Brief for the Respondent in Opposition — Automobile Club of Mich. v. Commissioner

Page

Opinions .below- -__--- -- ih cane waren asaleaansees MEAT 1

OI, anes sic sninceus-<ys ea Eas en er ee 1

Questions presented. ______.__-.-__-- aaa tiated aa a a 2

Statute and Regulations elie 5c oseeeec, —_oee | Oe

eS aries nee ehakvsaendaupeuctenneegl 2

oo os ay eho sensu Oe Pe eT | 7

SN iced cap camednWeuwewss logs waend eure lier al 17

- eee Sine ale ila lactate wile ikon eecae 18-28

3 CITATIONS :

Cases: oa |

Andrews v. Co ommissioner, 23 T. C. oo : a

Automobile Club of St. Paul v. Commissioner, 12T:C.

SEES ie 6. Boones ESR Re ees ek he meee wae ae 13

Balkan Nat. Ins. Co. v. Commiscioner, 101 F.2d 75-. 16.

Beacon Publishing Co. v.. Commissioner, 218 F. 2d 697_ ~ 8, 11

Blum v. ttelvering, 74 F. 2d 482, certiorari denied, 295 °

Bos Ws Ss non bo Sones ee ode weemaseddcetecs oh 9

Booth Newspapers v. Commissioner, 201 F. 2d 55_4--- 8

Brown v. Heleering, 201 U.S: 193.2227 2 vo sy 55s ie

Burnet v. Sanford & Brooks Co., 282 U.S. 359__ aaeews 7

Capital Warehouse Co. ‘v. Commissioner, 171 F. 2d

as a as ce ia ee ee 8

Chattanooga Auto. Club v. Commissioner, 182 F. 2d -

WG Wikies wih as ob ek es bnew ed heen ieee s 13

Clay Sewer Pipe Assn. v. Commissioner, 139 F, 2d 130_- 8.

Commissioner v. Lane-Wells Co., 321 U.S. 219__-.--- 16

Commissioner v. Lyon, 97 F. od. 70.:>. <5 FaxcGu seees 8

Danz, John, Charitable. Tr. v. Commissioner, 231 F.

Oe ee a PEs ecw ee 16° -

DeGtire v. Higgins, 159 F. 2d 921__-.-..-..-.--_---- 8

Detroit Consolidated Theatres v. Commissioner, 133 F. :

I as ek ek; 8

Fairmount Creamery = v. Helvering, 89 F. 2d810.. 8

First Nat. Bank v. Commissioner, 107 F;-2d }41...,.- ] 8

590388—56——1 (yy

ane ve ai f ae |

Cosee-—Continesd = oot Page,

Gilken Corp. v, Commissioner, 176 F. 2d baad Fac Ml

: Gordon's Estate v. Commissioner, 201 F. 2d 171. -'. --- oe

Haberkorn v. United States, 173 F. 2d 589 -_ - - - - eT eee

Healy v. Commissioner, 345 U. S..278..|).---.----.-- 7

Helveriny'v.-Reynolds Co., 306 U. S. 110... ---------- Wage

Hyde Park Realty v. Commissioner, 21% F.2d 462___-| ;

— Astomobile, Club v. Commissioner, 181 F-. bon é

DP itidtd bene a Ol Seacuakeass PESLE CSR eu umen ‘13

pau: Ss. & i vv. “Commissione . 222 F. ‘eal

oe socks es aca vabanccav eek tcc i2 |

~ North American Oii v. ua 86 U: aE: eee be ce ee

. Pacific Grape Prod. Co. v: Commi , 219 F.2d 862... 12 ~- «C«;*«

‘” Schuessler v. Commissioner, 24 T. C247 pelaaad Saati ‘=

~ Sehuesslér v. Commissioner, 230 F. 2d 722... ..------ 12

- Security Mills Co. v. Commissioner, 321 U.S. 281_2-. = 7

_ Sheldon, E. H:, & Co. v. Commissioner, 214 F.2d 655... 12.

aS Smyth v. California State Automobile Asen., 175 F.2d: °

' -7§2,"eertiorari denied, 338 U. S. 905... Sot ECs As Ae 4,

|. South Dade Farts v. Commissioner, 138 F. 2d 818-... 8

Spencer, White & Prentis v. Commissioner, 144 F. 2d .

45, certiorari denied, 323 U.S. 780_.....--------- ee

: Stockstrom:v. Commissioner, 190 F.:2d 283... -.---- se

United States v. Lewis; 340 U. S. B00. 2-2 ae Rees)

_ Statutes: : |

Act of June 15, 1955, ¢. 143, 69 Stat. 134, See, sie oe

_ Internal ‘Revenue Code of 1939: | }

Sec. 41 (26 U.S.C. 1962.ed., Sec. 41)... :..-2.- 18 «

t - See, 42 (a) (26 U.S. C. 1952 ed., Sec. 42°(a))_.- 18.

cog Sec. 52 (a) (26 U. S.C. 1952 ed., Sec. 52 (a))---- 19-

~ Ser. 54 (a) (26 U.S. C. 1952 ed., Sec: 54 (a))2-.- i9

See. 54 (b) (26\U. S. C. 1952 ed., Sec. 54 (b))--- 195

- See. 54 (f) (26'U. S. C. 1952 ed., Sec. 54 (f)).. 6,-19-20

Sec. 101 (9) (26 U. S. C. 1952 ed., See. 101 (9))--. 3,

’ 4, 5, 20

See. 275 (a) (eu. $.6. 1952 ed., Sec. 275 (a)):-- G15

Sec. 276 (a) (26 U.S. C. 1952:ed., Sec. 276 (u))_-- 15,‘

Po 276 (b) (26 U.S. C. 1952 ed., Set. 276 (b)).. 21>

Sec. 3791 (b) (26 U. S. C. 1952 ed., Sec. 3791 (b)- - _ ek

Internal Revenue Code of 1954, Secs. ‘452 and 462__- a 4

Revenue Act of 1928, ¢. 852, 45 Stat. 791, Sec. 605. - - - 14

Revenue Act of 1934, c. 277,48 Stat. 680, Sec. 506... 14 |

a Ss a8 i

Miscellaneous: . - ° 9 ete

.* GC. M. 20021, 1938-1 Cum. Bull. 157_-.---.---.. ; | 10

- G.C.'M, 23688, 1943 Cum. Bull. 283, 288__.._-_ 4, 13, 14, 15

: * |) BR 20008, Sti Cong; 84 Bae... .-=.----.-- ene.

H. Rep, No. 293, 84th Cong., ist Sess.: | ee eae

. P. 4 (1955-2 Cum. Bull. 852,854). .._.._.._- 1

| P. 5 (1955-2.Cum. Bull. 852, 855)___..--.--- heme.

H. Rep. No. 704, 73d Cong., 2d Sess., p. 38 (1939-1 ?

~ Cum. Bull: (Part 2) 554, Ene eRe Spas ee .

LT. 8309, 1960-1 Cums. Beall. 4852. 5. .-2 A... Foe

_ Rev.’ Rul. 54-164; .1954+1 Cum. Bull. 88, icielenings AE”

2? i oy 73d Cong., 2d Sess., p. 48 (1939-1

: ie Cum, Bull rt 2) 586, 623) ote Bees = He SE Spares oh 14

~ ~§. Rep. No. 372, 84th Cong.; Ist Sess. : :

-- P5 (1955-2 Cum. Bull. 858, 861)... bees Se, 11

P. 6 (1955-2 Cum. Bull. 858, 61)... --/. att os ae

| Treasury Regulatioris 111; Bas rp Fe, eRe

fe - See, 29.52-1-.--.-- Le ree Menu SOR

tar Sev. 29.101-1 (as amended ‘i T. D. 5381," 7944 re

MR CE SRO occ donnbsnssenerckimnteaes 22-24

- See. 29:101-2- (a), (b),. (q) ), (g),- (i), ‘and (j)

wait _ (as added by T. D. 5381, 1944 Cum. Bull. ?

yore” 16.9) i605... 5: Ss ei iedlaiRc di shlarencibve nin td e..-- 6, 24-28

bs ‘See. $0.101-8 Al... 25 ees ede, 28

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7

eesermtei eid Snes

OctTosER TERM, 1956

; No. 89

AUTOMOBILE CLUB.OF MICHIGAN, PETITIONER

. : v. 33 ® i;

CoMMIBSIONER OF INTERNAL REVENUE |

ON PETITION FOR A WRIT OF CERTIOR ARI TO: THE ‘UNITED STATES

?. “COURT OF APPEALS FOR THE 81 XTH CIRCUIT:

BRIEF dh THE resroroEr IN | OFPOSITION.

| N generons BELOW : te \ re

The opinion of the’ Tax. Court (R. 177a- 204a,') is

reported at 20 T. C.:1033. The opinion of the Court.

of ‘Appeals (Pet. 4a-34a) is reported at 230 3) aes

585. 7 \

jdliceniesbinnia’ e \

' The ivditniat of the Court of Appeals. kas: eritet d

en February 17, 1956. (Pet. 35a.) - The petition for a

writ of certiorari was filed on May 15, 1956. S

jurisdiction of this Court. is invoked under

U.S. C., Section 1254. 3 ‘ \

1 References. to R. pages “1a-206a are to: the Pe ‘appendix to

taxpayer’s brief in the court below ; references to R: 1b-9b are to

the record appendix to the. Commissioner's brief in wed court

below. ; 8; ‘|

(1) | a) he

2

ee ea i _ QUESTIONS PRESENTED a te

\ eb ‘Whether the ‘amount of membership dues paid

to taxpayer - daring the taxable years should be ae- 4

\ crued as. income ‘for the respective years: in. which :

\ received. : | |

2. When in J uly, 1945, the Commissioner correctly

Kan that taxpayer was not exempt from income taxes |

asa social club within the meaning of Section 101 (9)...

of the Internal ‘Revenue Code of 1939, was he ~

. estopped by. erroneous prior rulings, that taxpayer .

was exempt under corresponding sections of the. Reve- -

- nue Acts of. 1932 and 1936, from’ requiring payment

~~ of taxes for 1943 and 194497 - )

3. Whether the statute of limitations barred

sessment of deficiencies for 1943 and 1944.

’ STATUTE AND REGULATIONS INVOLVED

Sections 41, 42 (a), 52 (a), 54 (a), (b), and (f),

101 (9), 275 (a), 276 (a) and (b), and 3791 (b) of

the Internal’ Revenue Code of 1939,* and Sections

| yn 29.101-1, 29.101-2 (a), (e), (e), (g), (i), and

(j) and 29.101 (9)-1 of Treasury Regulations 111, are.

- ” set forth i in the Appendix, 4 infra, pp- 18-28. |

STATEMENT

“Taxpayer, a nonprofit corporation without capital

stock or shares, seeks review by this Court of three

of the four disparate issues decided ‘by the courts

below. For convenience, these Aisues . are discussed

here in the order in-which the petition raises them,

| 2 Unless otherwise: noted, references to the “Code” or the “In-

‘| ternal Revenue Code” will be: to the Internal Rewonue ~— of

.\ 1989.

ro. . 3 ,

although this departs it in. stress and in sequence from _-

‘their treatment in the lower courts. The Tax Court’s —

opinion rendered en banc was unanimous (R. 204a) ;

in the Court of Appeals dissent” was expressed only

with reference to the question here numbered “2”

(p. 2, supra; Pet: 15a). ~

1. Taxpayer’s returns for each of the taxable years

1943 through 1947 were prepared on the. calendar year

- 94a.) Its*dues were payable annually in advance.

basis ‘and. on the accrual method of ny ina (R.

(R. 180a, 194a.) Dues collected were not gated

from its general funds, but were deposited by tax-

. payer in the general. bank: account: ‘in which all of its ~

. other receipts were deposi (R. 193a )

_- Qn its books. taxpayer ¢ ited the ics to an ac-

count carried as a liability. aecount, designated ‘“Un-

earned Membership Dues.” During the first month

of membership and each following month 1/12 of the ©

amount paid was credited to an income pecount, des-.

ignated :‘‘Membership Income.” In its returns for

_ 1943 through 1947 taxpayer reported income from

_ membership dues under this method. On the other

hand,’ thg Commissioner determined that the actual —

amount of membership dues paid to taxpayer should

be. reported as income for the year in which received. _

(R. 194a.) Both courts below. unanimously. sustained

. the Commissioner on this issue. Rhone 195a-196a; Pet.

-‘14a-15a.) |

2. On June 11, 1934, the Covamissjoner wrote tax-

payer that on the basis of. evidence. submitted tax-

payer was entitled to exemption from income taxation

under the provisions of Section 101 (9) ofthe Reve- .

“nue Act of 1928, that, th ;it-was-not required 7

to pers returns for 1983, and t under the provisions

0 of the Revenue ‘Act of 1934 it would not be required

to file returns so long as- there was no change in its

organization, its purposes or methods of doing busi-

ness. On July 5, 1938, a similar ruling w made

by the Commissioner on taxpayer’s claim for, exemp-

tion under Section 101(9) of the Revenue ‘Act of.

1936. (Pet. 6a.) — (ee

In May, 1945, the Commissioner wrote taxpayer

that the Bureau of Internal Revenue was reconsider-

ing the question of exemption of automobile associa-—

‘tions in the light of G. C. M. 23688, 1943 Cum. Bull.

283. (Pet. 6a.) Taxpayer having - furnishing cer-—

- tain. further information, the Commissioner on July.

16, 1945, .again wrote taxpayer and called attention

to the fact that Section 101(9) of the Internal Reve:-

nue Code provides for the exemption of. (R. 6a-7a)—

Clubs organized ‘and operated exclusively.

for pleasure, recreation, and other nonprofit- ot

able purposes, no part of the net earnings of

. Which inures to the benefit of any private

' shareholder.

‘The Ceresbone ’s letter continued as follows (Pet

Ta): © ;

This . office holds that a rm “lub” as ~

pit in the above section of law contemplates

commingling of members, one with/the other

in fellowship. Thus, ‘an organization should

be so composed and its activities be such that

fellowship among the members ‘plays a mate- ~

rial part in the life of the organization in or- __

: | Zi

om aah Cet oi gs 7

| ,” . \

~—der for it to come ‘within the meaning of the

term “club.”. MRS TE Pee eee

"Phe evidence submitted shows that fellow~--

ship does not! constitute a material part of the

life of your organization’and that; your prin-

cipal activity is the rendering of commeréial __

services to your members. hes eat

It is, accordingly, held that you -are not a

club “organized and operated exclusively for

' pleasure, recreation and-.other’ nenprofitable

“purposes,” within the meaning: of ‘section 101

' _{9) of ‘the Internal Revenue Code ‘or the cor:

|, , Pesponding’ sections. of prior revenue acts, and,

~ therefore, are not entitled to exemption under

those sections. Furthermore, there is no other

provision of law under which an organization .

of veut iiiiacter ‘ean be held to be exempt

from Federal ‘income tax. |

- :\ Bureau rulings of ‘June’l11, 1934 and July 5, . -

L. 1938 are hereby revoked. : . Me ous

~ ‘

L view of all the facts and circumstances

in’ your case it is held, with the approval of/

7, the Secretary of the.,Treasury, that you will

not be required to file income tax returns for

years beginning prior to January 1, 1943. You"

are, however, required to file returns for the

year 1943 and subsequent. years. : | ;

-.In compliance taxpayer filed income and \excess

profits tax returns for the ealendar years 1943’ and

1944 under protest, on the ground that it was exempt.

- At the Tax Court hearing, however, taxpayer ad- .

: _ \igitfea that it was taxable for the period subsequent

to July 16, 1945. (Pet. 8a.) Taxpayer urges, never- —

theless, that the Commissioner erred in determining |

* 390388—56-—2 ;

y,

aa exemption were revoked. The parties on \ugust 25,

}—

‘

... profits taxes could be assessed on-or before \June 30, +

. 1949, and « on May 23, 1949, executed similar consents |

- that the dates on which it: filed Form 990,° name}

_ that he was estopped from retrwvactivel revoking the.

- prior’ determinations of a predecessor

turns until October 22, 1945; it had ‘been irected . on ~

March 15, 1944, and March 15, 1945, respectively.

- Revenue Code (Appendix, infra, pp. 19-20) ‘and Treasury Regu- ‘°

lations 111, — 29.101-2 a mee infra, p. 26).

a deficiency for any period prior to 1945\ on the ground

mmissioner.

On this issue both courts sustained the Commissioner

(R. 185a-189a ; Pet. 8a-13a), Judge MeAllister dis- ss.

“senting in the court below (Pet. 15a-34a). |

3. The taxpayer did not: file its 1943 ahd 1944 re-

July 16, 1945, to file them’ at the time the rulings. of .

1948, executed consents. that the income ahd excess

dua 20, 1950.- (Pet. = fecoaien, wtaede

that the three-year statute ‘of limitations bars Aas:

ment of the deficiencies, asserting that the

for the two years involved-comimenced to run\from. .

The .

Commissioner contends that. tht three-year statute

began to run from the date the return. was filed,

namely, October 2, 1945. If this date controls \the

assessment is not barred. ‘Taxpayer also contends

August 12, 1944, and “May 17, 1945, started the 1

ning of the statute. Both courts unanimously

tained the Commissioner, holding that the statu

started to run from October 22, 1945, and that the

* Returns on Form 990 are information returns required of cer-

tain exempt corporations under Section 54 (f) of the Internal

is |

! information returns thine ‘upon Form 990 did st

; constitute the returns contemplated by Section 275 (a)

to start‘the running of the limitations period. - cee

ORs ‘R. pasa, ef 192a.) |

——* 3 . : o

7 The Tax Court and the court below were clearly -

correct in determining that membership dues: paid in |

advance to. taxpayer should be included in income in —

the year in which taxpayer received them. . : (R... 195a-

196a; Pet. i4a—l5a.) This-money; was is received by: :

taxpayer under a claim of right fox: its own use and ~

deposited | in its general bank account, subject ta no

restriction of any kind. (R. 193a.). Hence, the cir-

cumstance. that the services which. taxpayer obligated .

itself to render in return for the dues: might be fur-

nished in some cases in a.succeeding taxable year in’.

~ no way derogated from their character as income ‘in.

the yebr of receipt. The statute nowhere limits tax- __

able income to earned income. Income often does

‘not ‘represent a net figure and must be returned by a- :

taxpayer, whether on the cash or the accrual: basis,

even though expenditures necessarily paid or incurred -

in consideration for its receipt may not be deducted .

until.a future year. Internal Revenue Code, Sections:

41 ‘and 42 (a) (Appendix, infra, p. 18). This rulé ~

is settled by repeated decisions of this Court.*. The

' . lower court decisions sustaining . ‘the doctrine are

oN orth American Oil v. Burnet, 286°U. S. 417, 424; Burnet v.

Sanford & Brooks €o., 282 U.S. 359, 363, 365 ; Brownv. Helvering, ;

291 U.S. 193; Seturity Mills Co. v. Commissioner, 321 U.S. 281;

_ United States v. Lewis, 340 U. S. 590; rian Si Commissioner, 345

” U.S. 278.

* ‘The decisions make it clear that the rule. applies to accrual ag: *

jonarid are by no means limited to cases ‘where

ht to income’ was in dispute. : (Pet. 9.) ’

axpayer- asserts, however, that the decision below

". is in conflict with the decision of the Court of Appeals

e well as cash basis taxpayers. See North American Oil v. Burnet,

AN

supra,” ‘at 421-22, 423-24; id., 50 .F. 2d 752, 755-56 (C. A. 9th) ;.

* Brown ¥: Helvering, supra, at 199-200; Clay. Sewer Pipe Assn. v.°

Commissioner, 139 F, 2d ¥30, 132° (C. A. 3d) ; South Dade Farms v.

Commissioner, 138 F.2d 818 (Cc. A. 5th). am

* For example, Blush v. Helvering, 74 F.,2d-482 (C. A. D. Gy,

certiorari denied, 295 U. S. 732 (profits realized. from stock sales,,

subject to the obligation to support-market with 4 fund i in a stated’

minifmum umount by operating a trading pool, for six montlis sub-

seqiient) ; Fairmount Creamery Corp. Vv. Helveriny, 89 F. 2d 810 ~

(C. A: D.C.) (interest geceived by corporation from employees ~

to whom stock had been sold on credit, subject te refund in the

WW F_2d 70, 73-74 (C: A. 9th) (cash paid to lessor at beginning of

Sv. employee quit or was discharged) ; Commissioner v. Lyon, <

\

tén-year term, subject to refund on termination of lease otherwise .

than by default of lessee) ; First Nut. Bank v. Commissioner, 107 .

‘F. 2d 141 (C. A. 6th) (proceeds of a note held taxable, notwith-

standing contingent liability to repay at maturity if maker failed

or if purchase of certain’ corporate assets was not consummated? ;

Detroit Consolidated - Theatres v.: Commissioner, 133 F. 2d 200

:(C. A. 6th) (sum received as advance rental deposit) ; South Dade

Fardhy Commissioner, 1 138 F. 24-818 (C. A. 5th) (sam ‘recéived

as advice rentals) ; Clay Sewer Pipe Assn. v. Commissioner, 139

F.2d 130 (C. A. 3d) (prepayment for services to -be rendered,

although under, contract recipient might be liable subsequenti to sf

return their equivalent) ; DeGuire v. Higgins; 159 F.2d 921 (C..

A. 9d) (dividends payable to purchaser of stock subject to pos-

sible refund under contract terms; Capital Warehouse Co. v. ‘-

Commissioner, 171 F. 2d 395 (C. A. 8th) (prephyment for.serv- -

__ ices whose Gost taxpayer must defray in later year) ; Haberkorn

v. United States, 173 F. 2d 587 (C. A. 6th) (bonus subsequently |

returned to employer because of error in calculation of profits,

" upon which the bonus was based) } Gilken Corp. vv Commissioner, -

176 F. 2d Y41, 144-145 (sums received as advance rental deposit,

security for performance and: Fr ‘payment, of, sore Price a

So

eae

a . °

: k Ry I tad es . j .

oe - ‘ ae ae . Se ae ‘

‘ a e

for the Tenth Circuit in Beacon. Publishing “Co. v.

Commissionér; 218 F, 2d 697. (Pet. 8-11), ‘rendered.

s

by a divided court. (Judge Bratton dissenting) sub-

sequent te the decision-of the Tax Court 3 in the instant _

ease’ While we respectfully submit that the major- _

- ity opinion. in the Beacon Publishing Co. case is in-

correct, it is our view that. this decision iS neverthe-

less not in direct. conflict. with the decision of the

. court. below. In the Beacon Publishing Co. case pre-

“ newspapers ‘to be deliyered i in future years, while hé¥e

the prepaid. sums were received as payment for serv-

ices. And there was present in. the. Beacon Publish-

_ tag Co, ease an. administrative ruling which lent

possible support to taxpayer’s reasoning there ”

L. T. 3369, 1946-1 Cum. Bull. 46, the Internal

"nue Service,’recognizing that there were two cele

by which accrual -basis publishers liad been aecount-

ing for prepaid subscriptions, had ruled that where

a publisher ‘‘over a period of, years” | had > reported

--an aliquot part of. the subscription income over the ©

_ . paid sums were: received by taxpayer as payment, “for ‘ '

subscription period, it would be permitted to continye ~_

_ to report the income in that manner and would not

be required to change this accounting, practice, pro--

should lessee exercise its option to purchase) ; . Booth Newsapa pers v.

* Commissioner, W1 F. 2d 55 (C. A: 6th) (sum received by cash .

basis taxpayer as prepaid subscription for newspapers to ‘be de-

livere@ in succeeding year); Gordon’s Estate vy. Commissioner, *

201 F. 2d 171 (C. A. 6th) (sum received under lease with privilege -

to purchage) ; 77 yde Park Realty v. Commissioner, 211 F. 2d 462°

(C. A. 2d) (sum receifed as advance rentals).

* In a Jater case the Tax Coyrt has expressed agr eement with the

dissenting opinion in the Beacon Publishing Co, case.. Andrets

v. Commissioner, 23 T. C. 1026, 1033.

ineome in. that manner: By contrast no administra-

i. ee “eee. : ™

vided that expenses applicable te obtaining- the sub- .

scriptions were similarly allocated.in the subseription

period. Publishers who had been reperting the sub-

seription income when received (see: G. C. M. 20021,:

1938-1 Cum. Bull. 157) were to continue to report: the-

“ tive authgrity in” suppért of taxpayer's gored one =

may be. claimed. “Be

Moreover,’ the iquicudiies ‘which tax yer iaitel to

raise does not seem appropriate now for decision by

this Court. The Internal ‘Revenue e of 1954, as a

originally passed, sontained in Section 452 detailed

_ provisions authorizing deferral of income of acérual

-basis taxpayers to future years in “certain cases of

prepayment far services, goods: or the use of prop-

erty. Section 462 of the 1954 Code made correlative’

. ‘provision for permitting reserves to be set up in the

taxable year for estimated future expenses. How-

ever, experience demonstrated. that these sections.

would entail a much greater loss of revenue than

originally -estimated, and both were repealed. Sec-

-tion 1, Att of June 15, 1955, c. 143, 69 Stat. 134.

_ Never the committees of both Houses indicated :

that the subject was to be studied further. with a view -

to legislation at an -early date.’ The ‘Senate. com-

\H. Rep. No. 293, 84th Cong., 1st Sees. p. 4 (1958-2 Cum.

’ Bull. 852, §54) stated: |

“In view pf the testimony received from taxpayers by your

_ committee 4nd ‘the reéognized desirability of conforming tax

accouriting td business accounting, your committee has instructed

_ the staff.of the\Treasury Department andthe staff of the Joint

‘Committee on Internal Revenue ‘Taxation to make’ studies of .

these accounting problems in,4n effort to provide conformance

a

ia -repeal of section 452 as ‘any indication of congressional i i

ae

‘will not be considered by the Department as either

ey au

mittee particularly referred to the ning exist- :

ing ini the field of prepaid subscription’ income. Ss.

Rep. ‘No. 372, 84th Cong., Ist Sess., p. 5 (1955-2 Cum. -

‘Bull. 858, 861). '. However, while uncertainty may -

exist with respect ‘to the status of prepaid subscrip-

tion ‘inéome, it is not present in. the case of prepaid:

of tax wry business accounting without the transitional revenue

loss. , as further requested each staff to report any suggested

solutions to the. committee és soon as feasible.” _ /

‘The retary of the Treksury wr6te the Chairman of the

Committee on Ways and Means as follows (H. Rep. 293, supra,

p. 5 (1955-2 Cum. Bull. 852, 855)) :

“Furthermore, the: Treasury Department will not conside the

to the proper treatment of prepaid subscriptions and ot}ér items

of prepaid income, either.under prio! law or‘under

sions of the 1954 code. In other, wo the repeal section 452

or the rejection by Congress of the decision in, Be

Co. v. Commissioner (218 F. (2a) 697, C.-A. 10, 1955) or any etter _

_ judicial decisions.” ;

S. Rép. No. 372, Rath Cong., i Sess, p? 6 (1958-2 Cum Bull.

858, 861) declared :

“Your committee desires to ae its position clear that it ex-

pects to report out legislation dealing with prepaid income and

reserves for estimated expenses at an early date. As indicated

- . above, the existing rulings of the Treasury Department and the —

court decisions dealing with estimated expenses and prepaid in-

come are now in such a state of confusion and uncertainty that

in the opinion of your ‘cominittee legislative action is required

on these ‘subjects. . In addition, your ‘committee believes that it

i8 essential that the income tax laws be brought into harmony

with generally accepted accounting principles. Moreover, your’

committee believes that the present status, where some taxpayers

are able to defer prepaid i income while others dre not, is inequi-

table and should not be allowed to continue. In order to elimi-—

nate this unc ainty hnd discrimination, definite rules mast be

written-into the income tax law: For these reasons your com- \

mittee plans to begin studies in the near future to devise proper

substitutes for the sections now — repealed.”

Pee ie. 12 .

< membership dues, which fall within ‘the need rule

well settled by many décisions of this Court’ and of

the lower courts. -In the circumstances, and ‘particu- .

3 larly in view of the Congressional recognition of: a .

as need for further study as a basis for. anticipated _

legislation, it is belieyed that review of the question ‘3

involved in the instant case is not warranted.

-Contrary to.taxpayer’s further contention (Pet. 8,

| 9-11) the decision of the Fifth Circint in Schuessler ee

v. Commissioner, 230 F. 2d 722, is not in direct con-

' flict with the decision of the court below. There, an

accrual basis taxpayer was permitted a deduction of

yan item representing a reserve ‘for the estimated cost

of carrying out a guarantee:to turn on and off each —

year for five years furnaces sold in the taxable. year. .

The ine me from the sales against which the guaran- -

tee. was made was all reported: in the taxable year.

Thus, unlike: the present case, the cited case dues not —

represent a claim for deferring or spreading income

received under claini of right over future years, but

_ rather whether an asserted liability had actually been

_ incurred. in the taxable year or, .on ‘the other hand,

_was unsettled in amount and contingent in obligation = _—

~ and so not deductible until or unless incurred, in the

future.’ While problems with respect, to deférral of

* It may be ‘noted that a bill treating this probjem, H. R. 10833,

84th. Cong.,.2d Sess., was introduced by Mr. Simpson of’ Penn-.

_ sylvania, a Tnember “of the Commie on Wey and Means, on

April 26, 1956.

* Compare E..H. Sheldon | & ‘Co. v. ‘Cllisciibiaies: 214-F. ‘24 ee

* 655, 656-657 (C. A. 6th) ; S. Loewenstein & Sou v. Commissioner,

299'F. 2d 919.(C. A. 6th) ;.and Spencer, White ¢& Prentis y. Com-

missioner, 144 F. 2d 45 (C. A. 2d), certiorari denied, 323 U. S. ;

: a with acifie Grape Prod. Co. v. Commissioner, 219 F. 2d_-

iieadetia’ x

| : me -..

prepaid income and ; deduction of estirhated ante, ex-

penses are- related, and although in our view the rea- a

. soning. and decision of ‘the Fifth Cireuit in a

_ Schuessler case are ineorrect (compare ‘the contrary 3

Ee position of the Tax Court, 24.T. C. 247), the fact re- °

Mains that there is not a direct conflict with the deti-

- sion of the court below, for the cases involve oranccre .

‘igsues. f /

-% The Tax Court and the seniealiee ‘below correctly o \

_ held that the Commissfoner is not bound by hisown: =

“or his predecessor’s prior. -mistakes of law. ,(R._

185a-189a ; Pet. 8a-13a.) . The petition does not dis-

pute the correctness of the Commissioner’s ruling |

contained inthis letter of July.16, 1945, that taxpayer _

"was. not exempt from tax. under Section’ 101 (9) of

- the Internal Revenue Code (Appendix, infra, p. 20). |

(Pet. 6a.) . At the Tax Court hearing taxpayer ex-

_ pressly admitted it was taxable for the period sub- |

- sequent to July 16, 1945. (R. 148a: Pet. 8a.) And _

indeed. the authorities compelled. this concession.”

In exempting’ “clubs”. under Section, 101 (9) Con-

gress referred to organizations whose members com-

mingled in fellowship ; ; in limiting the exemption to ;

_e¢lubs. organized and operated exclusively “for pleas- )

ure, recreation and other nonprofitable purposes,”

Congress meant nonprofitable purposes similar to pur-

poses of\pleasure o or. recreation. Taxpayer, which per-

1 Smyth v. California State | atemahil Assn,, 175 F. 2d 752°

i (Cc. A. 9th), certiorari denied, 338 U.S. 9053 Keystone Automobile .

Club v. Commissioner, 181. F. 2d 402 «C. A. 8rd); Chattanooga .

Auto. Club v. Commissioner, 182 F. 2d 551 (C. AX. 6th); Automo-

SS ‘bile Club of St..Paul v. Commissioner, 12 T. C. 1152; G. ©. M.

' 23688, 1943 Cum. Bull®283. “ | , “te

EL

14° ra

“forms cummnindal services for its pers sy plainly

‘falls outside the exempted ¢lass. (Pet. Ta-Sa, 11a.).

The retroactive ruling of the Commissioner direct-

ing that tax re , be filed for 1943 and 1944 was

authorized under‘ n' 3791, (b) of the Code. (Ap-

pendix, infra, p. 21.) With respect to a predecessor

of Section 3791 (b) under an earlier Revenue Act,”

this Court held. in- Helvering v. Reynolds, 306 U. S. .

110, 116, that it is clear Congress intended to give:

the Treasury power to‘ correct misinterpretations |

‘tand thereby to affect cases in. which ‘the taxpayer’s

liability had not been finally determined, unless, in i

. the judgment of the Treasury, some good reason

required that such ee — only pro-

spectively. We Ah: . |

| Surely, the COctniatacitdien * was not arbitrary in

exercise of the discretion conferred under Section oS

3791 (b) when, with the approval of the Secretary —

of the Treasury, he made his ruling of July 16, 1945,

retroactive for only two of the twelve years between

1934 and 1945." Moreover, taxpayer does: not assert

t Revenue Act of 1928, c. 852, 45 Stat. 791, Section 605. -

* The 1928 Act dealt only with retroactive Regulations, but

subsequent legislation, carried over into the Code, broadened the

-Commissioner’s.authority under this provision to include internal

_ revenue rulings as well. Reventie Act of 1934, c. 277, 48 Stat.

680, Section 506. See also the committee reports which recom-

mended this enactment. H. Rep. No. 704, 73d Cong., 2d Sess.,:p.

38 (1939-1 Cum. Bull. (Part 2) 554, 583) ; S. Rep. No. 558, 73d

Cong., 2d Sess., p. 48 (1939-1 Cum. Bull. (Part 2) 586, 623),

*G. C. M. 23688, referred-to in the Commissioner's: letters

of May 12, 1945 (R. 83a-84a), and July ¥6, 1945, was published

in she Internal Reveriue Bulletin of July 14, 1943, as well as in the

* Cumulative Bulletin for 1943, It is not disputed that the M asso-

ciation which was the taxpayer inv rolv ed in the ctted rane is

> Pp. 20-21).

15

that it has altered its position’to its detriment in

reliance on the Commissioner’s former ruling (Pet. -

8a); nor does it show any prejudice resulting from. ’.

the Commissioner’s rulings as to 1943 and 1944, ex-

cept the liability to pay taxes, which Congress re-

quired of every other taxpayer. A taxpayer has no”

vested interest: in a mistaken construction of the

statute by the Commissioner. And the Commissioner

lacks authority to. weer an exemption which Con-

gress has not authorized. : a

3. The courts below were also correct im holding

that the three-year statute of. limitations “ on assess-

ment began te run from the date that the returns —

the American Automobile Association. Taxpayer was a mem-

ber of the American Automobile Association to which it paid

. dues for 1943 and 1944 in excess of $50,000 and for 1945, 1946 and

1947 in excess of $60,000 (Schedule K of Exs. 13, 15, 17, 19 and

20, R. 2b, 3b, 5b, 7b and 9b), and was represented on its: board of

directors. G. C. M. 23688 not only specifically set: forth the

_ grounds for correct interpretation of Section (9), but also

‘afforded clear evidence that its holding governed-infdividual auto-

mobile clubs, such as taxpayer, for it, recommended revocation of

published exemption rulings of individual clubs. 1943 Cum. Bull.

288. The Tax Court found that so far as appears from any

mentioned by taxpayer the Commissioner has made all revocations - ’

of his ruling of exemption with respect. to automobile élubs effec-

tive in 1943. (R. 189a.) It will not be disputed that there were

many such clubs and necessarily some-period of time elapsed after

the issuance. of G. C. M. 28688 before ‘the Commissioner could

’ reconsider the exemption in the case of any particular club. ‘Tax-

payer’s quotation (Pet. 15) from Rey. Rul. oe 1954-1 Cum.

_ Bull. 88, 92, omits the following:

“A revocation may be effected by a notice to the ciciealaation

or by a ruling or other statement published i in the Internal Reve- ©

nue Bulletin applicable to the type of organization involved.”

«Internal Revenue Code Section 275 (a) AER infra, ;

— j

f

16

were filed, namely, @obcbes 22, 1945. (R. 190a-192a ;

Pet: 13a-14a.). Taxpayer’s assertion (Pet. 18-19)

that the returns were due in March, 1944, and March,

1945, and: that the statute runs from these dates is

"answered: by the provision of Section 276 (a) (Ap- —

pendix, infra, p. 21) that in case ‘‘of.a failure to file

P ss a return the tax may be assessed: *-* * at any time.”

In an effort to avoid the consequences of Section

276 (a), the taxpaye mistakenly asserts that the run-

ning of the statute Le from the Marchi dates be-

_ Cause, it is said, the Commissioner was to blame for

’, the failure to file returns when due. (Pet. 19.) From |

" and after July 16, 1945, when the Commissioner ex-

pressly required taxpayer to‘file returns, taxpayer was

under an obligation to’ file. Its subsequent delay in

filing for more than'three months was not induced. by

the Commissioner.: Nor was taxpayer’s voluntary

agreement twice to extend the time for. assessment of

tax induced by the Commissioner. (Pet. 14a).

The decisions of the Second Circuit in Balkan Nat

Ins. Co. v. ‘Commissioner, 101 F. 2d 75, and of the

Court of Appeals for the District of Columbia in _

Stockstrom v. Commissioner, 190 F, 2d 282, are. |

. plajnly distinguishable on their facts and do not con-

+ flict with the decision below. In the Balkan case tax-

.. payer’s failure to file a return was due to an, impossi-

bility created by the Government when the Alien

Property Custodian seized all of taxpayer’s records -..

and denied access to them. There} ‘the ‘deficiency

notice for 4918 income.was not mailed to taxpayer in

Bulgaria until 1934. . In the Stockstrom case, where -

? ER ee

gifts for 1938 were involved and. the notive of a

ficiency was not sent until 1948, the court held that,

although no return had been filed, the purpose of the

filing requirement had been fulfilled, since in 1941

the Government had come into possession of all the

pertinent facts and the limitation apceen commenced

to run:as of that date. ;

Meike filing of the annual information returns (Form

- 990) required from certain exempt organizations did

- not commence\ the runnjng of the limitation period,

* As held' by both court® below, these returns did. fot |

contain the data necessary to enable the Commissioner

to compute taxpayer’s liability, and so could not serve _.

to start the limitations period. (R. 192a; Pet. 14a.)

Commissioner v. Lane Wells Co., 321 U. S. 219: John

Ranz Charitable Tr. v. Coniagerionst 231 F.2d 673

(C, A. 9th), pending on _ petition for ‘certiorari, - No.

145, this’ term. , ;

CONCLUSION

ti is roapecétally submitted that the petition tire a

writ of serienras should be denied.

Srvion E. SoBELOFF, « oe

Solictto ere

J ULY, 1956.

_ APPENDIX

‘intyne Revenue Code of 1939: : i |

_ Sec. 41. G@ , RUL. - :

| The ‘net’ incéme shall be computed upon the

basis. of the taxpayer’ 8 annual accounting

period (fiscal year” or calendar year, as the

case may. be) in accordance with. the method of -

accounting ‘regularly employed in keeping the _

‘books of. such taxpayer; but’if no such method .

of accounting has heen so employed, or if the

' method’ employed does not clearly reflect the

_ - incomes the computation shall be made in ac-

cordance ‘with such method as in the opinion

of | the Commissioner. does clearly reflect the

income. * * * 3 .

oe * a on foarte epee re +

(26 U. 8. C. 1952 ed., ‘See. 41)

“SEc. | 42. PERIOD IN WHIcH ITEMS OF. Goes .

INCOME INCLUDED.

(a) [As amended by See. 114 of the Rovente.

~ Act of 1941, c. 412, 55 Stat. 687) General . .

Rule—tThe amount of all items of gross income .

shall be included in thé gross income for: the

taxable year in which received by the taxpayer, —

unless, } ‘under methods of accounting permitted |

under: section 41, any: such-amounts are to be

properly; accounted ‘for as of a. different

period. * * & nee

‘ °*?

* * , * : *

3}

~~

NX

aia S. C. 1959 ed; Sec. 42.)

(185

\

j

19 ~ = | 4 w

AEC. 52.. CorPoRATION RETURNS.

(a) Requirement. —Every corporation sub-

ject to taxation under this chapter shall make

a return, setae apesthonly, the items of its

gross -incomé. and the ‘deductions and credits

allowed by this chapter and such other informa-

tion for the purpose of.carrying out the pro-

visions of this chapter as the Commissioner |

- with the approval: of the Secretary. may by

‘regulations preseribe. The return shall: be

sworn to by the president,. vice president, or

other principal officer and by the treasurer, _

assistant treasurer, or " chief accounting officer.

* *& & .

* * We snare 2 “@ ¢&

’ ; Se :

(26 U.S. C. 1952’d., See. 52.)

Sec. 54. Recorps aND SPEcIAL RETURNS. —

(a) By Taxpayer.—ivery person liable to

any tax imposed. by ‘¢his chapter or for the

collection thereaf, sh Il: keep such records,

nder under oath such statements, make such

“yeturns, and comply w\th such rules and regu-

lations, as the Commissioner, with the approval

. of the Secretary, may from time © to time —

i pteseribe.

(b) To Determine Liabetity to Taz. —When-

ever in the judgment of the Commissioner nec-

essary he may. require any person, by notice

-served upon him, to make a return, render

- under oath such statements, or. keep:such rec-

ords, ‘as*the Commissioner deems’ sufficient to) —

‘show whether or not such person is liable- to

tax under this chapter.

wae

+ #. + * *

- (f) [As added by See. 417 (a) of the Reve-

‘nue. Act of 1943, -¢., 63, 58 ‘Stat. 21] Every or-

a

.

-for peas

ie”

ganization, except .as hereinafter provided,”

exempt from taxation under section 101. shall

file an annual return, which. shall contain or™

be verified by a written declaration that it is’

made under. the penalties of perjury, stating |

specifically the items of- gross income, receipts,

and disbursements, and such other information

forthe purpose of carrying out the provisions

of this chapter as the Commissioner, “with the

approval of the Secretary, may by regulations .

prescribe, »gd shall keep such records, render

under oath stich ‘statements, make sfich other.

returns, and comply with such rules and regu-

lations as the Commissioner, with the approval

of the Secretary, may fr omstime to time pre-

scribe. * # # |

* ee ee “ | **

(26 U. Ss. C. 1952 ed., See. 54.) -

SEC. 101. EXEMPTIONS FRoM ‘Tax ON CorR-

PORATIONS.

The following organizations shall be exempt

from taxation under this chapter— -

#G.. . oe 7 *

(9) Clubs ‘or

ized and operated aguatrely

* : =: * Seu

) OF x aakinasileat Upon ASSESS-

MENT AND ‘COLLECTION. «|

Exednt as provided in section 276—

. (a), eneral Rule.—The amount of income

taxes imposed by: this chapter. shall be assessed :

¢

. aL |

“weld three years after the return was filed,

and no proceeding in court without assessment

for the collection of such taxes shall be begun .

Y after the expiration of such period. —

De SEee ee ome * .%, ; >

(26 U. S. C. 1952 ed., Sec. 975.)

SEC. 276. Same—EXxceprions.

(a): False Return. or No Return.—In the

- ease of a false or fraudulent return with intent

¥ to evade tax or of a failure to file a return the

tax may ‘be assessed, or a proceeding in court

for the collection of such tax may be begun

_ without assessment, at any time, se

(b) Waiver—Where -before thé comal

of the time prescribed in section 275 for the as-

_ sessment of the tax, both the Commissioner and

_-the: taxpayer have consented in writing to its_

ent after such time, the tax may be

at any time prior to the expiration of

agreed upon. The period so agréed = —

upon may be extended by subsequent agree- _--

- ments in writing made before the expiration of. *

the uae previously agreed upon, Be he

* . Spee ey * api

( usc 1952 ed., See. 276.) mi taint! :

Sec. 3791. _ RuLEs AND REGULATIONS. «2

¥ « * . cm

(b) Retronctivity. of Regulations or Rul-

lings —The Secretary,- or . the:, Commissioner

with the @pproval of the Secretary, may pre-

scribe ‘the extent, if any, to which any ruling, .

_ regulation, or Treasury. Decision, relating to

the internal revenue laws, shall be applied with-

'- out retroactive effect. =. ee é

| (98 8.0. 1952 éd., See. 8701.)

+e) a

Pins Ss: 22

Tressury Regulations 111, promulgated under the In-

ternal Revenue Code of 1939: =:

Src. 29.52-1. Corporation shinies —Every

eorpedatien! not expressly exempt from, tax”

must make a s return of income, regardless of the

amount of its‘net income. In“the case. of ordi- :

. mary corporations, the return shall be on. Form a

4120. : * * @ .

See. 29.101-1 [As amended by T. D. 5381,

1944 Cum. bull. 188, 189] Proof of Exemption

Prior to January 1, 1943.—An Returns for |

Accounting Periods Beginning ‘Prior to Janu- -

ary 1, 1943.—A corporation is not exempt

merely because it is not organized and oper-

ated for profit. In order to establish its ex-

~ emption it is necessary that every organization

claiming) exemption file with the collector for

icin which is located the principal

business or principal office of the or-

ganization ‘an. affidavit or a questionnaire as :

set forth below. An organization claiming ex-. -

-emption under section 101 (1), (3), (4), except:

a. bona -fide credit union, (6), (7), (8), (9),

(10), (12),. (14), or (16) shall file the’ form

of. questionnaire appropriate to its activities,

filled out in accordance with the: instructions

on the form or issued therewith. Copies of the

following questionnaire forms may. be obtained

from any collector: For corporations claiming.

e exemption * * " under section 101 (9), Form —

“1025 * * *. To-each such affidavit or ques-

tionnaire shall be attached a copy of the articles

a incorporation, declaration of trust, or other

instrument of similar import, setting forth the

permitted powers or activities of thé“organiza-

tion, the by-laws or other code of regulations,

a

\

' 2

and the latest financial statement showing the

_ assets, liabilities, recespts, and disbursements |

of the organization. - An organization claiming

~*\exemption under section 101 (5), (6), except

yanizations organized and operated exclu-

sively for religious purposes, (7), (8), (9), or

(14) ‘shall also file with the other "be saci

specified herein. a return of information on

Form 990 relative to the business of the organ-

ization for the last a a i of opera-

tien ::* 7 .*,

: * : * * *

The colle ctor, upon receipt of the affidavity

or questionnaire, and other papers, will exam-

ine them as to completeness and will forward .

‘completed documents to the Commissiqner for

decision as to ‘whether the: organization is

exempt. In addition to the information speci-

fied herein, the Commissioner may require any

additional information deemed necessaty for a ‘

‘ ». proper determination of whether a particular

__ organization. is-exempt under section 101, and —

when deemed advisable in the interest of an |.

.. ficient administration of the internal reve-

.: hue laws he may in the cases of particular types. |

—— of~” organizations provide additional question-

naires or otherwise prestribe the Torm i in which

the. proof of exemption shall be furnished,

When an organization (other ‘than a mutual —

- Insurance company) has established its right to

exemption, it au not thereafter make a re-

*-turn.of income or any further showing with

respect to its status under (the law, unless it

® changes the character of its organization or

3 _ operations or the purpose for which it was —

+ origina - ¢reated, satin that every organiza-

a" ee

Z J. | | |

24 .

‘ tion exempt. or claiming exemption under sec-

tion 101 (5), (6), except organizations organ-

ized and operated exclusively for religious pur- -

poses, (7), (8), (9), or (14) shall file annually

. returns of information on Form 990 With the

collector-for the district in which is located the

principal place of business or principal office

_of the organization * * *. :

~~ (Collectors will keep &. list of all organizations

held to be exempt to the end that they: may

oceasionally inquire into their status and ascer-

tain whether or not they are observing the f

conditions ‘upon which’ their exemption is

_ predicated. |

An organization which is exempt, under sec-

tion 101 and the regulations thereunder, from.

‘filing. returns of income is not, however, re-

. lieved from the duty of filing returns of infor-

mation (see ‘sections 147 and 148).

‘See. .29.101-2 [As added by T. D. 5381,

supra]. Proof ‘of. Exemption on or after

January 1, 1943——Annual Returns. for Ac-

counting Periods Beginning on.or After Jan-

uary 1, 1943. —ta) Proof of exemption—An

| organization is not éxempt from tax merely

' ‘because it is not organized and operated for

profit. In order to establish exemption it is

necessary that. every \ organization claiming

exemption file with the collector for the district

- in which is located the principal place of busi-_

ness or principal office of the organization an

affidavit or questionnaire ‘as, set forth below. |

An organization claiming exemption under sec-

tion 101 (1), (3), (4), except-a bona fide credit

union, (6), (7), (8), (9), (10), (12), (14), or -

*- (16) shall file the form of affidavit or ques- _

25

tionnaire approptiate to its. sitivibion, filled out

in accordance with the instructions on the form *

or issued therewith. Copies of the following

forms may be obtained from any collector:

For organizations claiming exemption * * * -

under section 101 (9), Form 1025.* * *. To

each such affidavit or questionnaire shall be :

attached a gopy of the articles of incorporation,

declaration of trust, or other instrument .of

similar import, setting forth ‘the’ permitted

- powers or activities of the. organization, the

by-laws or other code of regulations, and the-—

latest ‘financial statement showing the assets,

liabilities, . receipts, and disbursements of .the s

organization. : te

+ “amie ; * =) #

i Tt fea es eo ae

In addition to the- information specifically :

called for, by these regulations the Commis-

sioner may yequire any additional informa-

tion deemed-necessary for.a proper determina- = -{

-tion of whether a particular organization is

exempt under section 101, and when deemed

‘ - advisable in the intere€t of an efficient adminis-

tration of the internal revenue laws he may -

Are the eases of particular types of organiza-

tions provide additional questionnaires or

otherwise prescribe the form in which the proof :

of exemption shall be furnished.

* wea 3 \ * -# ‘ *

(ce) Coliector’s duties with respect to proof

- of exemption.—The collector, upon receipt of

the affidavit, or*yuestionnaire and other papers.

. constituting the proof of exemption by an) or-

ganization claiming exemption from tax under

section 101, will forward completed documents a ,

’

.

* te

yo

#9

. 26

to the Commissioner for decision as 3 to whether

the organization is exempt. : \

*# BRIS MRR ESE ag. . *

(e) ‘Requirement of wmnual returns.—For

accounting periods‘ beginning after December .

31, 1942, every organization exempt from tax”

under section 101, regardless of the amount.or |

source of its income or receipts and irrespec- —

tive of whether it is chartered. by, or affiliated

- .» or associated with, any central, parent, or other

organization, except organizations specifically ‘

aes exempted from filing annual returns by section

54 (f) (see subsection (h) of this section),

shall file dnnually with the collector for, the -

district in which is located. thé: principal place ;

of business or principal office of the organiza-

‘tion a return of information dn Form 990 (re-

vised May, 1944) specifically stating the items

of gross income, receipts, and disbursements

and suchy othér information - as may be pre-.

scribed by the Commissioner in the instructions

“on . the form or issued by him the with. * * *

\ @ : * oe

~ mual return of information, Form 990 (reviséd

~ May, 1944), for~accounting periods. beginning

. after December 198 t ending prior to

. April 1, 1944; shall be filed on or before ant

‘(g) Date for filing annual Nobis ns.—The 2

, and for accounting periods beginnin

(December 31, 1942,- but \ending after

March '\31, 1944, shall be filed on =a Before the

is i required te be filed.

* ,_ \@ tse a

fea

at

of : .

; ie

ee

(i) Collector’s records.—Collectors will keep - 7

- a list of all organizations held to’ be exempt

from tax to the-end that they.may occasionally

- inquire into their status and ascertain whether

or not they are (1) observing the conditions

upon which their exemption is predicated, and

(2) annually filing returns on Form. 990 (re-

vised May, 1944) if they are required. to file

such returns. °

(j) Records,’ statements, and. other returns .,—

of taz-erempt organizations.—An organization

which has established its right to exemption

from tax under ‘section 101 and has also estab-

lished that it Js not required to file annually the -

return of iyformation on Form 990° (revised _-

May, 1944 shal] immédiately notify 1 in writing

the collector for the district in ‘which is lo-

-_-Qated its principal office of any changes insits_ |

ae _ character, operations, or Pn for which it

was originally creatéd.

Every organization which has establiahed. its

right to exemption from tax, whether or not.

it is required to file an annual return. of infor-

mation, shall submit stich additional informa-

tion as may. be required by the Commissioner ~

fer the purpose of enabling him to inquire

further into its exempt status and to administer

the provisions of section 54 (f) and this section.

For requirement ‘as to keeping ef permanent

books of account or records, see section 29.54-1.

An organization .which hasygstablished its

right to exemption from tax une

including an organization which .is_ reliev

under section 54 (f) and these regulations from

.filing returns of income or annual -returns of

information, is not, however, relieved cn the

r section 101,- .

ON ,

tule of filing. other” returns of ‘iterniliaes fines

sections 147 and 148).

Sec. 29.101 (9)-1. Social Clubs. ——The ex-

emption granted by section 101 (9) applies to ~

practically all social. and recreation clubs which

are supported by membership, fees, dues, and

assessments. If a. cfub engages in traffic, in ©

agriculture or hortitulture, or in the sale of

real estate, timber, ete., for profit, such club is

not -orgmized and - operated exclusively for

pleasure, recreation,:or socialypurposes. Gen-

erally, an incidental sale of property will not

deprive the club of ‘the exemption.

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