*243 Decision will be entered for the petitioner.
An unincorporated association of fire and casualty insurance agents, organized for the recited purpose of promoting members' business interests, ethical standards, and efficiency, disseminating public information about insurance, and giving attention to proposed legislation affecting it, also solicited, procured, and allotted to members insurance orders from local governmental units. The members issued the policies ordered; petitioner collected the premiums, transmitting 75 per cent thereof to the issuing agency immediately and retaining 25 per cent, which is commingled with dues and other receipts in its bank account. Its expenses for office supplies, group advertising, entertainment, and other activities were paid from the bank account, and once or twice a year most of the balance in it was distributed among members in a prescribed manner. Petitioner had negligible permanent assets; its affairs were managed by officers and committees, subject to control of the members; insurance agencies meeting fixed qualifications were admitted as members and could be expelled by vote. Certificates of membership were authorized but never issued. *244 The association, held, on the evidence, not to have sufficient resemblance to a corporation to render it taxable as such.
*429 The Commissioner determined that petitioner was liable for the following deficiencies and penalties in corporation income and declared value excess profits taxes:
| Declared value | ||||
| Income tax | Penalty | excess profits | Penalty | |
| Year | deficiency | tax deficiency | ||
| 1937 | $ 171.97 | $ 42.99 | $ 287.56 | $ 71.89 |
| 1938 | 616.99 | 154.25 | 672.63 | 168.16 |
| 1939 | 267.13 | 66.78 | 291.41 | 72.85 |
| 1940 | 386.75 | 96.69 | 396.05 | 99.02 |
| 1941 | 452.23 | 113.06 | 327.50 | 81.88 |
| 1942 | 785.29 | 196.32 | 477.69 | 119.42 |
| 1943 | 824.55 | 206.14 | 501.57 | 125.39 |
| 1944 | 1,109.60 | 674.97 | ||
| 1945 | 999.83 | 608.19 |
*245 Petitioner assails the determinations, contending, first, that it is not taxable as a corporation, being unincorporated and bearing no resemblance to a corporation in structure or operation, and, second, that it is exempt from tax as a business league. In the alternative, it charges error in the Commissioner's inclusion of membership dues in taxable income; pleads the bar of the statute of limitations against deficiencies for 1937, 1938, and 1939; and resists the imposition of penalties, alleging that its failure to file returns seasonably was due to reasonable cause.
FINDINGS OF FACT.
Petitioner, an unincorporated organization with office at Topeka, Kansas, filed income and excess profits tax returns for the years 1937-1943 in August 1944, and for the years 1944 and 1945 on March 3, 1945, and March 1, 1946, respectively, with the collector of internal revenue for the district of Kansas. On these returns it claimed exemption from tax.
Petitioner was formed by licensed Topeka agencies engaged in writing policies of fire and casualty insurance for stock insurance companies, and was first known as the Topeka Board of Fire and Casualty Underwriters. Its members include corporations, *246 partnerships, and individually owned agencies, and they have varied in number from 20 to 27. Petitioner is affiliated with the National Association of Insurance Agents and with the Kansas Association of Insurance Agents, and its member agents or agencies are also members of those associations. Its objects, as set forth in its constitution, are:
To establish and maintain an Association of insurance agents, not for pecuniary gain or profit, but to promote and protect the interests of its members in the insurance business in Topeka, Kansas; to inculcate and enforce correct and high moral principles in the transaction of the insurance business; to inspire confidence in the methods and integrity of its members; to provide facilities for the orderly and prompt conduct of the business; to facilitate the *430 speedy and equitable adjustment of disputes of its members; to prevent the careless writing of endorsements or insurance policies; to cooperate with the insurance department of our state and see to it that the members of this Association adhere strictly to the laws pertaining to insurance, especially the law appertaining to brokerage, and lend their aid and assistance in the efforts*247 that are being made for fire prevention, conservation of lives and property, and to generally raise the standard of the insurance business.
In practice petitioner endeavors to protect the interests of its members in respect of proposed legislation affecting fire and casualty insurance; to promote and encourage the efficient handling of business; and to keep the public informed of developments in the insurance field and to educate it for safety and fire prevention. It has made contributions to civic enterprises, such as to the chamber of commerce, for the erection of road signs, and has displayed advertising for the benefit of its members. In advertising posters, however, its own name is always followed by that of its members' names as sponsors. It considers complaints about practices of its members. It conducts social activities. An additional and important function, in which it has increasingly engaged since 1928, is service as an allocation medium for insurance policies required by the city of Topeka, Shawnee County, Washburn Municipal University, the Kansas Free Fair Association, and the board of education -- all governmental units. Its purpose in so doing is "to keep insurance*248 out of politics," and it is also believed that the most favorable rates on policies in the public interest can be assured in this way. Officials of the several governmental units, at petitioner's solicitation, turn over all or part of their insurance requirements -- sometimes reserving 20 per cent or less for others -- to petitioner's insurance committee, which thereupon divides the business among the member agencies, and the agencies write the policies required. Petitioner has never accepted business for such distribution from any other source; it is not licensed to issue policies itself, and has never done so.
By its constitution and in practice petitioner's membership is limited to exclusive agents of fire and casualty insurance companies licensed to do business in Topeka, which agents have written a prescribed minimum amount of insurance during the preceding year and have subscribed to the code of ethics of the National and Kansas Associations of Insurance Agents. Each member is held responsible financially and otherwise for the acts of his partners, employees, and solicitors, and each agrees "to be bound by and to keep and observe" the constitution and bylaws, "in consideration*249 of the benefits to be derived from the association with each other." New members are admitted upon application endorsed by three members and accompanied by a $ 5 fee. The executive committee must then pass upon the applicant's eligibility and a 10-day notice of the application is *431 sent to all members. The constitution provides further that the applicant, "upon being approved by the Executive Committee shall become a member by signing this Constitution and By-Laws." In practice, new members are admitted only after a favorable vote by the entire membership, and in at least one instance the vote was unfavorable. No share or other evidence of participation has ever been issued, although a "certificate of membership" is authorized by the constitution, art. 4, sec. 6. A member may be expelled by vote, and such an expulsion has occurred. A member may authorize another member as proxy to cast a vote for him at a meeting. Membership may be transferred "to a person or co-partnership eligible and elected to membership" on payment of a $ 5 fee, constitution, art. 4, sec. 7, but any pledge or other transfer shall not "be effectual until the consent of the Executive Committee thereto*250 shall have been first endorsed thereon," art. 4, sec. 8, and:
Section 9: In case of the death of a member, or dissolution of his insurance business, he or his legal representatives may deposit his membership certificate with the Executive Committee, for disposal at such price as he or his legal representatives may designate. * * *
The Executive Committee shall on request of a retiring member or his legal representatives take up and cancel any membership that may be so offered for sale, using any funds of the Association for that purpose, at a price not exceeding $ 100.00.
Petitioner's officers consist of an annually elected president, who is ex officio a member of all committees and serves without salary; a vice president, and a secretary-treasurer, employed by the executive committee. The secretary-treasurer is not required to be a member of petitioner, but in fact has been either a member or employee of a member. He has received a nominal salary, ranging from $ 10 to $ 40 a month, and has been in charge of petitioner's reccords, minute book, bank account, and correspondence. He is required to keep records of proceedings at meetings of the membership and of the executive *251 committee and to render financial statements. As petitioner has no office, the secretary-treasurer customarily uses his own office and desk for the transaction of petitioner's affairs and the custody of its property, which consists only of cash, books, stationery, and office supplies.
Petitioner's affairs are under the direction of the executive committee, which is, however, subject to the whole membership. This committee is composed of the president and four or six active members, half of whom are elected annually by the members for a two-year term. This committee meets once a week or more often on the president's call. Among other duties it considers charges against members for violation of petitioner's bylaws, which prescribe, inter *432 alia, rules for the conduct of business and forbid the rebating of premiums, use of information confidentially obtained, and other malpractices. The committee may summon an accused person before it for examination, demand sworn statements of him, inspect his books, and impose such fines and punishments as it may deem proper.
An insurance committee, appointed by the president, calls upon and negotiates with public officials for an allotment*252 of the public business and renewals of expiring policies. This committee makes a survey of their needs, with recommendations. The officials concerned, having decided on the needs and the portion thereof which petitioner's members may write, list the policies required, and the committee then distributes these requirements among petitioner's members. In general, a third is equally divided among all members and two-thirds is apportioned on the basis of the members' relative volume of business for the preceding year. But, as casualty insurance can not be economically divided, one member is designated to write the policy for each single casualty coverage. Also, the renewal of any policy is normally assigned to the member who wrote it originally. Hence, there are some departures from a strict mathematical formula of division.
After the insurance committee has allocated the official orders to the several members, each prepares the requisite policy and sends it with a bill for the premium to petitioner's secretary-treasurer, who examines it and transmits the group of policies to the proper official with an invoice for the total amount due as premiums. This invoice bears petitioner's*253 name and contains an itemized statement of the policies covered by it, the agent and issuing company, and the amount of coverage and the premium on each. The official remits a check for the total amount due, payable to petitioner, and the secretary-treasurer deposits the check in a bank account, carried in petitioner's name, followed by his own name and title. He then sends to each agent concerned a statement of the collection and a remittance of 75 per cent of the amount of the premium on the policy issued by him. The 25 per cent remains on deposit in petitioner's bank account.
Petitioner's members annually pay membership dues which are determined by reference to the volume of business written by the member during the preceding year, and in addition they pay $ 1 a year for each solicitor employed by them. The dues range from $ 10 to $ 55 a member. Petitioner also collects from its members the dues owed by them as members of the Kansas Association of Insurance Agents and transmits such collections to that association. On occasion, petitioner has also collected the premium due on a policy sold to a governmental unit by a nonmember, transmitting the amount in full to the nonmember*254 without charge. The members also pay to petitioner a part of the commission received on business turned over to them by a nonmember *433 who happens to be unable to write the policy required by a customer. Sometimes payments in settlement of claims have been sent to petitioner for transmission to the insured, but petitioner has never participated in any adjustment otherwise than as a conduit for payments.
Petitioner's receipts are derived from members' dues, premiums on the issuance of policies to governmental units, the occasional commissions on nonmember business, and sometimes an excess of receipts over disbursements from a social or advertising activity. The secretary-treasurer deposits all receipts in the petitioner's bank account and makes all disbursements by checks drawn against it. Petitioner incurs expenses for advertising and public educational purposes, the salary of the secretary-treasurer, office supplies and postage, accounting service, and entertainment. Two appraisers' fees also appear on its books. Once or twice a year it makes a distribution of its accumulated cash among members, retaining only enough for current expenses. The cash is distributed on *255 the same basis used in dividing public business. The total annual distributions are somewhat less than the commissions collected and retained on policies issued by the members, the annual dues being inadequate to cover expenses fully. At times the executive committee has authorized a borrowing of money.
During the taxable years the total premiums collected by petitioner on public insurance ranged from $ 18,995.51 in 1937 to $ 29,213.02 in 1944, and petitioner's gross income, computed to include retained commissions on public business, ranged from a minimum of $ 3,736.73 in 1937 to a maximum of $ 8,403.96 in 1945. Membership dues accounted for about $ 700 annually and insurance commissions for most of the remainder. All other items were petty in amount except receipts of $ 2,168 in 1945 from a convention on which $ 1,868.39 was expended. Total expenses for the several years ranged from $ 1,015.31 in 1939 to $ 3,796.47 in 1945, the convention year; in other years they were $ 2,000 or less. Distributions to members varied between $ 2,100 in 1941 and $ 6,300 in 1944. No member ever received more than $ 462.05 as a distribution in a single year. Petitioner's total assets, as disclosed*256 by its year end balance sheets, varied between $ 1,047.09 in 1937 and $ 4,535.78 in 1941, and consisted of cash and accounts receivable.
In 1937 petitioner employed a firm of certified public accountants to open for it a set of books, and the same firm has since prepared its annual financial statements and its tax returns. This firm was of opinion that petitioner was tax-exempt, and no income tax returns were filed for it prior to 1944. On February 11, 1944, the Commissioner wrote petitioner, requesting the submission of information relative to its tax status within 30 days. After a second notice on April 1, 1944, requiring that petitioner file returns, petitioner submitted some data *434 on April 10, and more on May 3, stating that it was "organized not for profit, but to promote and protect the interest of the various members -- and to handle, through the secretary's office, municipal insurance." On May 15, 1944, the Commissioner advised petitioner that it was not tax-exempt, and on August 25 petitioner filed incomplete returns for 1937-1943, containing no tax computations. On March 3, 1945, it filed a corporation income and declared value excess profits tax return for *257 1944, and on March 1, 1946, it filed such a return for 1945 and completed returns for 1937-1943. The returns were not marked "amended" and no protest accompanied them. Payments of tax and interest shown due for 1938-1941 were made by petitioner on March 1, 1946, and for delinquency penalties on August 5, 1946.
On September 5, 1946, petitioner filed claims for refund of the delinquency penalties and on July 2, 1947, claims for refund of the taxes and interest paid. The Commissioner determined deficiencies in income and declared value excess profits taxes and 25 per cent penalties for each of the years 1937-1945, and gave notice thereof to petitioner on May 29, 1947. He made no assessment of taxes for 1937, 1938, and 1939 within four years after March 15, 1940.
OPINION.
Petitioner assails the Commissioner's determination that it is subject to income tax as a corporation, contending, first, that in organization and operation it lacks the resemblance to a corporation contemplated by section 3797 (a) (3), Internal Revenue Code, and, second, that it is expressly exempt from tax by section 101 (7). Respondent defends his determination, arguing that petitioner's activities bore the requisite*258 resemblance to a corporate enterprise and that they do not qualify petitioner as a business league under the exempting provisions of section 101.
Concededly, petitioner was not incorporated. But section 3797 (a) (3) expands the meaning of corporation to include an association, and, by section 29.3797-2 of Regulations 111, the Commissioner has defined association as:
* * * any organization, created for the transaction of designated affairs, or the attainment of some object, which like a corporation, continues notwithstanding that its members or participants change, and the affairs of which, like corporate affairs, are conducted by a single individual, a committee, a board, or some other group, acting in a representative capacity.
In Morrissey v. Commissioner, 296 U.S. 344">296 U.S. 344, the Supreme Court approved and expounded this definition. After saying that "The inclusion of associations with corporations implies resemblance; but it is resemblance and not identity, * * *" the Court proceeded to list five salient features of a corporate body which might serve as convenient tests of resemblance. Those features are the corporation's title to *435 property*259 embarked in a common undertaking; centralized business management through directors or other representatives; continuity regardless of changes in the group of interest holders; facility for the transfer of an interest; and the limitation of a participant's personal liability to property embarked in the enterprise. But those tests are not rigid and, if some are met while others are not, the association's classification should be that type of entity to which it "is predominantly akin in the method, mode, and form of procedure in the conduct of its business." Commissioner v. Brouillard (C. C. A., 10th Cir.), 70 Fed. (2d) 154.
A review of petitioner's organization and activities discloses, in our opinion, only minor and incidental resemblances to corporate structure and operation. Its objects, as recited in the constitution, are the promotion of its members' business interests as a whole by enforcement of ethical standards, the encouragement of efficiency, attention to legislation affecting insurance, and the public dissemination of information on insurance, fire prevention, and safety. The evidence establishes that petitioner engaged in activities*260 to achieve these ends, and, as respondent stresses, it was also instrumental in acquiring from government agencies orders for insurance policies which its members issued and on which it collected the premiums, retaining and using so much of these as was required for its expenses not covered by receipts from other sources. It distributed the remainder among members.
In the conduct of its operations petitioner had no property or funds which can properly be described as working capital. In practice, the secretary-treasurer refrained from exhausting the bank account by distributions, keeping on hand some margin to meet expenses, and the balance sheets also showed some accounts receivable, the total assets varying between $ 1,047.09 in 1937 and $ 4,535.78 in 1941. It used current receipts to meet current expenses. The expenses were incurred principally for the objects recited in its constitution, which does not expressly refer to the placing of policies with governmental agencies, and were largely covered by members' dues. There was nothing having the character of an investment such as the apartment houses considered in Helvering v. Coleman-Gilbert Associates, 296 U.S. 369">296 U.S. 369,*261 or the oil leases in Helvering v. Combs, 296 U.S. 365">296 U.S. 365. And, since petitioner never risked, used, or held any assets for the production of income, it had nothing which corresponds to a corporation's "property embarked in a common undertaking."
While the management of its affairs was carried out through officers and committees, their acts were subject to the entire membership's approval and would appear to be ministerial in the sense that they carried out instructions or resolutions, in contrast with the managerial functions of corporate officers and directors empowered to make business and policy decisions. In respect of the placing of governmental *436 insurance policies, the activity on which respondent relies in support of his determination, it is to be noted that petitioner itself was not bound as principal, but only the members who accepted the policy orders for writing. The trial of members for forbidden malpractices was a judicial function, having no resemblance to any corporate activity.
Petitioner, like a corporation, enjoyed continuity of existence, and, while issuance of "a certificate of membership" was authorized by the constitution, *262 in fact none was ever issued. The transfer and sale of a membership were also authorized, but this superficial resemblance to a corporate share vanishes in the light of concomitant requirements that the transferee qualify as eligible for membership, obtain the consent of the executive committee for the transfer, and be "elected" a member. Thus, there was constitutionally no right of transfer. In practice, there were neither certificates nor transfers. New members were admitted only by vote of the membership, a procedure wholly at variance with the normal method of transferring a corporate share. Participation was thus more in the nature of a personal right than a property right.
There was, furthermore, no limitation on a member's liability in respect of the profit-producing business, for it was not in fact petitioner's business at all, but that of its members. The insurance commissions were earned by the issuance of policies which the member sold individually; petitioner itself was not even licensed to issue a policy. Respondent argues that petitioner advertised and that its insurance committee solicited the public business, procured it, delivered the policies, and collected*263 the premiums, retaining the commissions. These statements are correct, but incomplete. The committee acted, and was understood by all concerned to be acting, not for petitioner, which had no policies to sell, but as a common agent for its members, who did have policies to sell. This role is not that of a corporation, for a corporation deals with customers as principal.
Accordingly, we find and hold under the particular facts of this case that petitioner did not bear sufficient resemblance to a corporation to warrant the taxing of it as such. In organization and operation, petitioner falls rather within the expanded definition of a partnership, section 3797 (a) (2), Internal Revenue Code, not subject to tax as an entity, and the Commissioner's determinations of deficiencies and penalties are accordingly reversed. This disposition make it unnecessary to pass upon the alternative contention that petitioner was tax exempt as a business league or upon the other issues raised.
Decision will be entered for the petitioner.