cost of comparable services is factor in reasonableness
How later courts described this case
- cost of comparable services is factor in reasonableness
Written by the judges who cited it.
The opinion
HOLMES, Circuit Judge
(dissenting).
We have here no evidence of fraud, intent to evade taxes, or desire for private advantage, on the part of these philanthropists. The evidence indicates clearly that the salary of $100,000 per year to the recipient merely added ordinary income to an already highd>racketed return, resulting in very little benefit to the taxpayer, the government being the greatest beneficiary. Commensurate with his experience in the particular field, the size, value, and extent of the properties under his management, and the other circumstances, the salary paid to Mr. Mabee is not unreasonable. As pointed out in appellant’s brief, if the Mabees had desired to profit personally by the plan, there were several other methods whereby they could have done so without question.
The payment of reasonable salaries does not defeat the exemption of an otherwise charitable organization. Willingham v. Home Oil Mill, 5 Cir., 181 F.2d 9 , certiorari denied, 340 U.S. 852 , 71 S.Ct. 80 , 95 L.Ed. 624 ; Home Oil Mill v. Willingham, D.C., 68 F.Supp. 525 ; Sand Springs Home, 6 B.T.A. 198 . Moreover, these salary payments were obligations assumed in the acquisition of the trust property. Lederer v. Stockton, 260 U.S. 3 , 43 S.Ct. 5 , 67 L.Ed. 99 , affirming 3 Cir., 266 F. 676 ; Commissioner of Internal Revenue v. Orton, 6 Cir., 173 F.2d 483 , affirming Ceramic Foundation, 9 T.C. 533 ; 40 B.TA. 555, wherein the Board of Tax Appeals said:
“Petitioner’s only activity during the taxable years which was not strictly of a charitable or educational character was the payment of the allowance to the decedent’s widow and the educational expenses of her nieces and nephews. We do not think that that alone defeats its classification as an exempt corporation under the statute.
“The payment of these amounts was merely incidental to and was a means of furthering the charitable and educational purposes for which the petitioner was organized. It was in no sense a part of its corporate activities. The payments made to the widow and nieces and nephews were a charge not upon the petitioner’s net earnings but against the entire corpus of the residuary estate.”
It is true that exemptions from taxation generally must be strictly construed, but this means that doubtful laws must be strictly construed. It does not mean, where the law is a liberalization in favor of the taxpayer and clearly applicable, that it should be technically administered to thwart a benevolent purpose because of a mistake of judgment by trustees as to the reasonableness of the salary of one employee in a vast enterprise. This single item, which was terminated at the end of three years, was a bagatelle to the man who received it in one hand and with the other dispensed millions to aid his fellow man in religious, scientific, and educational activities, and to relieve human suffering in the treatment of diseases. Roche’s Beach, Inc. v. Commissioner, 2 Cir., 96 F.2d 776 .
I would reverse the judgment appealed from and render judgment here for the appellant.