*46 Decision will be entered under Rule 50.
Exemption -- Section 101 (3) -- Fraternal Beneficiary Order -- Operating Under the Lodge System -- Benefit Payments to Members or Their Dependents. -- An organization having a membership which lacks a common bond, carrying on no activities which further its written purposes or promote a common object, associating with no other similar organization or "parent organization" and providing death benefits to any named beneficiary of only one class of members is not a fraternal beneficiary order operating under the lodge system and providing benefits to members or their dependents within the meaning of section 101 (3) of the Internal Revenue Code.
*47 *240 The Commissioner determined the following deficiencies and additions under section 291 for failure to file returns:
| Declared value excess- | ||||
| Income tax | profits tax | |||
| Year | ||||
| Deficiency | 291 addition | Deficiency | 291 addition | |
| 1944 | $ 2,139.28 | $ 534.82 | $ 1,094.76 | $ 273.69 |
| 1945 | 1,570.60 | 392.65 | 816.74 | 204.19 |
| 1946 | 471.55 | 117.89 |
The petitioner has waived further contest of the deficiencies for 1944. The only issue urged for decision by the petitioner is whether the petitioner was, during the years 1945 and 1946, a fraternal beneficiary society operating under the lodge system and providing for the payment of benefits to the members, exempt under section 101 (3).
FINDINGS OF FACT.
The petitioner did not file income and declared value excess-profits tax returns for 1944 or 1945 and did not file an income tax return for 1946. Its failure to file those returns was not due to reasonable cause but was due to willful neglect.
The Commissioner determined that the petitioner had net income of $ 8,293.62 for 1944, $ 6,187.43 for 1945, and $ 2,245.47 for 1946, and those amounts are not contested by the petitioner.
The petitioner was incorporated under*48 the laws of Ohio on June 23, 1937, under the name of North Akron Civitan Club by some members of Council No. 393 Junior Order United American Mechanics. *241 The purposes of the organization set forth in its Articles of Incorporation all related to the Junior Order United American Mechanics, but the record does not show that any of those purposes was ever carried out by the petitioner. The petitioner consolidated with the Merchants and Tradesmens Club of Akron in December 1939.
The petitioner rented quarters in which it conducted its activities at all times material hereto. It changed the location of its quarters several times. It opened a bar for the first time on December 27, 1944, under a recently obtained liquor license. The record does not show how many members there were prior to that time. 571 beneficiary members and 39 social members paid dues to the petitioner for 1945, and 864 beneficiary members and 45 social members paid dues to the petitioner for 1946. The dues during those years were $ 3 for beneficiary members and $ 1.50 for social members. The petitioner, in addition to the dues, had receipts from the bar, turkey raffles, and the sale of food, including*49 fish fries and clam bakes.
The record does not show just what the activities of the petitioner were during the taxable years but those shown relate principally to improvements of club house and bar facilities and to the creation of a national organization. Previously new members had been initiated in accordance with a ritual. Initiation was postponed in the early part of 1945 due to the large number of new members. There were initiations later but the record does not show when they took place. The record does not show that the petitioner carried on any charitable or civic activities during the taxable years.
The petitioner decided on December 10, 1944, to have a death benefit fund from which to make payments to the designated beneficiaries of deceased members. The plan had been suggested previously but had never been put into operation. The record does not show the terms and conditions of the plan adopted at that time. Three death benefits of $ 100 each were paid in 1945 and four in 1946. The following plan was adopted on December 6, 1945:
Benefits
A fund shall be set aside by the parent Lodge which shall be known as the Death Benefit Fund. Said fund is to be obtained from*50 the payment of dues by the members hereof. There shall be Three and 00/100 Dollars ($ 3.00) per year deducted from the dues of each beneficial member and said money shall be deposited in the Death Benefit Fund. Said fund shall be used to pay a death benefit upon the death of any member, to his designated beneficiary. The sum to be paid shall be One-Hundred and 00/100 Dollars ($ 100.00), unless some other sum is designated by the Board of Trustees, at the commencement of each calendar year. The death benefit shall be paid only in the event dues of the deceased member have been paid to the date of his death and said deceased member shall have been a member in good standing in said Lodge at the time of his death and had not attained the age of Sixty (60) years prior to joining said Lodge, with the exception of members who had belonged to said Lodge prior *242 to their attaining the age of Sixty (60) years prior to this date of December 6th, 1945. Any member who makes any misrepresentation or misstatement as to his age shall forfeit all claims to any benefit whatsoever. Any member who is knowingly afflicted, at the time of becoming a member of said Lodge, with any of the following*51 diseases: -- tuberculosis, cancer, syphilis, or is a narcotic addict, forfeits all his rights to any claims whatsoever. The Board of Trustees shall have full power and right to transfer any and all funds derived from said Lodge, other than dues, to the death benefit fund at its own discretion, and the Trustees shall have exclusive right to determine the amount of the death benefit that shall be paid during the ensuing year. Said amount shall be fixed on the 1st day of January of each year, in advance.
All of the foregoing rules as to benefits shall apply to all subordinate and branch Lodges. Each subordinate or branch Lodge shall pay to the Treasurer of the parent Lodge Three and 00/100 Dollars ($ 3.00) for each beneficial member, and said money shall be placed by the Treasurer in the general death benefit fund. All disbursements shall be made out of said fund by check signed by the President and Treasurer upon sufficient and legal proof of the member's death and that he was in good standing in said Lodge at the time of his decease.
The petitioner did not at any time material hereto provide for the payment of life, sick, accident, or other benefits to its members or their dependents*52 in any ways other than the death benefits described above.
The members of the petitioner were told at a meeting on December 6, 1945, that their trustees had copyrighted the name "Civitan" and the petitioner would become the parent lodge of other Civitan lodges thereafter created. A new Constitution and By-Laws was adopted at that meeting for the "Fraternal Order of Civitans of America," the new name of the petitioner. The constitution stated that the petitioner was the only lodge in existence at the time. The change in name referred to above was effectuated by an amendment to the Articles of Incorporation of the petitioner filed on April 15, 1946.
The purposes of the petitioner, as set forth in its new Constitution and By-Laws adopted December 6, 1945, were as follows:
(a) To promote and promulgate civic enterprises in the respective communities of the various Lodges; to promote the general welfare of the members, their homes and their local communities, including also the education, environment and moral welfare of the members and their families; to promote a better general civic pride, and the physical improvement and development of the respective cities and communities.
For *53 these and all other purposes not inconsistent herein, it being the sincere belief of the organizers of this organization and its members that by fraternization and social intermingling of its members throughout the various communities, that this organization may thereby be instrumental to effect a deeper patriotism and discourage bigotry throughout the United States of America.
(b) To promote the fraternal, social, charitable and beneficial welfare of the members of the Fraternal Order of Civitans of America.
(c) To provide ways and means of promoting social and civic activities among the members and thereby to financially aid said Lodge and its subordinate Lodges.
*243 (d) To render assistance and aid to said organization and its subsidiary Clubs throughout the nation in renting and/or leasing, sub-leasing and/or subrenting, buying or selling real estate incident to and necessary in maintaining a home and Club rooms for said organization or any of its subordinate or branch Lodges.
(e) To aid, and assist all subordinate and branch Lodges in organizing and assisting them in carrying on the purpose of the Lodge, including assisting them in giving degrees and degree work to the members*54 hereof; and aiding them in securing loans or in any other way which may be necessary to establish said Lodge or any of its branches.
The petitioner had written by-laws prior to December 6, 1945, but the record does not show what they were or what requirements they contained in regard to applicants for membership. The new constitution and by-laws required that an applicant would have to be either an American citizen by birth or one who had been naturalized at least 10 years previously, of the white race, and a good and respectable citizen of the community in which he lived.
The members of the petitioner voted on February 28, 1946, to separate the "National Lodge" from the petitioner or parent lodge. Members of the petitioner on May 23, 1946, elected from their own membership national officers in accordance with a constitutional amendment adopted by the trustees on March 20, 1946. The minutes of the May 23, 1946, meeting refer to national trustees previously elected but the record does not show when or how any such trustees were elected nor any activity of a national organization separate from the petitioner.
The board of trustees of the petitioner on July 2, 1946, decided to issue*55 a charter to the Barberton Civitan Club to be known as subordinate Lodge No. 41 of the Fraternal Order of Civitans of America, and to issue a charter to the petitioner to be known as Parent Lodge No. 1. It was also decided at that meeting that steps be taken to transfer the liquor license from the name of the North Akron Civitan Club to the Fraternal Order of Civitans of America. The Barberton Lodge No. 41 obtained a liquor license and commenced operations about December 1, 1946. No similar organization related to the petitioner had existed prior to that time.
The petitioner during the taxable years was not a fraternal beneficiary society, order, or association operating under the lodge system and providing for the payment of life, sick, accident, or other benefits to its members or their dependents within the meaning of section 101 (3).
OPINION.
The petitioner contends that it was exempt from taxation for the years 1945 and 1946 under section 101 (3) of the Internal Revenue Code which provides for the exemption of:
*244 Fraternal beneficiary societies, orders, or associations, (A) operating under the lodge system or for the exclusive benefit of the members of a fraternity*56 itself operating under the lodge system; and (B) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents.
The early history and meaning of this same provision in the Revenue Act of 1918 was discussed, with citations of and quotations from decided cases, in Philadelphia & Reading Relief Association, 4 B. T. A. 713, pp. 724-726. The general principles stated therein are applicable here. Cf. Words and Phrases, Permanent Edition, beginning at p. 514. The members of the petitioner had nothing in common, so far as this record shows, except that they were members of the petitioner and it is difficult to detect the fraternal bond required by the statute. It does not appear what, if anything, was ever done by the petitioner to accomplish any of the purposes set forth in its constitutions and by-laws. The petitioner was a beneficial society in the sense that its beneficial members could name beneficiaries who would be entitled to death benefits if the member died. The social members were not entitled to such benefits. No civic or charitable activities of the petitioner*57 during the taxable years have been shown.
Section 29.101(3)-1 of Regulations 111 provides that "'Operating under the lodge system' means carrying on its activities under a form of organization that comprises local branches, chartered by a parent organization and largely self-governing, called lodges, chapters, or the like." A similar regulation has been in effect since 1918 and should now have the force of law. The petitioner during the taxable years, at least until some time in the latter part of 1946, was not "operating under the lodge system" as that phrase is defined in the regulations in that the petitioner was the only organization of its kind in existence and the record does not show that there was any "parent organization" separate from the petitioner. (B), quoted above, would mean little if satisfied by a lodge which provides for the payment of death benefits to the beneficiaries named by one class of members regardless of whether those named are dependents and which provides for the payment of no benefits to another class of members.
The petitioner has failed to show that it was exempt under section 101 (3). It does not claim exemption under any other provision. It offered*58 no evidence to show that its failure to file returns was due to reasonable cause and not to willful neglect, does not state that there is an issue as to the additions under section 291, but merely concludes its brief by stating that no penalty is due because the officers sincerely believed it to be exempt and "the evidence clearly shows that their belief was well founded." The record does not justify a finding that the failure to file returns was due to reasonable cause and not to willful neglect.
Decision will be entered under Rule 50.