*982 The Pelton Clinic, a medical and surgical clinic, was an "association" within the meaning of the applicable revenue acts during the years 1924 to 1927, inclusive, and taxable as a corporation.
*198 These are proceedings, consolidated for hearing and opinion, for the redetermination of deficiencies in income taxes asserted against the Pelton Clinic, as follows:
| Docket No. | Year | Deficiency |
| 43350 | 1924 | $1,878.30 |
| Do | 1925 | 2,302.81 |
| Do | 1926 | 3,527.42 |
| 51253 | 1927 | 1,464.87 |
It is alleged that the respondent erred in holding that the Pelton Clinic is an association within the meaning of the statute and taxable under setion 230 of the Revenue Acts of 1924 and 1926, instead of holding that such clinic is a trust, the income of which is subject to tax only after it is received by the beneficiaries thereof.
FINDINGS OF FACT.
The petitioners are the surviving trustees of the Pelton Clinic, created pursuant to a trust agreement or indenture dated September 1, 1920. They reside and have offices in Elgin, Illinois. Originally*983 there were three trustees, but one of them, Ora L. Pelton, Jr., died in 1929.
In 1920 Ora L. Pelton, Sr., Ora L. Pelton, Jr., and S. L. Gabby were practicing physicians and surgeons in Elgin, Illinois. They had occupied offices with a common waiting room, located in a building in that city. They were not partners, but shared office expenses. This professional association had existed since 1913. The Peltons specialized in surgery, while Gabby specialized in internal medicine and laboratory diagnosis.
On September 1, 1920, these three individuals entered into an indenture whereby they transferred to themselves, as trustees, certain property of an estimated value of $14,000, consisting of office furniture and equipment, instruments, laboratory equipment, and library *199 and X-ray equipment. Such indenture, together with two amendments thereto made later, we incorporate herein by reference. The original indenture is in part as follows:
Duties and Powers of the Trustees.
The Trustees are to use the properties hereby conveyed, transferred, assigned and set over in any manner whatsoever they may deem fit and advisable, incur indebtedness of any kind whatsoever, operate*984 clinics, and any business or professional pursuit allied thereto and retain any professional assistance necessary to discharge such duties, including the retention of the Trustees, in a professional capacity in so far as possible, invest and reinvest in any securities, properties, etc., of any kind whatsoever; * * * and such Trustees shall in nowise be restricted in their powers and duties by any beneficiary or beneficiaries hereunder.
Trustees to Account to Beneficiaries.
The Trustees shall maintain accurate accounting records of the administration of the within trust in accordance with accepted principles and practices, and shall submit annually to the beneficiaries of the trust on or before March 1st of every calendar year a detailed statement of the administration of the trust for the preceding calendar year, certified to by a certified public accountant in good standing.
Disbursement of profits by Trustees.
The Trustees annually shall distribute the net income of the within trust earned during the year pro rata, to the beneficiaries of record of the within trust lawfully entitled to the aforesaid income at the time the distribution is made.
* * *
Any distribution*985 of current profits shall be made in such sums and at such time or times during the year as the Trustees deem a distribution by cash or credit advisable.
Liability of Trustees.
The Trustees shall not be liable in a personal capacity in any manner whatsoever to any beneficiary or beneficiaries of the within trust or to any third person or persons whomsoever by reason of assuming any duty or obligation of any kind or nature under the within indenture * * *.
Resignation or Succession in Trust.
A Trustee may resign at any time upon giving thirty days notice prior to the time his resignation is to take effect. Such notice shall be given in writing to the co-trustees. At the time of the resignation or of the vacancy in the office of trustee by death or inability to perform his duty as trustee, his office may be filled by the beneficiaries entitled to participate in the distribution of income as further provided.
* * *
Duration of Trust.
The within trust indenture shall be effective and continue for a perion of ten years from the date hereof, at which time distribution of assets, etc. shall be made by the Trustees to the beneficiaries then of record of the within*986 trust in cash or kind and as designated further in the within indenture of trust.
*200 Alteration and Amendment of Trust Indenture.
At any time or times during the period of the within trust, the beneficiaries representing fifty-one (51) per cent of the beneficial interest then entitled to participate in income distribution may modify, amend or alter the within trust by giving written notice to the Trustees * * *.
Agents of the Trustees and Duties of the Trustees.
The Trustees may appoint any agent or agents or retain any assistance that may be necessary to execute the terms of the within trust indenture * * *.
The majority of the Trustees, if they so desire, may determine the subdivision of duties pertinent to the administration of the within recited trust, and the duties each shall assume in reference to the subdivision of duties made, and if the Trustees so wish, they may designate themselves by a title appropriate to the duties assumed.
Fees of the Trustees.
The present Trustees and the successors in trust shall each be paid a compensation or fee for acting in the capacity of trustee not to exceed $25,000 per annum, as all the Trustees may determine. *987 Such compensation shall be determined annually by a unanimous vote of the Trustees and if not thus unanimously determined the scale of compensation or fees shall be determined by the individuals representing a majority of the beneficial interest of the within trust then entitled to participate in income distribution.
Withdrawal of funds.
Withdrawal of funds shall be made only upon the signatures of two or more trustees.
Designation of Trust.
The Trustees named herein may designate the trust by name in any manner they may see fit and authorized by law, including the following:
THE PELTON CLINIC, or
THE PELTON CLINIC, NOT INC., or
THE PELTON CLINIC TRUST.
Beneficiaries in interest.
The original beneficiaries in interest in the within trust are as follows:
Ora L. Pelton, Senior, with a beneficial interest of 40%, and representing 200 units.
Ora L. Pelton, Junior, with a beneficial interest of 35%, and representing 175 units.
S. L. Gabby with a beneficial interest of 25%, and representing 125 units.
Disposition of Beneficial Interest.
It is herewith provided that upon the decease of Ora L. Pelton, Senior, prior to the date of expiry of the within*988 trust, the undisposed portion of his beneficial interest in the within trust shall vest in his wife Anna F. Pelton, if she be then alive.
Ora L. Pelton, Senior. - It is further provided that if the aforesaid Anna F. Pelton be deceased prior to the date of expiry of the within trust, her undisposed portion of the beneficial interest in the within trust shall vest in Ora L. Pelton, Junior, if he be alive, and if he be not then alive, then the aforesaid undisposed portion of the beneficial interest of Anna F. Pelton shall vest in the heirs at law of Ora L. Pelton, Senior, as defined by the Statute of Distribution of the State of Illinois then in force.
*201 It is further provided that if the aforesaid Anna F. Pelton be not alive at the time of the decease of Ora L. Pelton, Senior, his undisposed portion of the beneficial interest of the within trust shall then vest in his son, Ora L. Pelton, Junior, if he be then alive, and if the aforesaid Ora L. Pelton, Junior be deceased at that time, the aforesaid undisposed portion of the beneficial interest in the within trust shall vest in the heirs at law of Ora L. Pelton, Senior.
[Similar provisions for the disposition of*989 the beneficial interests of Ora L. Pelton Jr. and S. L. Gabby are omitted.]
Evidence of Beneficial Interest.
The beneficial interest in the within trust shall be evidenced by appropriate certificates issued and signed by the Trustees, and shall be construed as personalty.
Transferability of Shares by Beneficiaries, Etc.
Any person in present interest, original or otherwise, may assign at any time or times any or all of the pro rata interest in the within trust by surrendering the certificate of interest to the Trustees, duly assigned. New certificates of interest shall then issue to the assignee, and to the assignor if only a portion of his interest be assigned. A record duly kept by the Trustees shall evidence the persons in present beneficial interest.
* * *
Except as to the gifts over hereinbefore specifically made, it is further provided that prior to any transfer of beneficial interest, in part or in whole, by any person whomsoever, the persons disposing of such beneficial interest in part or in whole shall first give a pro rata option to the other beneficiaries for a period of 90 days to purchase such units at a price of $30. per unit.
It is hereby covenanted*990 and agreed by the creators of the within trust that each of the gifts over heeinbefore provided for are made upon the express condition that each of the donees hereby and herein agree to tender to said Trustees in pro rata behalf of the other beneficiaries in interest the certificates of interest at the price of $30. per unit within six (6) months after the vesting of said gift or gifts, and the said Trustees in behalf of the other beneficiaries in interest hereby and herein agree to purchase said certificates of interest at the price of $30. per unit, and each of the donees of the gifts hereinbefore mentioned accept the same upon the conditions in this paragraph set forth.
The amendments to the original indenture were made by the beneficiaries on January 1, 1924. One of them provided for the repurchase of beneficial interests by the other beneficiaries under option at book value per unit, instead of $30 per unit as originally provided. The other amendment was as follows:
The trustees annually shall distribute the net income of the within trust earned during the year, after deducting therefrom seventy-five per cent thereof or Ten thousand (10,000) Dollars, whichever sum is the*991 smaller, pro rata, to the beneficiaries of record of the within trust lawfully entitled to the aforesaid income at the time the distribution is made. The amount deducted aforesaid said shall accumulate from year to year for the purpose of acquiring fixed or other assets for business purposes of the trust.
These three individuals remained the sole beneficiaries under the indenture from the date of its execution in 1920 until the death *202 of Pelton, Jr., in 1929, and no change was made in the percentages of interest during that time. The proportionate share of each doctor was originally determined on the basis of his agreed value to the clinic, based on earning capacity, and was not based upon the amount of property contributed.
The execution of the indenture resulted in no change in the method of these doctors in conducting their practice. Each doctor had two separate rooms and there was a common waiting room and laboratory.
In 1920 there were few facilities in Elgin, Illinois, for making laboratory diagnoses. Laboratory diagnosis is a great aid in arriving at correct conclusions in regard to the cause of disease. The desire of these three doctors to make it possible*992 to practice medicine more efficiently, to have a better laboratory and equipment, particularly laboratory utensils and X-ray machines, and to do better work prompted them to enter into this indenture. Such equipment was lacking in Elgin at that time.
The clinic had some beds, but these were used only for emergency, such as a patient becoming faint. No operations were performed at the clinic except minor ones, such as setting minor fractures, opening boils, etc.
Both before and after the execution of the indenture, the offices of these doctors bore the inscription "Pelton Clinic." Occasionally patients would come to the linic for treatment without knowing which doctor they wanted to see, but generally they were the patients of and called for some one of the doctors. The clinic did the usual amount of charity work.
The clinic never sold any drugs, antiseptics, or other commodities.
Salaries were paid to the three doctors based upon their earning power. Those three, by mutual agreement, determined such salaries. They were not fixed at any official meeting. The salaries were changed once or twice, depending upon the individual earning value. At the time of the execution*993 of the indenture, Gabby was receiving a salary of $8,000 a year. About a year later his salary was raised to $9,000 a year. Two or three years later, Pelton, Sr., whose ability and earning power were much lessened due to age, was reduced in salary from $18,000 a year to $6,000 a year. The salary of Pelton, Jr., was constant at $15,000 a year. The salaries were not in proportion to or based upon the beneficial interests held by the physicians.
The diagnostic work and X-ray work done at the Pelton Clinic, was, for the most part, in connection with the treatment of patients of the three doctors comprising the clinic. The amount of such work done for other physicians was almost negligible, and it was then done only when one of the three doctors was acting as a consultant. *203 When called upon by dentists the clinic also did a small amount of dental X-ray work for diagnostic purposes only. The clinic never advertised for diagnostic or X-ray work. The entire time of the three doctors was given to the clinic and the receipts from all their work were paid by the patients directly to the clinic. The income of the clinic was made up of fees for professional treatment of patients, *994 surgical as well as medical, surgery accounting for about 40 percent of the income. The surgery was performed at the local hospitals.
In accordance with the amendment to the indenture made in 1924, about $10,000 a year was set aside as a surplus fund with the intention of eventually erecting a building for the clinic. While the fund was accumulating it was invested in securities. However, the clinic has never erected a new building. It still rents its office space. It has not acquired any property outside of instruments and laboratory equipment. It acquired laboratory equipment when it originally started, and this has been added to by replacements.
The trustees never held annual meetings, nor did they have any stated times for meeting. Matters affecting the business were settled at informal meetings, generally between Gabby and Pelton, Jr. Pelton, Sr., took very little part in the administration of the clinic. The trust did not have any bylaws, it kept no minutes, it had no minute book, it did not have any executive offices, it had no president, vice president, secretary, or treasurer, and it did not maintain any books for the transfer of beneficial interests. The trustees*995 did not make any subdivision of duties among themselves. No annual statements were made to the beneficiaries. The trust never prepared a balance sheet. The bookkeeper did prepare a statement of the cash on hand and the state of the business. The net income, outside of the surplus retained, was distributed to each of the three doctors who were both the beneficiaries and the trustees. These distributions were not the result of any formal resolution or through any formal meeting. It was all done informally. The Pelton Clinic never issued any bonds, debentures, or securities. It had a bank account in its own name and any two of the physicians could draw upon it. It also had a safety deposit box, access to which might be had by any two of the doctors. The clinic did not have a seal.
When the amendments adopted on January 1, 1924, were signed, no written notice was given to anybody in connection therewith, no formal meeting was held, and no minutes were kept regarding the amendments. At all times from 1924 to 1927, inclusive, these three physicians had complete control of the clinic. They were the only beneficiaries and the only trustees, and by united action they could do*996 as they pleased with it.
*204 The clinic employed a telephone girl, a nurse, a bookkeeper, a laboratory assistant, and others. In 1926 and 1927 the clinic employed Edmond F. Gardner to do general supervisory work. His duties were to look after the collection of accounts and to attend to the details of which the doctors wanted to free themselves. The clinic employed one physician about the time of the execution of the indenture. Later other physicians were employed by the clinic, and in 1926 and 1927 it employed three physicians.
The Pelton Clinic received some income from Liberty bonds and stock in the Loan & Homestead Association, which had been purchased in its own name and were deposited in its safety deposit box. Any two of the trustees were permitted to clip the coupons. The clinic also earned income as rent. This was derived from a room which the clinic had subrented to a druggist to be used as a drug store. Almost the entire business of this druggist was the filling of prescriptions of the clinic, but he was not a member of the organization and the clinic did not derived any profit from him except the rent. It was desirable from the standpoint of the efficiency*997 of the practice of the clinic to have the druggist there.
In 1927 the clinic derived a profit of $60.10 on "glasses." The clinic had a doctor specializing in eye, ear, nose, and throat diseases and this doctor also fitted glasses.
The fiduciary returns filed on behalf of the Pelton Clinic for the years 1924, 1925, 1926, and 1927 disclose, among other things, the following:
| Gross income | ||||
| Item | 1924 | 1925 | 1926 | 1927 |
| Glasses | 60.10 | |||
| Interest on bonds | 132.02 | 332.45 | 882.00 | 1,258.95 |
| Recovery on bad debt | 29.50 | 51.50 | ||
| Rent | 2,545.75 | 1,386.00 | ||
| Glases | 60.10 | |||
| Deductions | ||||
| Salaries to trustees | 32,750.00 | 29,000.00 | 29,000.00 | |
| Office salaries | 4,233.66 | 4,702.48 | 5,019.93 | |
| Clinic salaries and expense | 9,979.36 | 12,484.30 | ||
| Salaries and bonuses | 57,840.42 | |||
| Clinic salaries | 26,880.31 | |||
| Other items | 19,375.97 | 18,557.44 | 18,128.99 | 17,046.25 |
As to each year in controversy herein the respondent held that the Pelton Clinic is taxable as an association. The notices of deficiency were addressed to the Pelton Clinic. In the notice of deficiency in Docket No. 43350 the respondents stated in part:
The organization is in*998 the form of a trust, but as the sole purpose of the trust is the operation of a going business and as the control of the business *205 is in the hands of the beneficiaries, it is held by this office that the Pelton Clinic is an association within the meaning of the statute and taxable under Section 230 of the Revenue Acts of 1924 and 1926. See Article 1504 of Regulations 65 and 69.
OPINION.
MCMAHON: The sole question presented is whether during the years 1924 to 1927, inclusive, the Pelton Clinic was an association within the meaning of section 2(a)(2) of the Revenue Acts of 1924 and 1926, 1 and hence taxable as a corporation under the provisions of section 230 of those acts.
The word "association" is not defined in the revenue acts. However, in , where the Supreme Court had under consideration an act of Congress providing that every corporation, association, joint-stock company, and insurance company should pay a special excise tax with respect to the carrying on*999 or doing business, the word "association" is defined. The Supreme Court there stated:
The word "association" appears to be used in the Act in its ordinary meaning. It has been defined as a term "used throughout the United States to signify a body of persons united without a charter, but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise." 1 Abb. Law Dict. 101 (1879); 1 Bouv. Law Dict. (Rawle's ed Rev.) 269; 3 Am. & Eng. Enc. Law (2 Ed.) 162; and , in which this definition was cited with approval as being in accord with the common understanding. Other definitions are:
"In the United States, as distinguished from a corporation, a body of persons organized for the prosecution of some purpose, without a charter, but having a general form and mode of procedure of a corporation." Webst. New Internat. Dict.
"[U.S.] An organized but unchartered body analogous to but distinguished from a corporation." Pract. Stand. Dict.
We conclude, therefore, that when the nature of the three trusts here involved is considered, as the petitioners are not merely trustees*1000 for collecting funds and paying them over, but are associated together in much the same manner as the directors in a corporation for the purpose of carrying on business enterprises, the trusts are to be deemed associations within the meaning of the Act of 1918; this being true independently of the large measure of control exercised by the beneficiaries in the Hecht and Haymarket cases, which much exceeds that exercised by the beneficiaries under the Wachusett Trust. * * * [Emphasis supplied.]
Article 1502 of Regulations 69, promulgated under the Revenue Act of 1926, is identical with the same numbered article of Regulations 65, promulgated under the Revenue Act of 1924. Such article and article 1504 of Regulations 69, which for present purposes is *206 substantially the same as the same numbered article of the Regulations 65, are set forth in the margin. 2 It will be seen that, under these regulations, trusts and other organizations, by whatever name known, which act or do business in an organized capacity, whether created by declaration of trust or otherwise, the net income of which is distributed or distributable among the shareholders or members on the basis*1001 of their proportionate interests, is an association taxable as a corporation. These regulations further provide that where trustees of a trust are not restricted to the mere collection of funds and payments thereof to the beneficiaries, but are associated together in much the same manner as directors in a corporationfor the purpose of carrying on some business enterprise, the trust is an association within the meaning of the statute, and therefore taxble as a corporation. These regulations are either substantially the same as other regulations 3 promulgated under prior and subsequent acts or are consistent with such other regulations.
*1002 It is well settled that a regulations by a department of the Government, addressed to and reasonably adapted to the enforcement of an act of Congress, the administration of which is confided to such department, has the force and effect of law if it be not in conflict with express statutory provisions. . It is also well settled that the practical interpretation of an ambiguous or doubtful statute that has been acted upon by officials charged with its administration will not be disturbed except for weighty reason. The substantial reenactment in later acts of the provisions theretofore construed by the department is persuasive *207 evidence of legislative approval of the regulation. ; and .
The provisions of the regulations in question, so far as applicable in these proceedings, are not in conflict with the provisions of the statutes. These provisions of the statutes have been reenacted by Congress in successive revenue acts, 4 which is persuasive evidence of the approval of Congress of the administrative*1003 interpretation thereof.
It is our opinion that during the years in question the Pelton Clinic was an association within the meaning of the revenue acts. It was comprised of three individuals who became voluntarily associated for the purpose of carrying on the practice of medicine and surgery. The same three individuals were the sole trustees and the sole beneficiaries. The clinic had shares of beneficial interest similar to shares of stock in a corporation and such shares were transferable. It also distributed its net profits to the beneficiaries in proportion to their holdings in much the same manner as a corporation would distribute its earnings. The trust indenture provided for the succession of the trustees by action of the beneficiaries and for the alteration or amendment of the indenture by action of the holders of 51 percent of the beneficial*1004 interest. The fact that the trustees did not take titles as officers of the organization, as they were authorized to do under the indenture, and that the business was conducted through informal meetings, rather than through formal meetings of which minutes were kept, is immaterial. It is also immaterial that the clinic had no seal or bylaws. The clinic carried on a business in much the same manner as a corporation, deriving large income therefrom which, as stated, was distributed proportionately to the holders of the beneficial interests. There was here no mere passive trust. This proceeding is governed in principle by ;, and cases cited therein; ; and ; certiorari denied, . The last cited case involved an excise tax, but it also involved the question of whether a trust was an association within the meaning of the statute, and is governing in principle. In *1005 , we stated:
* * * While prior decisions enunciate general principles and illustrate the application thereof to the facts presented in each case, it is apparent that each case must be determined upon its own peculiar facts.
*208 The petitioners contend that the indenture in question bears more resemblance to a will than to a corporate charter, in view of the fact that there are provisions therein for the devolution of the beneficial interests in the event of the death of the holders of the beneficial interest. Clearly, however, this was not the primary purpose of the indenture. The primary purpose was to carry on a business. A similar contention was made in , but was rejected by the United States District Court for the Northern District of Illinois, Eastern Division. That case was reversed by the United States Circuit Court of Appeals for the Seventh Circuit in , but upon other grounds.
The respondent's holding that during the years 1924 to 1927, inclusive, the Pelton Clinic was an association taxable as*1006 a corporation, is approved.
Decision will be entered for the respondent.
Footnotes
1. SEC. 2. (a) When used in this Act -
* * *
(2) The term "corporation" includes associations joint-stock companies, and insurance companies. ↩
2. ART. 1502. Association. - Associations and joint-stock companies include associations, common law trusts, and organizations by whatever name known, which act or do business in an organized capacity, whether created under and pursuant to State laws, agreements, declarations of trust, or otherwise, the net income of which, if any, is distributed or distributable among the shareholders on the basis of capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share or capital which each has or has invested in the business or property of the organization. * * *
ART. 1504. Association distinguished from trust.↩ - Where trustees merely hold property for the collection of the income and its distribution among the beneficiaries of the trust, and are not engagedEither by themselves or in connection with the beneficiaries in the carrying on of any business, and the beneficiaries have no control over the trust, although their consent may be required for the filling of a vacancy among the trustees or for a modification of the terms of the trust, no association exists, and the trust and the beneficiaries thereof will be subject to tax as provided by section 219 and by articles 341-347. If, however, the beneficiaries have positive control over the trust, whether through the right periodically to elect trustees or otherwise, an association exists within the meaning of section 2. Even in the absence of any control by the beneficiaries, where the trustees are not restricted to the mere collection of funds and their payment to the beneficiaries, but are associated together with similar or greater powers than the directors in a corporation for the purpose of carrying on some business enterprise, the trust is an association within the meaning of the statute.
3. Articles 1502 and 1504 of each of Regulations 62, promulgated under the Revenue Act of 1921, and Regulations 45, promulgated under the Revenue Act of 1918; article 57 of Regulations 33 Promulgated under the Revenue Act of September 8, 1916, as amended by the Revenue Act of October 3, 1917; articles 1312 and 1314 of Regulations 74, promulgated under the Revenue Act of 1928; and article 1312 and 1314 of Regulations 77, promulgated under the Revenue Act of 1932. ↩
4. Section 10 of the Revenue Act of September 8, 1916; section 200 of the Revenue Act of October 3, 1917; section 1 of the Revenue Act of 1918; section 2 of the Revenue Act of 1921; section 701(a)(2) of the Revenue Act of 1928; section 1111(a)(2) and (3) of the Revenue Act of 1932; and section 801(a)(2) of the Revenue Act of 1934. ↩