*1121 Held, upon the facts established by the testimony here, that the donations here involved are deductible from the income of petitioner's decedent in the taxable year under the provisions of section 23(n)(2) or (5) of the Revenue Act of 1928.
*422 The respondent has determined a deficiency in income tax for the year 1928 in the amount of $2,080.01. The only issue is whether certain contributions which petitioner made to Greek letter college fraternities in the taxable year are allowable deductions from income under the provisions of section 23(n)(2) or (5) of the Revenue Act of 1928.
FINDINGS OF FACT.
The petitioner is the duly appointed and qualified executor of the estate of Milton Smith, deceased, and is a resident of Denver, Colorado.
In the year 1928 petitioner's decedent contributed to Alpha Sigma of Chi Psi, Inc., at the University of North Carolina, at Chapel *423 Hill, in that state, the amount of $2,000; to Kappa Delta at Chi Psi, Inc., located at Yale University, at New Haven, Connecticut, the amount of $5,000; and to Alpha*1122 Iota Delta of Chi Psi, Inc., located at the Georgia School of Technology, at Atlanta, Georgia, the amount of $1,666.67. The parties have stipulated that the total of such contributions was less than 15 percent of the decedent's income in the taxable year. In his income tax return for the year under review, the decedent deducted the amount of such contributions from his gross income as within the provisions of section 23(n)(2) or (5) of the Revenue Act of 1928. Upon audit the respondent disallowed such deductions, in accordance with General Counsel's Memorandum 5952, Cumulative Bulletin VIII-1, at page 172.
Chi Psi is what is known as a national Greek letter college fraternity. It was chartered by the Regents of the University of New York and has regularly chartered lodges or chapters located as follows:
Union College, Schenectady, New York.
Williams College, Williamstown, Massachusetts.
Middlebury College, Middlebury, Vermont.
Wesleyan University, Middletown, Connecticut.
Bowdoin College, Brunswick, Maine.
Hamilton College, Clinton, New York.
University of Michigan, Ann Arbor, Michigan.
University of North Carolina, Chapel Hill, North Carolina.
Amherst*1123 College, Amherst, Massachusetts.
Cornell University, Ithaca, New York.
University of Minnesota, Minneapolis, Minnesota.
University of Wisconsin, Madison, Wisconsin.
Rutgers University, New Brunswick, New Jersey.
Stevens Institute of Technology, Hoboken, New Jersey.
University of Georgia, Athens, Georgia.
Lehigh University, Bethlehem, Pennsylvania.
Leland Stanford, Jr., University, Palo Alto, California.
University of California, Berkeley, California.
University of Chicago, Chicago, Illinois.
University of Illinois, Champaign, Illinois.
University of Colorado, Boulder, Colorado.
University of Oregon, Eugene, Oregon.
University of Washington, Seattle, Washington.
Georgia School of Technology, Atlanta, Georgia.
Yale University, New Haven, Connecticut.
The property of the parent corporation, Chi Psi, is held by trustees for the following purposes:
(a) To assist needy and deserving students to complete their educational work.
(b) To provide improved educational facilities for students.
(c) To supplement the work of Universities and Colleges in the promotion of the scholarship, character and morality of students.
*424 *1124 (d) To lend financial assistance to aged or disabled former students who are needy and deserving.
(e) To make donations and/or loan money to colleges and schools.
The entire principal and income of the Trust Estate is hereby permanently and exclusively devoted to said educational and charitable purposes, and to that end the Trustees shall hold, invest, reinvest, protect, manage and control the Trust Estate and apply the income arising therefrom and such part or all of the principal thereof as they shall from time to time determine and in such manner as they may deem advisable for the purposes aforesaid.
For administrative purposes and for holding title to locally owned real estate each chapter or lodge is incorporated under the laws of the state in which it is located.
Alpha Iota Delta of Chi Psi was regularly incorporated under the laws of Georgia, for purposes set out as follows in its articles of incorporation:
* * * the object of said corporation being, not pecuniary gain or profit, but the formation of an organization for the promotion of literary, and/or scientific education and improvement among members of the corporation; and the said parties having complied with*1125 the statutes in such cases made and provided; and upon the hearing of said petition, the court being satisfied that the application is legitimately within the purview and intention of the Code of the State of Georgia, and the laws amendatory thereof, the same is hereby granted, and the above named persons, their associates, successors and assigns are hereby incorporated under the name and style of Alpha Iota Delta of Chi Psi, Incorporated, * * *
The petition praying for incorporation of Alpha Iota Delta of Chi Psi includes the following:
* * * And if at any time this corporation should be dissolved, no part of its funds or property shall be distributed to, or among, its members, but after payment of all of the indebtedness of the corporation, its surplus funds and properties shall be used for educational purposes in such manner as the then executive council (or other governing body) of the Chi Psi Fraternity may determine. In default of such determination within three years of the dissolution, such funds and property shall go to and be assigned, transferred and conveyed by the Board of Directors existing as trustee after dissolution, as provided by the laws of Georgia, to Georgia*1126 School of Technology for educational purposes. Such disposition of the surplus properties of the corporation shall be deemed to be one of its purposes under such contingency.
The articles of incorporation of Alpha Sigma of Chi Psi, located at the University of North Carolina, contain the following terms:
The objects for which this corporation is formed are exclusively the following:
The promotion of literary and scientific education and improvement among members of the corporation, and to that end the corporation may receive and hold, in trust or otherwise, and may administer scholarship and other funds and properties, and may own and maintain a chapter house or lodge and also other buildings for the assembly, housing, care and maintenance of students or other members of the corporation, and for study, discussions and betterment of the members of this corporation.
* * *
*425 And if at any time this corporation should be dissolved no part of its funds or property shall be distributed to or among its members, but after payment of all indebtedness of the corporation its surplus funds and properties shall be used for educational purposes in such manner as the then*1127 Executive Council (or other governing body) of the Chi Psi Fraternity may determine. In default of such determination within three years of the dissolution, such funds and properties shall go to and be assigned, transferred and conveyed by the board of directors existing and trustees after dissolution as provided by the laws of North Carolina, to the University of North Carolina for educational purposes, to be used by it, unless otherwise determined by it in its discretion, to create a loan fund for needy students. Such disposition of the surplus properties of the corporation shall be deemed to be one of its purposes under such contingency.
The articles of incorporation of Kappa Delta of Chi Psi, located at Yale University, include the following:
The exclusive purposes for which said corporation is formed are the following, to-wit: the promotion of literary and/or scientific education and improvement among members of the corporation; and to that end the corporation may receive and hold, in trust or otherwise, and may administer scholarship and other funds and property, and may own and/or maintain a chapter-house and/or other buildings. Should the corporation be dissolved at*1128 any time no part of its funds or property shall be distributed to or among its members, but after payment of all indebtedness its surplus funds and property shall be used for educational purposes in such manner as the then Executive Council (or other governing body) of the Chi Psi Fraternity may determine. In default of such determination such surplus shall go to Yale University for educational purposes. This disposition of the surplus property of the corporation shall be deemed to be one of its purposes.
The parent organization has several paid officials, including a traveling secretary, a general secretary-treasurer, an editor of its official magazine and a scholarship director. The duties of the scholarship director consist of requiring each lodge or chapter to report its scholarship activities at least three times each year and such reports include the grades or scholastic markings of each individual member of the reporting society. The traveling secretary visits each local lodge at least once each year for a period of two weeks. On such visits he consults the dean of men and other college officials, checks up the scholarship records of the fraternity members, and offers*1129 his services to college authorities in matters of discipline and personal conduct of the students.
At the University of North Carolina, Alpha Sigma of Chi Psi supplies eating facilities for about 30 members and maintains a library and study rooms. Just prior to the taxable year its chapter house was burned and in 1928 it furnished no dormitory space. A new building was planned to supply living quarters for the resident membership.
*426 The fraternity house of Kappa Delta of Chi Psi at Yale University furnishes eating facilities for about 90 men and is provided with a study hall and a library which contains a large number of books. It supplies no living quarters for its members, since Yale University maintains dormitories adequate for the accommodation of the entire student body.
The fraternity house of Alpha Iota Delta of Chi Psi of the Georgia Institute of Technology supplies living quarters for 26 members and eating facilities for 8 or 10 more who live elsewhere. It also maintains a library and study hall for the use of the membership.
In all the local lodges of Chi Psi, including the three here in question, upper classmen usually follow the custom of tutoring*1130 or assisting under classmen if they need help in any particular subject. Upper classmen also use their influence to make the under classmen study and for this purpose each local chapter has established certain study rules. All have study rooms and tables where freshmen are required to be for a stated number of hours in each day for the purpose of maintaining their grades at a proper standard.
Each of the local lodges here in question requires the completion of at least one semester of college work with a better than passing grade as a prerequisite to initiation. At each of them any college freshman in good standing is eligible for membership.
The members of the fraternities hold regular meetings at which articles from the fraternity magazine and other periodicals are read and discussed. Each also arrange for forum meetings to be addressed by faculty representatives or graduate members on matters of general educational interest.
OPINION.
LANSDON: The only question here is whether contributions made to local lodges or chapters of the Chi Psi fraternity are deductible from income under the provisions of section 23(n)(2) or (5) of the Revenue Act of 1928. 1 The respondent*1131 has disallowed the deduction *427 claimed, in conformity with General Counsel's Memorandum 5952, Cumulative Bulletin VIII-1, p. 172, in which it is held that:
A college fraternity having a fraternity house which is used as a meeting place and for entertainments, and at which may of its members live, is primarily a social organization and is not organized exclusively for scientific, literary, or educational purposes. Contributions to such an organization are not deductible in computing net income.
*1132 The determination of the respondent is presumptively correct. The memorandum upon which respondent relies, however, does not conclude the matter, since it is merely interpretative and therefore is without force and effect of law.
The excerpts from the charter of Chi Psi and the several local lodges here involved clearly set out the purposes of the organization and all come within the provisions of the statute upon which petitioner relies. The fact that students live and eat in the several chapter houses in no way weakens the claim of the petitioner. It has long been recognized that it is one of the functions of a university or college to furnish dormitories and food for students. Harvard University v. Cambridge Assessors,175 Mass. 145">175 Mass. 145; 55 N.E. 844">55 N.E. 844; Yale University v. Town of New Haven,71 Conn. 316">71 Conn. 316; 42 Atl. 87; City of Chicago v. University of Chicago,228 Ill. 605">228 Ill. 605; 81 N.E. 1138">81 N.E. 1138.
The fact that the privilege of Chi Psi are limited to a selected group is not material, as was held in *1133 Kappa Kappa Gamma House Assn. v. Pearcy,92 Kan. 1020">92 Kan. 1020; 142 Pac. 294, where the court said:
It is said that its membership is limited, and that not all young women who attend the university can gain admission to the society and receive the benefits of the exemption. The record does not disclose who are eligible to membership in the society nor the rules governing the selection of members. All the young women who are students of the university may not be able to gain admission to the Kappa Kappa Gamma society, but, so far as the record shows, other similar societies may be organized without limit by the students so that all may have adequate dormitory facilities. When they do organize and acquire a building used exclusively for a literally hall or dormitory, they, too, will be entitled to the benefit of the exemption. The fact that the chapter house is not open to the public or to any one who may apply for admission does not deprive the society of the statutory exemption. Masonic Home v. Sedgwick County,81 Kan. 859">81 Kan. 859, 106 Pac. 1082, 26 L.R.A. (N.S.) 702. It is enough that the membership of the society is made up from the class*1134 defined in the statute; that is, students at colleges or universities, where the building occupied by them is devoted solely and strictly to the prescribed uses.
The articles of incorporation of the several chapters of Chi Psi to which the donations in question were made and the decisions above cited are convincing that the organizations in question were effected exclusively for educational, literary and charitable objects, but the charter purposes of an organization may be ignored in its operation in such a way that exemption privileges are forfeited. Since the *428 purposes of the lodges or chapters here involved are so clearly set out in their several charters and are within the prescriptions of the statute relied on by the petitioner, it follows that the donations in question are proper deductions from income unless the intendment of the law is transgressed by operative procedure. It is necessary, therefore, for the petitioner to carry the burden of proof one step further and prove that the lodges or chapters in question are operated exclusively for the purposes set out in their respective charters.
As to the second phase of the question the contention of the petitioner*1135 is supported by the presumption of regularity which is stated in 22 Corpus Juris at page 107, section 47, as follows:
The presumption arising from the ordinary conduct of business and affairs, applies to corporations as well as individuals. Accordingly, it will be presumed that corporate acts and proceedings are regular and that corporate business is lawfully conducted.
Originally the presumption of regularity applied only to official acts, but its scope has been greatly enlarged. In Bank of United States v. Dandridge,12 Wheat. 64">12 Wheat. 64; 6 L. Ed. 553">6 L.Ed. 553 Justice Story said:
By the general rules of evidence, presumptions are continually made in cases of private persons of acts even of the most solemn nature, when those acts are the natural result or necessary accompaniment of other circumstances. In aid of this salutary principle, the law itself, for the purpose of strengthening the infirmity of evidence, and upholding transactions intimately connected with the public peace, and the security of private property, indulges its own presumptions. It presumes that every man, in his private and official character, does his duty, until the contrary is proved; *1136 it will presume that all things are rightly done, unless the circumstances of the case overturn this presumption, according to the maxim, omnia presumuntur rite et solemnitur esse acta, donec probetur in contrarium.
The petitioner, however, does not rely solely on the presumption that its operations are in conformity with its charter purposes. He has adduced oral testimony to the effect that each of the local chapters of Chi Psi to which donations were made in the taxable years maintains constant supervision over the studies of its members, as a condition of initiation requires minimum scholastic marks higher than those imposed by the several colleges, provides library and study room facilities for its members, assists under classmen in maintaining their scholastic standing, holds meetings for literary and scientific purposes, and arranges for forum assemblies in which faculty members and successful and distinguished alumni members lecture on matters of interest and importance.
In our opinion the evidence adduced by the petitioner is ample to overcome the presumption of correctness that attaches to the determination of the respondent. Such testimony clearly shifts the burden*1137 of proof to the respondent, who has offered no evidence in rebuttal of the undisputed facts established by the documentary and *429 oral testimony adduced by the petitioner. In our opinion the determination of the respondent must be reversed.
In Francis Cooley Hall,2 B.T.A. 931">2 B.T.A. 931; Earl King,9 B.T.A. 502">9 B.T.A. 502; Henry Wilson,16 B.T.A. 1280">16 B.T.A. 1280; and Alfred T. Davison,21 B.T.A. 251">21 B.T.A. 251, the Board considered claims for deductions on grounds substantially similar to those pleaded herein. In each of these proceedings the determination of the respondent was affirmed because the evidence was insufficient to overcome the presumption that the determination of the respondent was correct. In these circumstances none of such proceedings establishes any controlling rule applicable to donations to Greek letter fraternities. The question is purely of fact, which must be determined by the weight of evidence, which in the instant proceeding is heavily on the side of the petitioner.
Reviewed by the Board.
Decision will be entered for the petitioner.
Footnotes
1. In the case of an individual, contributions or gifts made within the taxable year to or for the use of:
* * *
(2) any corporation, * * * organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, * * * no part of the net earnings of which inures to the benefit of any private shareholder or individual;
* * *
(5) a fraternal society, order, or association, operating under the lodge system, but only if such contributions or gifts are to be used exclusively for religious, charitable, scientific, literary, or educational purposes, * * *
to be an amount which in all the above cases combined does not exceed 15 per centum of the taxpayer's net income as computed without the benefit of this subsection. * * * ↩