*3665 Petitioner held not a building and loan association entitled to exemption from taxation during the years 1917 to 1921, within the meaning of the Revenue Acts of 1916, 1918 and 1921.
*1008 This is a proceeding for the redetermination of deficiencies in income and profits taxes for the calendar years 1917 to 1921, inclusive. The taxes in controversy are in the total amount of $24,243.64, and are due to a deficiency of $50.16, and a rejection of claim for abatement of $3,292.65, for the year 1917; rejection of claim for abatement in the amount of $5,997.96, for the year 1918; rejection of claim for abatement in the amount of $4,617.03, for the year 1919; rejection of a claim for abatement of $4,837.33, for the year 1920; and a deficiency of $333.63, and a rejection of a claim for abatement of $5,114.88, for the year 1921.
The error assigned is the holding of the respondent that the petitioner during the years 1918 to 1921, inclusive, was not a domestic building and loan association within the meaning*3666 of the Revenue Acts of 1916, 1918 and 1921, and was not entitled to be exempt from the payment of such taxes.
The petitioner in this proceeding was incorporated under the provisions of sections 9643 to 9675, inclusive, of the General Code of the State of Ohio. Its principal office is at Lima, Ohio.
The constitution of the petitioner provides as follows:
This company is organized for the purpose of raising money to be loaned to its members and others, and for such other purposes as are now or may hereafter be authorized by law.
On December 31, 1917, the petitioner had 19,382 1/2 shares of running stock and 44 1/2 shares of paid-up stock.
The mortgage loans outstanding at the close of the year 1917, amounted to $2,429,566.
The total amount of loans made during the year 1917 to members or stockholders secured by mortgage was $219,900. The total amount of loans made to nonmembers or nonstockholders during the year 1917 was $597,700. Of the loans to members or stockholders during 1917, about 85 per cent were for the purpose of purchasing, constructing, improving, or financing homes. About 80 per cent of the loans made to members or stockholders during the year 1917*3667 were for acquiring homes for borrowers' occupancy. *1009 About 85 per cent of the loans to nonmembers or nonstockholders during the year 1917 were for the purpose of acquiring, financing, or building homes. Interest to members or stockholders and nonmembers or nonstockholders was charged at the rate of 6 per cent on loans. Dividends were paid at the rate of 6 per cent on both classes of stock.
The deposits received during the year 1917 amounted to $898,309.22, of which amount approximately 90 per cent was received from nonmembers or nonstockholders.
Interest on about 99 per cent of this was at the rate of 5 per cent, and on the balance of 1 per cent the rate of interest was 4 per cent.
On December 31, 1918, there were 18,154 1/2 shares of running stock and 43 1/2 shares of paid-up stock.
The outstanding mortgage loans on December 31, 1918, amounted to $2,450,942.
The amount of loans made to members or stockholders during the year 1918 was $174,300. The loans made to nonmembers or nonstockholders during the year 1918 amounted to $421,000. Of the loans made to members during the year 1918, about 85 per cent were made for the purpose of purchasing, constructing, *3668 or financing homes. About 80 per cent of the loans made to members or stockholders during the year 1918 were for the purpose of acquiring, constructing, or financing homes for the borrowers' occupancy. About 85 per cent of the loans to nonmembers or nonstockholders during the year 1918 were for the purpose of acquiring homes.
The rate of interest charged on loans to members or stockholders and nonmembers or nonstockholders during the year 1918 was 6 per cent.
Dividends at the rate of 6 per cent were paid on both classes of stock during the year 1918.
The total deposits received by the petitioner during the year 1918 were $946,329.32, of which amount about 90 per cent was received from nonmembers or nonstockholders.
The nonmembers or nonstockholders received interest at the rate of 5 per cent upon about 99 per cent of the deposits and interest at the rate of 4 per cent upon about 1 per cent of the deposits.
On December 31, 1919, the petitioner had outstanding 16,623 shares of running stock and 43 1/2 shares of paid-up stock.
The loans outstanding at December 31, 1919, were $2,794,072.
The amount of loans made to members or stockholders during the year 1919 was*3669 $266,800. The loans made to nonmembers or nonstockholders during the year 1919 amounted to $1,033,000.
Of the loans made to members or stockholders during the year 1919, approximately 85 per cent were for the purpose of purchasing, *1010 constructing, or financing homes. Approximately 80 per cent of the loans to members or stockholders during the year 1919 were for the purpose of acquiring homes for the borrowers' occupancy. About 85 per cent of the loans made to nonmembers or nonstockholders during the year 1919 were for the purpose of acquiring, improving, purchasing, or financing homes.
The rate of interest charged by the petitioner to members or stockholders and nonmembers or nonstockholders on loans was 6 per cent. The rate of dividends on paid-up stock and running stock during the year 1919 was 6 per cent.
The total of deposits received by the petitioner during the year 1919 was $1,395,742.09. Of these deposits, approximately 90 per cent were deposits received from nonmembers or nonstockholders, who received on about 99 per cent of the loans interest at the rate of 5 per cent, and upon the remaining 1 per cent of the loans interest at the rate of 4 per cent.
*3670 On December 31, 1920, the petitioner had outstanding 16,251 shares of running stock and 43 1/2 shares of paid-up stock.
The loans outstanding at the end of the year 1920 amounted to $3,325,564.
The loans made to members or stockholders during the year 1920 amounted to $144,100. The loans made to nonmembers or nonstockholders during the year 1920 was $1,202,700.
Of the loans made to members or stockholders during the year 1920, approximately 85 per cent were for the purpose of purchasing, constructing, or financing homes. About 80 per cent of the loans made to members or stockholders during the year 1920 was for the purpose of acquiring, constructing, or financing homes for the borrowers' occupancy.
About 85 per cent of the loans to nonmembers or nonstockholders during the year 1920 were for the purpose of acquiring, improving, financing, or purchasing homes.
The rate of interest charged to members or stockholders and nonmembers or nonstockholders during the year 1920 was 6 per cent.
The rate of dividends paid on running stock and paid-up stock during the year 1920 was 6 per cent.
The total of deposits received by the petitioner during the year 1920 was $1,685,475.42, *3671 of which approximately 90 per cent was received from nonmembers or nonstockholders who received interest at the rate of 5 per cent upon approximately 99 per cent of the deposits, and interest at the rate of 4 per cent upon about 1 per cent of the deposits.
For the year 1921 there were 15,353 shares of running stock and 43 1/2 shares of paid-up stock.
*1011 The loans outstanding on December 31, 1921, amounted to $3,386,358.
The loans made to members or stockholders during the year 1921 amounted to $80,300.
The loans made to nonmembers or nonstockholders during the year 1921 were $533,600. Approximately 85 per cent of the loans to members or stockholders during the year 1921 were for the purpose of purchasing, constructing, or financing homes. Approximately 80 per cent of the loans made to members or stockholders during the year 1921 were for the purpose of acquiring, constructing, improving, or financing homes for the borrowers' occupancy.
Of the loans made to nonmembers or nonstockholders during the year 1921, approximately 85 per cent were for the purpose of acquiring, inproving, purchasing, or refinancing homes.
Interest was charged by the petitioner during*3672 the year 1921 on loans to both members or stockholders and nonmembers or nonstockholders at the rate of 6 per cent.
Dividends were paid by the petitioner during the year 1921 at the rate of 6 per cent on both running stock and paid-up stock.
The total of deposits received by the petitioner during the year 1921 was $1,331,883.07, of which amount approximately 90 per cent was received from nonstockholders or nonmembers who received interest at the rate of 5 per cent upon about 99 per cent of the deposits, and interest at the rate of 4 per cent upon about 1 per cent of the deposits.
From 1917 to 1921 the petitioner was a member of the Ohio State League of Building and Loan Associations. It filed annual reports with the superintendent of the league and was inspected by a representative of that organization. The petitioner held annual stockholders' meetings.
It was not until 1922 that the petitioner was notified to or did file any returns for the years 1917, 1918, 1919, 1920, and 1921.
The petitioner issued both paid-up and installment stock, both classes of which carry voting privileges. The petitioner had no permanent or nonwithdrawable stock. When stock is surrendered, *3673 the petitioner issues it to someone else.
During the years in question the petitioner paid dividends only to members.
The capital of the petitioner during the years in question was $5,000,000.
During the years in controversy the petitioner maintained no commercial checking accounts, never made any loans on promissory notes, indorsed, without security, loaned no money except on First-mortgage real estate, or upon stock of the association, or upon pass *1012 books, never underwrote securities, never purchased or dealt in stock of other corporations, never accepted, honored, or issued any bills of exchange or drafts, and never dealt in real estate except upon foreclosure on mortgages which petitioner had accepted for purposes of making loans.
The loans issued by the petitioner run for periods of 12 to 15 years. The outstanding loans on the books of the petitioner as of December 31, 1917, 1918, 1919, 1920, and 1921 reflect loans made respectively as early as 1902, 1903, 1904, 1905, and 1906 and successive years.
The balance sheets of the petitioner at the end of each of the years in controversy show the following assets and liabilities:
| December 31, 1917. | |
| ASSETS. | |
| Cash on hand | $86,682.38 |
| Loans on mortgage security | 2,329,566.00 |
| Loans on stock, certificates, or pass-book security | 62,954.10 |
| Real estate, office building | 66,000.00 |
| Liberty bonds and thrift stamps | 26,580.10 |
| Deposits in other building and loan associations | 16,050.00 |
| Total | 2,687,832.58 |
| Interest due and uncollected | 2,099.47 |
| LIABILITIES. | |
| Running stock and dividends | 794,308.63 |
| Credits on mortgage loans | 2,386.66 |
| Paid-up stock and dividends | 9,218.00 |
| Deposits and accrued interest | 1,739,753.93 |
| Reserve fund | 80,000.00 |
| Undivided profit fund | 6,165.69 |
| Due borrowers on unfinished buildings | 9,524.67 |
| Deposits from other building and loan associations | 10,000.00 |
| Deposits from other financial institutions | 10,575.00 |
| Reserved for office equipment | 900.00 |
| Mortgage assumed on office building | 25,000.00 |
| Total | 2,687,832.58 |
| Interest due and uncollected | 2,099.47 |
| December 31, 1918. | |
| ASSETS. | |
| Cash on hand | $169,369.92 |
| Loans on mortgage security | 2,450,942.00 |
| Loans on stock, certificates, or pass-book security | 32,373.88 |
| Real estate, office building | 66,000.00 |
| Bonds | 51,650.00 |
| Deposits in other building and loan associations | 20,000.00 |
| War savings certificates | $830.00 |
| United States certificates of indebtedness | 40,000.00 |
| Total | 2,831,165.80 |
| Interest due and uncollected | 1,321.82 |
| LIABILITIES. | |
| Running stock and dividends | 773,848.99 |
| Credits on mortgage loans | 2,776.19 |
| Paid-up stock and dividends | 9,138.00 |
| Deposits and accrued interest | 1,896,358.19 |
| Reserve fund | 90,000.00 |
| Undivided profit fund | 5,287.40 |
| Due borrowers on unfinished buildings | 11,669.03 |
| Deposits from other financial institutions | 11,075.00 |
| Liberty bond credits | 6,013.00 |
| Mortgage assumed on office building | 25,000.00 |
| Total | 2,831,165.80 |
| Interest due and uncollected | 1,321.82 |
| December 31, 1919. | |
| ASSETS. | |
| Cash on hand | 142,330.38 |
| Loans on mortgage security | 2,794,072.00 |
| Loans on stock, certificates, or pass-book security | 35,658.82 |
| Furniture and fixtures | 3,000.00 |
| Real estate, office building | 109,333.03 |
| Bonds | 42,400.00 |
| Depotists in other building and loan associations | 40,000.00 |
| Deposits in other financial institutions | 80,000.00 |
| War savings certificates | 1,656.00 |
| Total | 3,248,450.23 |
| Interest due and uncollected | 1,357.99 |
| LIABILITIES. | |
| Running stock and dividends | 795,008.73 |
| Credits on mortgage loans | 421.45 |
| Paid-up stock and dividends | 9,000.00 |
| Deposits and accrued interest | 2,283,586.27 |
| Reserve fund | 100,000.00 |
| Undivided profit fund | 602.69 |
| Liberty bond credits | 647.50 |
| Due borrowers on unfinished buildings | 22,633.59 |
| Deposits from other building and loan associations | 500.00 |
| Deposits from other financial institutions | 10,500.00 |
| Mortgage assumed on office building | 25,000.00 |
| Reserved for interest on mortgage assumed, taxes and insurance | 1,550.00 |
| Total | 3,248,450.23 |
| Interest due and uncollected | 1,357.99 |
| December 31, 1920. | |
| ASSETS. | |
| Cash on hand | $113,196.81 |
| Loans on mortgage security | 3,325,564.00 |
| Loans on stock certificates, or pass-book security | 32,724.51 |
| Furniture and fixtures | 11,200.00 |
| Real estate, office building | 204,500.00 |
| Bonds | 41,650.00 |
| Deposits in other building and loan associations | 30,000.00 |
| War savings stamps | 1,656.00 |
| Total | 3,760,491.32 |
| Interest due and uncollected | 1,394.79 |
| LIABILITIES. | |
| Running stock and dividends | 802,800.87 |
| Credits on mortgage loans | 480.92 |
| Paid-up stock and dividends | 9,012.00 |
| Deposits and accrued interest | 2,772,691.74 |
| Reserve fund | 103,000.00 |
| Undivided profit fund | 3,541.83 |
| Due borrowers on unfinished buildings | 37,851.46 |
| Deposits from other financial institutions | 4,300.00 |
| Mortgage assumed on office building | 25,000.00 |
| Liberty bond credits | 212.50 |
| Reserve for interest on mortgage, taxes, and insurance | 1,600.00 |
| Total | 3,760,491.32 |
| Interest due and uncollected | 1,394.79 |
| December 31, 1921. | |
| ASSETS. | |
| Cash on hand | $134,594.15 |
| Loans on mortgage security | 3,386,358.00 |
| Loans on stock, certificates, or pass-book security | 39,765.89 |
| Furniture and fixtures | 13,000.00 |
| Real estate, office building | 210,000.00 |
| Bonds | 39,100.00 |
| War savings stamps | 1,656.00 |
| Total | 3,824,474.04 |
| Interest due and uncollected | 1,944.12 |
| LIABILITIES. | |
| Running stock and dividends | 851,111.37 |
| Credits on mortgage loans | 555.10 |
| Paid-up stock and dividends | 8,967.00 |
| Deposits and accrued interest | 2,824,894.92 |
| Reserve fund | 106,100.00 |
| Undivided profit fund | 5,586.67 |
| Due borrowers on unfinished buildings | 16,244.22 |
| Deposits from other financial institutions | 4,300.00 |
| Reserved for taxes and interest | 6,719.76 |
| Total | 3,824,474.04 |
| Interest due and uncollected | 1,944.12 |
*3674 *1015 OPINION.
SIEFKIN: The question to be decided in this case is whether, during the years in controversy, the petitioner was a domestic building and loan association entitled to be exempt from taxation under the Revenue Acts of 1916, 1918, and 1921.
During the year 1917 the petitioner made loans to members or stockholders on mortgage security to the amount of $219,900 and to nonmembers or nonstockholders loans to the amount of $597,700. Thus of the total loans made on mortgage security about 26.9 per cent were loans to members or stockholders and about 73.1 per cent were loans to nonmembers or nonstockholders. At the close of the year 1917 there were loans outstanding to the amount of $2,429,566, but there is no evidence as to what proportion of this amount represents loans to members or to nonmembers. The petitioner received deposits during the year in the amount of $898,309.22, of which amount approximately 90 per cent was received from nonmembers or nonstockholders.
During the years 1918, 1919, and 1920 the same general situation existed, the percentage of loans to members being about 27.28 per cent in 1918, about 20.53 per cent in 1919, and about 10.7 per*3675 cent in 1920.
During the year 1921 the petitioner made loans to members or stockholders in the amount of $80,300 and to nonmembers or nonstockholders loans to the amount of $533,600. Of the amount of the total loans made then about 86.92 per cent was to nonmembers or nonstockholders and about 13.08 per cent to members or stockholders. During the year the petitioner received deposits in the amount of $1,331,883.07, of which amount approximately 90 per cent was received from nonstockholders or nonmembers. The loans outstanding on December 31, 1921, amounted to $3,386,358, but it is not shown what proportion of this amount represents loans to members.
The Revenue Act of 1916, which was in effect until February 24, 1919, the date of passage of the Revenue Act of 1918, provided:
SEC. 11. (a) That there shall not be taxed under this title any income received by any -
* * *
Fourth. Domestic building and loan associations and cooperative banks without capital stock organized and operated for mutual purposes and without profit.
The Revenue Act of 1918 contains language almost identical with the above.
The Revenue Act of 1921 provides:
SEC. 231. That the following organizations*3676 shall be exempt from taxation under this title -
* * *
(4) *1016 Domestic building and loan associations substantially all the business of which is confined to making loans to members; and cooperative banks without capital stock organized and operated for mutual purposes and without profit.
In , we stated:
It thus appears that all the authorities agree that the distinguishing feature characteristics of building and loan associations is the substantial mutuality of benefit or its reverse existing between all members of each association, and that Congress in all of the Acts of 1909 to 1921 has granted an exemption from income and profits taxation only to those associations organized for mutual benefit or mutual purposes; that all of the authorities above cited agree that some measure of departure, like the borrowing of funds from nonmembers or the making of loans to nonmembers when done merely as an incident to the general purpose of the organization, does not defeat the exemption.
In *3677 , we said:
But the mutuality peculiar to building and loan association is not confined alone to the participation of the members in sharing profits and losses. Such mutuality pertains also to the members of an ordinary commercial partnership or association, and to the stockholders of an ordinary corporation engaged in a business enterprise for profit, the income of which is subject to tax. The mutuality essential to a building and loan association must include not only a mutuality of right with respect to the control of the association, and a mutuality with respect to the assets of the association, but its primary design must be that of an instrumentality of mutual helpfulness among its members in saving and borrowing for home owning. .
* * *
The fact that a corporation calls itself a building and loan association, or that it operates as such under the laws of a State, is not determinative of its true character. If the mutuality requisite to a building and loan association is lacking, it is not entitled to exemption from the Federal income tax.
*3678 As pointed out in the cited cases, in order to be entitled to exemption from taxation the association must have operated upon a mutual basis. Just how far an association might go in making loans to and receiving deposits from nonmembers without losing its exemption it is difficult to determine.
We are of the opinion, however, that during the years in controversy the petitioner, in this case, lacked the mutuality which is essential to a building and loan association.
We further find with regard to the year 1921, which is governed by the provisions of the Revenue Act of 1921, that substantially all of the business of petitioner was not confined to making loans to members as is required by section 231(4) of the Revenue Act of 1921. See , and , in which we held that 75 per cent of stock did not constitute "substantially all" the stock within the meaning of the Revenue Acts.
*1017 We must, therefore, hold that the petitioner is not entitled to exemption from taxation for any of the years in controversy.
Judgment will be entered for the respondent.