Taking this testimony in connection with the allegations of petitioner, we are left in doubt as to what was*2981 the necessity for or the purpose of this contribution, much less can we say whether it was of the nature of an ordinary and necessary business expense.
Reviewed by the Board.
Judgment for the respondent.