*2178 The foundation here involved held not to be a corporation, trust or community chest, fund or foundation organized or operated exclusively for charitable or educational purposes.
*213 These proceedings, which were consolidated for hearing and decision, are for the redetermination of deficiencies in income tax for 1924 as follows:
| Docket No. | Deficiency | |
| Ellis A. Gimbel | 32348 | $3,422.52 |
| Benedict Gimbel, Jr | 32349 | 295.28 |
| Charles Gimbel | 32350 | 3,947.80 |
The only matter in controversy is the respondent's refusal to allow as deductions certain amounts representing contributions made by the petitioners during the taxable year to the Gimbel Brothers Foundation.
*214 FINDINGS OF FACT.
The petitioners are individuals residing at Philadelphia, Pa. During 1924 they made contributions to Gimbel Brothers Foundation of Philadelphia. Ellis A. Gimbel contributed $6,109.86, Benedict Gimbel, Jr., $2,946.96, and Charles Gimbel, $3,996.21. The respondent in determining*2179 the deficiencies here involved disallowed these amounts as deductions in the returns of the respective petitioners.
In 1924 each of the petitioners was an officer, director, and stockholder in Gimbel Brothers, Inc., which operated department stores in Philadelphia, where an average of 4,000 persons were employed, and in New York, where approximately 3,500 were employed. The petitioners were also honorary officers of Gimbel Brothers Foundation.
The Gimbel Brothers Foundation, which has never been incorporated, was organized at Philadelphia, Pa., on October 16, 1920, by officers and employees of Gimbel Brothers, Inc. The objects of the foundation as set forth in its constitution are as follows:
First. - To grant Pensions to those who, after twenty-five years of service to Gimbel Brothers, Incorporated, of Philadelphia, and having automatically become members of the Quarter Century Club, shall be chosen for retirement, because of age or infirmity.
Second. - To effect Life Insurance in a standard company for every employe of Gimbel Brothers, Incorporated, of Philadelphia, after one full year of service.
Third. - To invest the Savings of employes of Gimbel Brothers, *2180 Incorporated, of Philadelphia.
Fourth. - To extend Relief to employes of Gimbel Brothers, Incorporated, of Philadelphia, through the co-operation of Gimbel Brothers, Incorporated, with the mutual organization of employes known as the Gimbel Brothers Employes' Mutual Aid Society.
Fifth. - To award Scholarships to employes of Gimbel Brothers, Incorporated, of Philadelphia, annually on a system of merit, in institutions giving business and technical education.
Sixth. - To develop the Welfare of employes of Gimbel Brothers, Incorporated, of Philadelphia, through organizations for exercise and entertainment.
The constitution has not been amended or changed and the foundation since its organization has continued to operate for the furtherance of the objects stated therein. While the constitution of the foundation provides that the affairs of the foundation are to be administered by a board of governors consisting of the officers of Gimbel Brothers, Inc., who serve ex officio, and 13 persons appointed by Gimbel Brothers, Inc., from among its employees who have served 20 years or more, the work of the foundation is handled by the personnel secretary of Gimbel Brothers, *2181 Inc.
The foundation does not have stock or shares. Nonvoting membership in the foundation is open to all employees of Gimbel Brothers, *215 Inc., after a service of twelve consecutive months in the Philadelphia store, but only employees who have been in the company's service for a consecutive period of 20 years or more have the right to vote and to hold office. Members do not pay any dues to the foundation.
Gimbel Brothers, Inc., may, at its discretion, at the expiration of any fiscal year of the foundation, terminate its financial support thereof, and cause it to be dissolved and its assets, if any, distributed to the persons then entitled to receive them under the constitution and by-laws of the foundation. The by-laws of the foundation, after prescribing the duties of the officers - president, vice president, recording secretary, and corresponding secretary, also provide for a pensions committee, life insurance committee, savings fund committee, relief committee, scholarship committee, welfare committee, and housing and money loan committee, and prescribe the duties of each.
In the administration of the foundation, the matter of granting pensions has been treated*2182 as the main or dominant purpose. Employees of Gimbel Brothers, Inc., of Philadelphia, who have been in active service for 25 years or more may be, by reason of old age or disability, eligible for pensions. The board of governors of the foundation, with the assistance of the physician, nurse, and secretary of the Gimbel Brothers Employees' Mutual Aid Society, an organization of employees separate and distinct from the foundation, select the employees who are to receive pensions from the foundation.
Beginning in 1917 and prior to the organization of the foundation, every employee who had been with Gimbel Brothers, Inc., for one year was given a life insurance policy with a life insurance company for $500. The amount of the policy was increased $100 a year with each year of continuous service until a maximum of $1,000 was reached. Under the foundation a continuation of this arrangement was provided for. The insurance continued to be carried in a life insurance company until about two years ago, when, on account of the large expense resulting from the payment of the premiums, the policies in the insurance company were canceled and Gimbel Brothers, Inc., is now carrying the insurance.
*2183 Members of the foundation who had been in the service of Gimbel Brothers, Inc., for a period of not less than 24 successive months were privileged to make voluntary savings deposits not in excess of $1,000 per year with the Gimbel Brothers Trust Co., an organization separate from Gimbel Brothers, Inc., receiving the regular 4 per cent rate of interest from the trust company and, in addition to that, interest at the rate of 2 per cent which was paid by Gimbel Brothers, Inc. The purpose of the 2 per cent additional interest was to encourage thrift among the members of the foundation. The amount of the additional 2 per cent interest was $3,697.66 for the period from *216 February 1, 1924, to January 1, 1925. During the first two years of the foundation 375 accounts totaling $112,362.32 were opened by employees.
The extension of relief as provided for by the constitution of the foundation was effected through the medium of the Gimbel Brothers Employees' Mutual Aid Society, which selected the persons entitled to relief. Under the by-laws of the foundation its relief committee was empowered to supplement by an additional amount equal to not less than 40 per cent the amount*2184 paid by Gimbel Brothers Employees' Mutual Aid Society to its own members. Under this arrangement, where the Gimbel Brothers Employees' Mutual Aid Society paid $5 per week to a member, the amount was supplemented by an additional $2 a week. While employees paid dues to the Mutual Aid Society of 5 or 10 cents a week, depending on the class of membership they had, no dues were paid to the foundation.
Any employee of Gimbel Brothers, Inc., who wishes to continue his education at night may do so by making application to the foundation. Between 100 and 200 employees have been awarded scholarships at the Wharton School of the University of Pennsylvania, Temple University, and Drexel Institute.
The sixth object of the foundation, as stated in its constitution, has been carried out by the promotion among the employees of Gimbel Brothers, Inc., of various welfare activities, among which are a choral society, bowling league, summer camp for boys and girls, boys' cadet corps, and girl scouts.
The by-laws of the foundation provide that the housing and money loan committee shall receive applications from such members of the Foundation of Gimbel Brothers, Inc., in the service for a period*2185 of not less than 24 consecutive months, who are in need of money with which to purchase a home. They shall consider each individual case and report their names and services, together with its recommendations, to the board of governors for action by the board. The object of this is to protect members against grasping landlords, and requests for help are to be considered in this light.
The Foundation has no depositary and keeps no books. Its only accounts, which are two in number, are kept in the books of Gimbel Brothers, Inc. One of the accounts, "Gimbel Foundation Account," is the expense account of the foundation, and is also carried as an expense account of Gimbel Brothers, Inc. About the time the foundation was organized in 1920 this account was credited with $20,000, and in 1921 with an additional $20,000, both amounts being from the profits of Gimbel Brothers, Inc. In 1923 the two amounts, totaling $40,000, were transferred to the "Pension Fund Foundation," which is the other account kept for the foundation on the books of Gimbel Brothers, Inc.
*217 The expenses incident to the carrying out of the objects of the Foundation, such as the payment of the additional*2186 2 per cent interest on deposits of employees in the Gimbel Brothers Trust Co., the amounts paid to supplement the payments made by Gimbel Brothers Employees' Mutual Aid Society, scholarships, and the expenses for welfare work are billed to Gimbel Brothers, Inc., and actually paid by it, being charged to the "Gimbel Foundation Account." The total of such charges to the "Gimbel Foundation Account" from February 1, 1924, to January 1, 1925, was $13,377. The charges that are made to this account during the year are transferred to the profit and loss account of Gimbel Brothers, Inc., at the end of the year as an expense. As Gimbel Brothers, Inc., acts as the insurer of the lives of its employees, it keeps an account for such purpose separate from either of the accounts kept for the foundation.
The contributions by the petitioners were in 1924 used toward the acquisition of $50,000 par value 7 per cent preferred stock of Gimbel Brothers, Inc., the remaining portion of the stock being contributed by certain beneficiaries under the will of Jacob Gimbel, an older brother of two of the petitioners, who first conceived the idea of the Gimbel Brothers Foundation. This stock was taken in*2187 the name of Gimbel Brothers Foundation and the income was to be used for the pension work of the foundation. Thirty thousand dollars of this stock is in the possession of Gimbel Brothers, Inc., at Philadelphia and $20,000 in the possession of Gimbel Brothers, Inc., of New York. The dividends from the $30,000 of stock are paid to the foundation and credited to the "Pension Fund Foundation" account. During 1924 pensions in the amount of approximately $2,000 were paid by the foundation.
Neither the credit in the "Pension Fund Foundation" account of $40,000 from the profits of Gimbel Brothers, Inc., nor the stock is treated by Gimbel Brothers, Inc., as a part of its assets nor is the income of the foundation treated as income of the corporation. Outside of the stock that was donated to the foundation, no one has ever made any gifts to it.
OPINION.
TRAMMELL: The petitioners contend that the donations here involved are allowable deductions in computing their net income under section 214(a)(10)(B) of the Revenue Act of 1924. That section provides in part as follows:
(a) In computing net income there shall be allowed as deductions:
* * *
(10) Contributions or gifts made*2188 within the taxable year to or for the use of: * * * (B) any corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children *218 or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.
The petitioners urge that the foundation is within such statutory classification because: (1) By virtue of section 2(a)(2) of the Revenue Act of 1924 the word "corporation" includes associations, and the foundation, being an unincorporated association, is therefore an organization of the kind specified; (2) the dominant objects of the foundation being charitable and educational, it satisfies the statutory requirements as to purposes; and (3) since no part of the net earnings of the foundation inures to the benefit of any private shareholder or individual, it complies with the statutory limitation as to disposition of earnings.
Section 2, Title I of the Revenue Act of 1924 provides that as "When used in this Act * * * (2) The term "corporation" includes associations * * *."
Neither*2189 the petitioners nor the respondent in their respective briefs have discussed the question as to whether the Gimbel Brothers Foundation is a corporation or trust or community chest, fund or foundation as provided in the statute. They content themselves with discussing the question as to whether it was operated exclusively for religious, charitable, scientific, literary, or educational purposes. Yet the pleadings are clearly broad enough to put in issue the question as to whether this was a corporation, trust, or community chest, fund or foundation. The petitioner merely states that the foundation. being an unincorporated association, is therefore a corporation within the meaning of the statute. It is not contended that it was a trust or community chest, fund or foundation. We must decide first whether it was a corporation within the meaning of the statute. We see no reason which would warrant us in holding that the word "corporation" is used in any different sense in section 214 of the Act than in other sections of the Act. It is defined only once and the statute provides that for the purpose of the entire Act the term "corporation" includes an association. Does this mean that*2190 for the purpose of the charitable provisions the word "association" is used in one sense and in those provisions relating to taxable income another meaning should be attributed to the term "corporation"? We see no reason to so hold. We have held that the real test as to whether an association is a corporation is whether the shareholders or trustees or both combined carry on business. In other words, whether it was organized for business purposes and carried on as a business enterprise. Where an association was not organized for the purpose of doing business for profit nor for doing business at all, it is not treated and classified as a corporation. See , and cases there cited.
*219 But in this case the foundation does not have stock or shares. Nonvoting membership in the foundation is open to all employees of Gimbel Brothers after a certain specified service. It is not shown that any business was carried on in corporate form or otherwise. For this reason we are of the opinion that it has not been shown that the foundation was a corporation within the meaning of the statute and contributions to it therefore are not*2191 deductible under the provisions of section 214(a)(10) of the Revenue Act of 1924. Nor does the evidence show that the foundation was a trust or community chest, fund or foundation within the meaning of the statute.
Nor do we think that the foundation was organized or operated exclusively for religious, charitable, scientific, literary, or educational purposes as provided by the statute. There are six objects of this foundation set forth in its constitution. Certain of these objects are undoubtedly charitable or educational, but other objects not merely incidental are not shown to be such. In any event, we can not see that the object of effecting life insurance for the employees is a charitable purpose when all employees, regardless of their financial need, are entitled to the same benefits, nor is the investment of the savings of employees, regardless of their financial condition, shown to be a charitable purpose. The provision for pensions is not necessarily a charitable feature, in view of the fact that any member who had a certain length of service would be by reason of old age or disability eligible therefor. Unless it is shown that the financial condition of the recipient*2192 was one of the reasons which entitled such person to a pension, the mere fact that old age or physical disability entitles one thereto after certain length of service does not indicate that the pension was in the nature of a charity. Pensions to retired employees for length of service, regardless of financial needs, are not generally considered in the way of charity any more than payments made to retired officers by a government are considered charitable gifts. Those features of the foundation which are not shown by the evidence to be for charitable or educational purposes appear to be more than mere incidental features of the purposes of the foundation, but appear to be essential and important elements. The foundation, therefore, can not be said to have been organized or operated exclusively for charitable or educational purposes.
It further appears that a material part of the benefits of the foundation accrued to the members by virtue of agreement entitling all members thereto regardless of any financial needs. While this would be unimportant in the case of educational benefits, it must be considered in connection with the features claimed to be of a charitable character.
*2193 *220 It is true that where an organization is otherwise classified as charitable or educational, mere incidental things which are not charitable or educational would not be sufficient to deprive the organization of its charitable or educational classification, but we do not consider that this case presents such a situation. We do not overlook the value and importance of such a foundation to the Gimbel stores, but no question is here presented of the deductibility as ordinary and necessary expenses of payments made by them.
Judgment will be entered under Rule 50.