# Transcript of Record — Riker v. Commissioner (No. 261) > Briefs, arguments, decisions, and more. URL: https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386418_1438%3A1 ## Record - **Collection:** Supreme Court brief - **Document type:** Transcript of Record - **Published:** January 1, 1957 ## Text R611 No. 15072 —_——— ———— x ey Gnited States Court of Appeals for the Rinth Circuit x PEGGY LOU RIKER and FREDA H. GRASS- MEE, ~ £ vs. COMMISSIONER OF INTERNAL REVENUE, Petitioners, Respondent. Transcript of Record Petition to Review a Decision of the Tax Court of the United States ri. & ‘ Philtips & Yor Orden Ce., 870 Brennan Street, Sen Prendhee, i"s- PAUL P. O’BRIEN, CLERK ~- _No. 15072 Bnited States Court of Appeals for the Ninth Circuit PEGGY LOU RIKER and FREDA H. GRASS- MEE, Petitioners, | Vs. i aan fae Oe ee Pa Respondent. a Transcript of Record nee Petition to Review a Decision of the Tax Court of the United States Phillips & Van Orden Co., 870 Brannan Street, San Francisco, Colif.-6-22-56 INDEX [Clerk’s Note: When deemed likely to be of an important nature, errors of doubtful matters appearing in the original certified record are printed literally in italic; and, likewise, cancelled matter appear- ing in the original certified record is printed and cancelled herein . accordingly. When possible, an omission from the text is indicated by | printing in italic the two words between which the omission seems to occur. } PAGE Amended Petition, Na: 40078..........%.....: _ 68 _ Affidavit in Support of.............+---. 74 Ainendent to Answer, No. 46979.....:....... 77 Answer, No. 46979.......... ere as 11 Answer to Amended Petition, No. 46978....... 76 ere ee eee eer Te eee ee eee 1 GS ee eee 159 Decision, No. 46978................. ae 96 Theetebom, No. SORTS. : .. 25.0 fee cee eee YT Docket Entries, No. 46978........45.....-.-6. 3 Docket Entries, No. 46979...-........... vio. © Memorandum Es A nea ered oreo 79 Petition, No. 46978........... Sn ee “13 Ex. A—Letter and Notice of Deficiency... 17 B—Constitution of Christ’s Church of the Golden Rule................ 20 Petition, No. 46979 ........ ie ee ee Petition for Review....... Te a (rea een ee ee 98 Ne eee eT eee eee 161. INDEX PAGE Transcript of Proceedings.................. 10] Witnesses: | Grassmee, Freda H. ; ANE 0 cided oh oa whence ened 139 | U—@MOSB ......... Torreee. caavhene 142 Huff, Marian T. —direct ........... err eer SS oe ee rrr 135 ae ee ee 136 Riker, Peggy Lou ——GTOCE «2 econ Veen , 148 a, Ranney Ee arn eee 153 APPEARANCES For Petitioner: HOWARD B. CRITTENDEN, JR., ESQ. For Respondent: LEONARD L. MARCUSSEN, ESQ.; T. M. MATHER, ESQ.; ROBERT C. WHITLEY, ESQ. | Commissioner of Internal Revenue - 3 In the Tax Court of the United States Docket No. 46,978 ae PEGGY LOU. RIKER, ; } Petitioner, | vs. . COMMISSIONER OF INTERNAL REVENUE, Respondent. DOCKET ENTRIES 1953 Feb. 19—Petition received .and filed. Taxpayer notified. Fee paid. Feb. 19—Copy of Petition served on General Coun- sel. 3 atl Feb. 19—Request for -Circuit hearing in San Francisco, filed by taxpayer. 3/11/53— Granted. ie Apr. 16—Answer filed by General Counsel. Apr. 20—Copy of answer served on taxpayer—Sca Francisco, Calif. 1954 : Feb. 17—Hearing set May 24, 1954—San Fran- cisco, Calif. May 25—Hearing had before Judge Van Fossan on Petitioner’s oraland written motions to continue, Granted, and on joint motion to consolidate Dockets 46,977 te 46,979, incl. —Granted. Order, proceeding continued generally on San Francisco calendar. Written motion for continuance, filed at hearing. Copy served on Respondent. ‘ . 4 | Peggy Lou Riker, et al., vs. 1954. : June 15—Transcript of Hearing 5/25/54 filed. July 13—Hearing set Nov. 1, 1954, San Francisco, Calif. as Oct. 25—Motion for leave to file amended petition, amended petition lo@red, filed by tax- payer. Oct. 26—Hearing set 11/1/54, San ‘Francisco, Calif., on petitioner's motion of 10/25/54. Oct..26—Copy of motion, amended petition and notice of hearing served on General Coun- sel - Nov. 2—Hearing had before Judge Tietjens on the merits. Order, Motion to amend petition; Granted. Amended petition filed; served. Answer to amended petition, filed at hear- ing; served simultaneous. Original briefs, 60 days. Reply, 30 days thereafter. Nov. 9—Copy of motion and amended petition __- served on General Counsel. - Ney. 23—Transeript of hearing. 11/2/54 filed. 1955 | Jan. 3—Motion for extension to Feb. 2, 1955, to file brief, filed by General Counsel. 1/4/95 —Granted. . Jan. 4 Motion for extension of 30 days to file — brief filed by taxpayer. 1/6/55—Granted. Jan. 28—Brief filed by General Counsel. Feb. 7—Brief filed by taxpayer. Copy served. Mar. 25—Reply Brief filed by taxpayer. Copy served. : . © Commissioner of Internal Revenite i) 1955. . Apr. 14—Order that petitioner on or before May 25, 1955, file a proposed statement of facts in accordance with Rule 35(e) of the Rule of Practice, entered. May 24—Motion for extension of time of 2 weeks to file statement of facts, filed ‘by tax- payer. 5/257/55—Granted. June 7—Statement of Fact filed by taxpayer. —. 6/8/55—Copy setved. — Aug. 11—Memorandum findings of fact and opinion filed, Judge Tietjens. Decision will be entered under Rule 50. Copy served 8/11/55. | Nov. 7—Computation for entry of decision filed by Respondent. Nov. 10—Hearing set 12/14/55, Washington, D.C., on Réspondent’s computation. Dec. 14—Hearing had. before Judge Arundell, on settlement. Ordered. Referred to Judge Tietjens. Dec. 15—--Decision entered, Judge Tietjens, Div. 1. 1956 Jan. 16—Petition for review by U.S. Court of Appeals for the Ninth Circuit filed by petitioner. Proof of service by mail at- tached. | Jan. 16—Designation of contents of Record on Review, with proof of service by mail thereon, filed by petitioner. wee 6 Peggy Lou Riker, et al., vs. Ini the Tax Court of the United States Docket No. 46,979 FREDA H. GRASSMEE, Petitioner, | Vs. COMMISSIONER OF INTERNAL REVENUE, Respondent. DOCKET ENTRIES 1953. | . Feb. 19—Petition received and filed. Taxpayer notified. Fee paid. Feb; 19—Copy of petition served on General Coun- th, Feb. 19—Request for Circuit hearing in San Fran- | cisco, Calif., filed by taxpayer. 3/11/53— Granted. Apr. 16—Answer filed by General Counsel. Apr. 20—Copy of answer serv ed on taxpayer, San Francisco, Calif. . 1954 Feb, .17—Hearing set May 24, 1954, San Francisco, Calif. | | May 25—Hearing had before. Judge Van Fossan on petitioner’s oral and written motions for continuance, granted ; and on joint motion to consolidate Dockets 46,977 to 46,979, incl., granted. Order, proceeding ' continued generally on the San Francisco ealendar. Written motion for continuance filed at hearing. Copy served on respond- ent. Commissioner of Internal Revenue 7 1954 June 15—Transcript of Hearing 5/25/54 filed. July 13—Hearing set Nov. 1, 1954, San Francisco, Calif. Sept. 8—Motion for leave to file amendment to an- swer; amendent to answer lodged; filed by General Counsel. 9/9/54—Granted. Sept.10—Copy of motion and amendment to answer _ served on taxpayer. . Nov. 2—Hearing had before Judge. Tietjens on the merits. Simultaneous. Original briefs, 60 days; Reply briefs, 30 days thereafter. ‘Nov. 23—Transcript of oe 11/2/55 filed. 1955 . Jan. 3—Motion for extension to Feb. 2, 1955, to file brief, filed by General Counsel. 1/4/55 —Granted. Jan. 4—Motion for extension of 30 days to file brief by taxpayer. 1/6/55—Granted. Jan. 28—Brief filed by General Counsel...’ Feb. 7—Brief filed by Taxpayer. Copy served. Mar.25—Reply Brief filed by Taxpayer. Copy _ served. Apr. 14—Order, that petitioner on or before May 25, 1955, file a proposed statement of facts in accordance with Rule 35(e) of the Rules of Practicé, entered. May 24—Motion for extension of time of 2 weeks to file statement of facts, filed by tax- payer. 5/25/55—Granted. | 8 Peggy Lou Riker, et al., US 1955 June 7—Statement of Fact filed by taxpayer. 6/8/55—Copy served. Aue. 11—Memorandum findings of fact and opinion filed. Judge Tietjens. Decision will be entered under” Rule 50. Copy served 8/11/5 Nov. Rp caine for entry of decision filed by Respondent. . Nov. 10—Hearing set 12/14/55, W ashington, D.C, on Réspondent’s computation. Dec: 14-—Hearing had before Judge Arundell, on settlement. Ordered—Referred to Judge Tietjens. Dec, 15—Decision entered, Judge Tietjens, Div. 1 1956: Jan. 16—Petition for Review by U.S. Court of Appeals for the Ninth Circuit filed by petitioner, Proof of Service by Mail at- tached. Jan. 16—Designation of Contents of Record on Review with proof of Service by Mail thereon, filed by petitioner. [Title of Tax Court and Cause.) Docket No. 46,979 PETITION Now comes your petitioner, Freda H. Grassmee, and petitions the above-entitled Court for redeter- mination of tax by. the respondent Coramissioner, and for grounds shows: Commissioner of Internal Revenue 9 Bs That by registered United States mail the Re- spondent Commissioner of Internal Revenue sent to your petitioner, Freda H. Grassmee, a letter dated November 25, 1952, together with a ‘‘state- ment,”? a Gopy of which is attached hereto marked “Exhibit A” and made a part hereof by reference, and incorporated herein as if herein set forth at length. That said letter by its terms undertakes to state that said Respondent Commissioner has deter- mined your petitioner's Income tax Hability to be a ~ . defiereney of $176.53 and to assess the same as tax. Il. That said $176.53 cleimed deficieney for tax ts claimed for personal income tax for the ealendar vears of 1948 and 1949; that vour petitioner’s re- turns for each of said years was duly and-recularly filed with the Collector of Internal Revenue at San Francisco. That in. said years vour petitioner's residence was and is San Francisco, California. That the entire amount of said proposed and elanned deficiency of $176.53, with interest, is in dispute and the subject of controversy. IT1. . That the Respondent Commissioner erred: (1) In treating the gifts of Petitioner . to Christ’ Chureh of the Golden Rule, for religious purposes exelusively, as not a proper deduction in either the vears 1948 or 1949, in any sum at all. | ' | 10 Peggy Lou Riker, et al., vs. ee. That the.statement of facts upon which Peti- tioner relies are: ; (1) That at all times herein mentioned, and during the entire calendar years of 1948 and 1949 Christ's Church of the Golden Rule was and is a. church and religious society and its principal tem- poral ageney under its Church Fonstitution and Canon Laws was the Elected Delegates Committee of the Ecclesiastical Society of Christ's Church of * the Golden Rule. That attached hereto marked Exhibit B and incorporated herein by reference is said Church Constitution and Caron Laws then and . now in effect: That said Committee was and is the temporal agency of said Church and religious society, and held all property under said Church Constitution and Canon Laws under a trust there- for for use exclusively for religious purposes; and no part of the income inured to the benefit of any person, individual nor private shareholder (there heing no shareholders of any kind) and no part of its funds or property could be used for carrying on propaganda or otherwise-attempting to influence legislation. Thaf said Church and its said temporal agency. Was and is organized solely and exclusively for said religious purposes and are organizations within the provisions of Section 10, subdivision 6, Internal Revenue Code. (2) That in each of said calendar years, peti tioner gave all her earnings from her employment to said Chureh for religious purposes by express Commissioner of Internal Revenue 11 donations to said temporal agency for religious pur- poses only. Wherefore your petitioner, Freda H. Grassmee, prays that the above-entitled Court set the above matter for hearing in the City and County of San Francisco, State of California, that a trial be had thereon in said City, that a redetermination be had “upon said proposed deficiency and said assessment, that said Church and its said temniporal agency be held to be an organization within See, 101, sub- division 6, during the calendar years of 1948 and 1949, that 15% of vour petitioner’s personal earn- ings be allowed as a proper decuction, and gifts te that extent in each calendar year be allowed as proper deductions as gifts te religions purposes, and for such other and farther or other or further relief, deerees, judgments and or orders as shall he just and equitable in the premises, 12 Péggy Lou Riker, et al:, vs. Charles W. Davis, Chief Counsel, Bureau of Tnter- nal Revenue, and for answer. to the petition filed by the above-named petitioner, admits and denies as follows: | I. Admits the allegations contained in paragraph I except denies that the deficiency has been assessed. : Il. , Admits the allegations contained in paragraph II except denies that petitioner’s returns for each of ‘said years were duly and regularly filed. WT Denies the allegations of error contained in para- graph IIT of the petition. IV. (1) and (2.) Denies the allegations contained in subparagraphs (1) and (2) of paragraph IV of the f Vv. Denies generally and specifically each and every petition. allegation contained in the petition not hereinbefore admitted, qualified or denied. - Wherefore, it is prayed that the Commissioner's determination be approved and that the petitioner's appeal be demied. ters to the Chureh Judiciary. as under the canon - laws provided (and as they may be amended from time to time), and agree not to resort to legal or other remedies until all remedies thereunder have been fully exhausted. T further agree to submit te arbitration as m the eanon laws provided (and a- they may be amended from time to time) all ques. tions. disputes and controversies whether now in existence or hereafter arising between myself and the ecelesiastieal organization, and part thereof, any temporal ageney, officer, official, member and /or any person or persons under said eanon laws: (1) controversies which micht be the sub- ject of a civil action and are within the provi Commissioner of Internal Revewae 47 _ sions of Califorfiia Code of Crml Proeedure, Sections 1280 to 1293; (2) all matters of the amount of damages. and (3) all matters of value of property, real, personal or otherwise. An award of arbitration, valuation, or determina- tion, shall be binding, final and conclusive upon the parties thereto, and judgment may be entered thereon as in Civil Code of Procedure ef California, Section 1287 provided. 1 agree not te bring any action, suit or proceeding until T have exhausted my remedy by this agreement to arbitrate, to deter- mine damages, and/or for valuation. (Name in Full.) Canon Law No. 15—Classitieation of Members. Of the various ecclesiastical members of the reli- gious society, there shall be the following classi- featlons: (1) Co-Workers—those. actively engaged in the Church ministry vot otherwise classified. (2) © Affiliates—those who adhere to the religious _ beliefs of the religious society, and are ecclesiastical members. This shall inelude co-workers and all other classifications within this canon law. 48 Peqaqy Lou Riker, et al., vs. (3) Student Ministers—those who are studying ' for the ministry of the church, upon admission te such status by duly constituted authority of the Church, but not vet admitted to lay or ordained membership. This is a probationary status. (4) Junior Members between 15 and 21 years of age. (5) Lay Members—those members of the reli- viens society designated by the Eeelesiastieal Head of the Church Government whe have, by: examina: tion and condiet. evidenced religious training and have evidenced a desire to- and who have—ded icated their lives to the ministry of the Church and renounced their worldly woods by oath of poverty and become children of the Chiureh. (6) Ordained Members those who have anal fied as lav members ead been duly ordained by the diity constituted Cliaireh Government. Pastors shall be ordained members having a duty as such pastor by gesteniment of oluly comstituted Cline! officials. 7 Managing Menibers those affiliates desrg voted cas managing members by. daly constituted aiitherity: te istrict others an religious matters, oS) Members Entitled to Be Rntrosted With Posi tions of Trust and Confidenes Those affttiates whe. hy reason of thei r religious beliefs, are designated by the-Eeelesiastieal Head of the Church to be eapable of holding office or positions of trust and confidence in the socretv, or in any of its congregations, or any temporal agency. This position is always pro- Commissioner of Internal Revenue 49 bationary, and may be suspended by the Eeclesi- astical Head and terminated by the Advisory Board of Elders or by a judgment of the ecclesiastical eourt. The Ecelesiastical Head of the religions society shall designate those affiliates who, in his opinion by reason of their religious beliefs, : are qualified for this classification. Termination of -ueh ‘classification or suspension shall be by reason of religions beliefs. only, and shall not be for dis- ciplinary reasons or by way of punishment. In the event of suspension from: this classification. the af- tiliate shall be disqualified to aet as an ofeer or official in the religions society, or any part thereof, or for any temporal ageney or te vet in aay position of trust or contidence under these canon laws. or any ecclesiastical or temporal gtice in the Churel. Upon suspension, the Eecesastical Head of the Chureh or such examining committee as may be designated by such Head. shall forthwith examine Stel suspended: person on mutters of religions be- hefs and immediatels report the result. thereof te the Advisory Board of Elders or to the ceclestasticad emt having jurisdietion: and sueh report shall he comelisive us te ecelesiastiens beliefs. Coanen Law No. 16 Obligations of Membership. It shall be the obligation of all. members to fathfully and without mental reservations abide by the constitution, canon laws, and the rules and reygu- lations ef the ecclesiastical Church Govertinent and the interpretation and decisions of the officials of said Chureh Government. ATL lawful orders) and 50 Peggy Lou Riker, et al., vs. directions of any duly constituted official within the seope of his or her ecclesiastical authority shall he obeved at once and without question: however. nothing herein contained shall requjre or suggest violation of any law, statute or ordinance, nor shal! it require or suggest anything to be done contrary to the doctrines and teachings of the Chureh, Any per- son aggrfeved by obedience to any such order or di- rection shall have a right to be heard by the duly constituted. official of the ecclesiastical hody with power to correct any abuse of authority, or a fair and impartial hearing before the Church Judiciary, at the option of the aggrieved person, or both as in the canon laws provided. | Canon Law No. 17—No Legal Obligations to Mem- bers for Gifts. There shall never be any legal obligation for giv- ing or payment of money or transfer of property as.a condition for obtaining or retaining any office, status or membership; and any official who directly or indirectly seeks either for himself or any orgami- — zation or temporal ageney of the Church to estab- lish such ai legal consideration shall forfeit his office and any member who directly or indireetly secks either for himself or for any organization or temporal agency of the Church to establish such a legal consideration shall be excommunicated. Canon Law No. 18—Regulations Governing Mem- bership (Financial Liability). No financial or property rights and no financial liability shall acerue by reason of any kind of mem- Commissioner of I nternal Revenue Ol bership nor shall any person incur personal financial or property rights nor liability by: reason of any office or membership held in this Church; and all contracts, understakings and other ayreements made -whether as a temporal agency or otherwise—for and on behalf of the Chureh shall contain. as a provision thereof this provision. . Canon Law’ No. 19-—Regulations Governing Com- pensation to Members. All services performed for, given to, or expended “by any person subject to these canon laws for the Church, or any congregation, project, ecclesiastical society or any part thereof, or of the temporal agency, shall be gifts, absolute and complete, for whieh there shall never be any compensation or other remuneration unless there is an express con- tract in writing between such person subject) te these canon laws and the person, group or organiza tion sought to be eharged .detining the method of compensation, rate and the services or work or property to be compensated, and such written con. tract has been duly approved in writing by com- petent officials of the ecclesiastical Church Govern- ment. Tt is the intention*of these canon laws that all such services and work shall be outright gifts to the Lord’s work; and no individual or person shall protit from: money or propery given or obtained for religious purposes. The ecclesiastieal Church Goy- ernment shall not approve in writing of anv such 52 Peggy Lou Riker, et al., vs. written contract for services or work or property to be compensated unless and until the official ex- ercising such discretion determines that such com- pensated services are within the said religious pur- poses and such compensated services are necessary to carry out such religious purposes. Canon Law No. 20—Property Rights of Individuals. No person shall ever have any personal, proprie- tary or other right, title or interest in or to any property of the Church, congregation, projecty ec- clesiastical society or any part thereof, or temporal ageney, by reason of meinbership in_ the society, ‘Chureh, congregation, project, ecclesiastical society — or any part thereof, or temporal agency, or of any i office therein. All property shall be used exclusively for religious purposes according to the beliefs and teachings as interpreted and construed by the duly constituted Chureh Government. Canon. Law No. 21—Political Affiliations. No person shall use his office or connection or membership in the Chureh, nor any: property of the Church or any of its temporal agencies, for political purposes, or to promulgate or spread propaganda nor to influence legislation. All persons in or connected with the religions society shall have absolute freedom of political af- filiation, choice and/or action in any political matter and no pressure or direction, directly or indirectly, shall be used or aiverted through the religious Commissioner of Internal Revenue 53 society or any part thereof to affect or influence any political affiliation, choice, action or vote. No person under these canon laws shall ever di- rectly or indirectly attempt to change or advocate the change of government by other than, lawful means. Any person assisting, or joining, or advo- eating the principles of, any organization advocat- ing the change of government by other than lawful means shall be excommunicated. No person under these canon laws shall ever di- rectly or indirectly belong to the Communist Party, or any of its affiliated or front organizations. No person under these canon laws shall ever directly or indirectly belong to any fascist or nazi organiza- tion or faseist oF nazi political party. Canon Law No, 22—Definition of ‘Project’? and _** Project Managers.”’ A “project manager”’ shall be any person having any classification of ecclesiastical membership who ix duly authorized and empowered hy the duly con- stituted ecclesiastical Church Government to assist those on the: project in applying Christianity as taught, construed and defined by the duly consti- tuted Church Government to every-day life. Such project manager is an ecclesiastical official of the Church Government, and shall be selected from among those designated by the Ecclesiastical Head of the Church Government to be entrusted with a position of trust and confidence. 54 ; Peggy Lou Riker, et al., vs. A ‘project’ is any group, undertaking or activ- ity in which one or more persons under these canon laws undertakes to apply and illustrate Christianity as taught, construed and defined by the duly con- stituted Church Government to every-day life. “A project may or may not be owned in whole or in part by some temporal agency of the Church, or it may be owned by some individual and tempo- rarily dedicated to such use withont affecting, im- pairing or lessening the ownership of the individual therein. No property, other than money gifts and vifts of services shall be accepted by any temporal ‘agency without the consent of the ecclesiastical Church Government. Such assent may be condi- tional or absolute. . Canon Law No. 23—Publications. No publication shall be made in the name of the Church except that which is duly authorized by the Chureh Government. Projects, congregations, LrOUps, socleties and temporal agencies of the Church may make and distribute publications so_ long as they are in accordance with the religious purposes of” the Church religious society and_ its doctrines, beliefs and teachings, but it shall appear thereon that such publication is only that of the particular project, group, congregation, society. or temporal agency. Any such publication that de- parts from the religious purposes, shall be = sus: pended by the Church Government; but nothing herein contained shall be used as censorship, and Commissioner of Internal Revenue 55 such suspension shall be subject to review by the Church Judiciary. : Canon Law No. 24—Duties of Affiliates. It shall he the duty of all affiliates, including stu- dent ministers and members of every classification, to constantly remember that Christ Jesus’ Golden Rule applies specifically to their treatment. of others, regardless of how others: may treat them, and to continually seek to use that principle in their everyday lives and in their dealings with al! with whom they come in contact * * * whether affili- ated with the Church or any of its agencies or not: It shall further be the duty of all affiliates, includ- ing student ministers and members of every ¢lasst- fication, to earnestly endeavor to so live that their actions as well as their words wili constitute an exemplification of Christ Jesus’ teachings and so continue to perfect the ‘illustration”’ of the prac- tiability of such teachings which is being estab- lished by Christ’: Church of The Golden Rule and all of its agencies. Canon Law No. 25—Grounds for Diseipline. As an intent to violate a canon law is the essence of an ecclesiastical offense, no proof of an overt’ act is necessary in any disciplinary proceedings or action before the Church Judiciary, : Vilifying any ecclesiastical official or slanderous remarks against any membe¥r shall be grounds fer dise*pline under these canon laws. 6 Peggy Lou Riker, et al., vs. Any attempt to divert property-of any temporal aeeney from its religious piurposes or to misuse the same contrary to the doctrines of the ecclesiastical organization as defined by the ecclesiastical Church Government shall be grounds for discipline under these-canon laws. Any blasphemous statements oer utterances shall he erounds for discipline under these canon laws. Aiding, encouraging or advistne any person to depart from the Christian ideals, as taught by the ecclesiastical Church organization, shall be grounds for diseipline under these canon laws, Aiding. abetting, advising or encouraging, di- rectly or indirectly, in any schism or division or * separation from the Church organization, except by democratic meaiis in conformity with the Church constitution or its amendment, shall be grounds for discipline under these canoa laws, Duties of Officers Crnon Law No, 26- Duties of Keclesiastical Head. The Keelesiastical Head of the Chareh Govern- tneut Shall desienate the various examining com. mitters, and speeriy their duties, ft Shall be the duty of the Eeelesiastical Tead of the Chureh Government beth personally and through @xamining committees to determine the teachings, doetrimves. religious observances, and. re- ligtens practices in the various projects, groups, eonorecntions and seeteties of the Chureh and that > - Commissioner of Internal Revenue 57 they are maintained according to the religious doc- trines, teachings, practices and observances of the ecclesiastical organization, and in conformity there- with. Canon Law No, 27—Dnuties of Secretary. There shail be designated a Secretary, who shall keep the records of the ecclesiastical matters of the Church Government, and perform such duties as the Ecclesiastical Head shall designate in the mat- ter of correspondence, Canon Law No. 28—Privileges of Officers. It shall always be the privilege of any officer of the eeclesiastical Chureh Government to attend any meeting of any committee or areney, to inspect their meeords, to require a repert of any financial or property matter, to require an accomit of any temporal ageney or officer or member handling roney for or on account of any Chureh activity or trust or religious purpose, and: to make any maquiry whieh any such Chuich Government officer shall deem Necessary, proper oF convenient, Conon Law No. 20—Eeclesiastical Head. Is) Pas tor to All Members. it shall be the privilege of the Feelesiastical Head of the Chureh Government to be the pastor to all of the various members: of the society, regardless of where they may be loeated, live or be, and re- vardless to what) project, congregation, eroup ar ¢ 58 Peggy Lou Riker, et al., vs. society they may belong; to minister to them, and — to give or perform the sacraments. The ordained members and pastors shall perform the duties of their ministry in whatever area they may be as- signed by the Church Government. Judicial Canon Law No. 30—Establishment of Ecclesiastical Courts (Church Judiciary ). There are hereby created ecclesiastical courts of the Church Government to be known and designated as the “Church Judiciary.” The Church official or officials acting as and exercising the ecclesiastical court powers or as arbitrator, evaluator or in de- termining damawes, shall be designated as “judge” of the Church Judiciary. Canon Law No. 31—Appointment eof Judges and. Duties and Powers of Church Judiciary. The Advisory Board, with the written approval of the Eeclesiastical Hegd of. the Church Govern- ment, shal appoint one or more members of the ecclesiastical organization as judge of the Church Judiciary, to hold office until his successor is ap- pointed. The Advisory Board, at the time of appointment, shall designate the area in which such judge shall act. Any such judge: of the Church Judiciary who shall, for any reason, determine he is disqualified to act in any matter, shall report such disqualification to the Advisory Board, and the Advisory Board, with the written approval of Commissioner of Internal Revenie 59 the Ecclesiastical Head of the Church Government, shall destgnate and appoint another person to act as sueh judge of the Church Judiciary. In such hatter Wherein such disqualification bas been re- ported, but not in any other matter. The Judge ‘of the Chureh Judiciary shall pro- mulgate and adopt rules of procedure, in con- formity with the Anglo-Saxon concepts of justice. Pleadings may be oral or written, and cif oral the Judge shall cause them to be reduced to writing in the Church Judiciary reeords, Violation of any canon law shall be grounds for diserpline and. the Church Judiefary shall punish only after notiee and an opportunity: for a fair trinho and: punishment shall be sueh as the Chureh Judiciary may determine, up te excommunication, and may be condithonal: and may be staved upon Sich terms and conditions as the Chureh Jndienry or the Reviewnne Nutherity) may Cetertmine. pend- Misr My Review, Amv person dn and: dtsenplinary proceedimes. whe tus be dissatisfied with ans tinal pudement or de- cistomy may either oralls orn Writing within ten I) dass of such judement or decision state to the Chiureh Judietary that lie or she qe dissatistied wath such judetment and deetsionr: ated ask for a review thereof. Wherenpen the judge of the Chureh dn dietary shall certify his records in the case together witha Sumimnars of afl testimony and proceedings to the Eeeclesiastical Head of the Church Govern- tment. and satd Reelestastieal Pbesad) **(3) That the Commissioner disallowé@ the ex- pense of $168.61 for, property and sales taX@s as a proper deduction.” ITI. That Paragraph IV of the — petition is i mended to read: ; >- “That the facts upon which your petitioner rely are: (1) That during the entire period of time in- . volved in the return, and during 1948 and at: all times herein mentioned Christ’s Church of The Golden Rule was and is a Church and religious society and. its principal temporal agency was and is the Elected Detegates Committee of the Eeclesi- astical Society of Christ’s Church of The Golden "Rule, which committee held all money and property in trust and was organized to act for the ecclesiasti- eal organization for religious purposes Pursuant to the Church Constitution and Canon Laws, a eopy of which is attached hereto marked Exhibit B and incorporated herein by reference, That 'said Church is and was an exempt organization and- within the ' provisions of Section 101(6) and all money and — property were and are held for religious purposes -only and: no part inures nor inured to the benefit of any person, individual or private shareholder, now is nor was any part used or usable for propa- ganda or to. otherwise influence legislation. 79 Peggy Lou Riker, et al., vs. (2) That your petitioner, during the calendar year, ran and operated a certain project of Christ's Church of The Golden Rule known as ‘Your Food Fountain’ at 901 E. Base Line Blvd., San Bernar- dino, California; that said project was established from funds provided by the temporal agency of the | said Church; and was conducted under licenses in the name of vour petitioner. That the said temporal agency passed under the control of the Bankruptey Court in Los Angel@@and an agreement was made hetween the Trustees in Bankruptey and the Elected Delegates Committee’ of the Ecclesiastical Society of Christ’s Church of The Golden Rule, whe reby the said committee acquired the interest of said trustees in Bankruptcy. That the said -taxpayer, together with affiliates of the said Chireh, ran and operated sdid Food Fountain, up to January 20, 1948, and all gross receipts therefrom. were de- posited directly in the bank account of said Elected Delegates: Commyttee, and the affiliate making the deposit executed Church Form known as No. 399 and transmitted the original thereof to the com- mittee. That all expenses attendant with the oper- ation of Your Food Fountain up to January 20, 1948, from October 1, 1947, and prior thereto, were paid from a commercial banking account designated as Your Food Fountain Project Account. That dur- ing said period of time up to January 20, 1948, listed items of expenses of operation of the Food- Fountain were submitted with an agreed budget to the said committee, and the said committée would from time to time draw its check for the said proj- Commissioner of Internal Revenue 71 ect account to permit payments of said expenses of operation. That there was no commingling of the said-Elected Delegates’ bank aecount and the said Project Acgeunt. Thé gross reteipts shown in the taxpayers’ return from the start. of the fisea? vear on October 1, 1947, to January 20, 1948, were. the sums directly deposited to the said committee’s ac- count, and said gross receipts appear in the tax return of the said committee as an Apostolic Society under the item of ‘Application of Student Min- isters’ Training Program’ for the vear 1948. That the expenditures from the said Project Account, supported by paid or receipted vouchers, were car- ried on the said committee’s books under its respec- tive item of expense or disbursement, and the expenses of the conduct of the Fountain to Janu- ary 20, 1948, appear in the said Apostolie Society's return as a portion of the ‘Items of Expenses and Equipment, Materials and Supplies of Student Minister Training Projects.”. That from January 20, 1948, to June 30, 1948, a consistent effort was made by the said committee to sell the said Foun- tain as a going business and to clear up the cloud of the claim of the trustees in Bankruptey. That during said period, the taxpayer was the sole Church affiliate in the business, and she ‘used three separate partners, mostly relatives, to conduct the business. That the taxpayer transmitted her share of the earnings, as received from each partnership, to the Church, together with a Form No. 399. That these funds given from January?20, 1948, to June ; 30, 1948, were transmitted to the said Elected -Dele- 72 Peggy Lou Riker, et al., vs. gates Committee and are reported by the said com- mittee as part of the Apostolic Society’s income in ‘said Society’s tax return, as part of the item ‘Gifts from Individnals.”- That on July 22, 1948, the said Elected Delegates Committee purchased such 4inter- estas the trustees in Bankruptey claimed in said Fountain, and the said sale was duly confirmed by the said Bankruptey Court. That the purchase price note of $1,500 was duly exeeuted by the said committee and delivered by the said committee to the said trustees in Bankruptcy and paid by the said committee to the said trustees in Bankruptey according to the terms of said purchase note. That after July 22, 1948, the said project Your Food Fountain was operated and all the profits therefrom paid to the committee, after. the deduction of ex- penses connected therewith, and the said business was sold by the said committee and the entire net proceeds received by the committee were deposited in its bank account. That during the entire fiseal period from and after October 1, 1947, and until the sale of Your Food Fountain by said committee, your taxpayer resided with a group of the Apostolic Religious Societv’s members of said Church living in San Bernardino. That the said group paid for Its living expenses from the Project Aecount, and ” all living eXpenses were required to be made and were according to an approved budget duly sup- - ported by paid vouchers, and such. vouchers were submitted monthly to the said committee: and the said committee would and did provide funds from its bank account for such Project Account, inelud- Commissioner of Internal Revenue 73 -ing the cost of operation and the actual expenses of living of said Apestolic Society group. That the amounts and sums in said approved budget for liv- ing expenses were determined by the duly consti- tuted government of ‘said Church government. That the personal living expenses of said group are in- cluded in the said committee's tax return designated as ‘Student Minister Maintenance.’ That during all of said time the taxpayer’s minor daughter, then seven ‘and eight years old, lived with taxpayer at the said San Bernardino Apostolic Society group of said Church, and all. the adults’ of Said group were affiliates of said Church and part of the Apostolie Society of said’ Church. That said corn- mittee’s tax return was made as an Apostolic Society, and the Common Community Treasury thereof, upon a Form 1065, and all the income therefrom was reported by each of the persons in said Apostolic group as income, whether received or not, pursuant to the said requirements of Sub- division 18 of Section 101, Revenue Code. That said proportionate share was reported as the sole income of the taxpayer, for herself and her minor child as two proportional units thereof as aforesaid. | (3) That your petitioner expended during said vear the sum of $168.61 as and for property’ and sales taxes, which were proper deductions for com- puting income for tax purposes,”’ - IV. a That the said prayer be amended by appending thereto the following: 74. ‘Peggy Lou Riker, et al., vs. “That the Court determine that the funds of Your Food Fountain are properly income of the said committee of said Chureh,-and that your tux- payer is taxable under the provision of Subdivision 18, Section 101 of: the Revenue Code, only for her | proportionate share, whether received or not, for herself and her minor child, after deduction of personal exemptions of the taxpayer and her minor — child therefrom.” | /s/ HOWARD BL CRITTENDEN, JR., Attorney for Petitioner. . Duly verified. AFFIDAVIT IN SUPPORT OF PETITION TO AMEND State of California, City and County of San, Francisco—ss. Howard B. Crittenden, Jr., being first duly sworn, deposes and says: That he is attorney for the petitioner in the above-entitled matter. That the above-entitled action together with the (irasmee and the Grossheim cases are three test * eases selected from the group pending. before the Agent’s office in San Francisco involving members of Christ’s Church of The Golden Rule. That there is an understanding that the determination on these cases will be conelusive upon the parties and the Commissioner of Internal Revenue 75 Commissioner in the determination of the matters pending for said years. That the said (irasmee case and the said Riker case were selected to present the question of Subdivision 6, Section 101, Exemp- “tion: and the Grossheim case presented the report- ing and exemption under Subdivision 18.of Seetion 101. That in conferences with the technical staff and General Counsel’s office, affiant, on behalf of said taxpayers, learned that the Commissioner con- tended that there was an error in the Grossheim matter resulting in a negligible tax of approxi- mately $1.00, and that the said Grosshéeim matter would be conceded by the Commissioner before the Tax Court, and no adjudication would therein - be involved. That in the course of the conferences with Mr. Mareussen of the General Counsel's office. affiant stated that the Riker case conld be amended to in- elude facts sufficient to raise the matters otherwise involved under Section 101, Subdivision 18, instead of and in place of the Grossheim matter; and in the Spring of 1954 affiant tendered to the said Mar- eussen as such counsel a snegested stipulation ovt- lining the facts: set forth in the attached amend- ment. That by reason thereof the Commissioner will not be prejudicedby any delay in the tendering of the amendment. That it was stated to affiant by the successor to Mr. Marcussen, as attorney for the Commissioner, that said attorney could not join in the stipulation as to the facts recited in the pro- posed written offer, but only as to the formal docu- 76 Peggy Lou Riker, et al., vs. ments attached thereto and the authentication and : due execution thereof. * —./s/ HOWARD B. ; CRITTENDEN, JR. Subscribed and sworn to before me this 19th day of October, 1954: [Seal] /s/ AGNES M. COLE, Notary Public in and for the City and County of San Francisco, ‘State of California. ‘My commission expires August 28, 1955. _ Affidavit of Service by Mail attached. Lodged October 25, 1954. _ Filed at hearing November 1, 1954. [Title of Tax Court and Cause.] Docket No. 46,978. ANSWER TO AMENDED PETITION Comes now the Commissioner of Internal Rev- enue, respondent above named, by his attorney, Daniel A. Taylor, Chief Counsel, Internal Revenue Service, and for answer to the amended petition filed by the above-named petitioner admits and denies as follows: : Admits the allegations contained in paragraph I of the amended petition. Commissioner of Internal Revenue 17 II. Denies that the Commissioner erred in the deter- mination of the deficiency as alleged in paragraph II of the amended petition. TTT. Denies the allegations contained in paragraph IIT “of the amended (petition and all subparagraphs thereunder. . IV. Denies the allegations contained in paragraph TV of the amended petition. Wherefore, it is prayed that the Commissioner’s determination be approved and the petitioner's ap- peal denied. /s/ DANIEL A. TAYLOR, Chief Counsel, Internal Revenue Service. Filed at hearing November 2, 1954. Served November 2, 1954. [Title of Tax Court and Cause.] Docket Nw. 46,979. AMENDMENT TO ANSWER Leave of the Court having first been obtained, Comes now the Commissioner of Internal Rev- enue, respondent above named, by his attorney, 78 Peggy Lou Riker, et al., vs. Daniel A. Taylor, Chief Counsel, Internal Revenue Servicasand amends his answer to the petition filed by the ‘above-named petitioner by striking the . prayer therefrom and adding the following: ve Further answering the petition herein, respond- ent alleges as follows: (a) On each of her returns for the taxable years 1948 and 1949 petitioner claimed two exemptions, one for herself and one for her. mother. (b) Petitioner’s mother did not receive from petitioner over one-half of her support for the tax- able vears 1948 and. 1949. Petitioner is therefore not entitled to an exemption for her mother in either of said years. (¢) There is accordingly due from petitioner such increased deficiency in income tax for each of the years 1948 and 1949 as will result from the dis- allowance of the exemption claimed with respect to petitioner's mother. Wherefore, respondent prays that the Tax Court redetermine the deficiencies in income tax for the taxable vears, 1948 and 1949 to be the amounts de- termined by the Commissioner in his notice of deficiency, viz., $86.53 and $90.00, respectively, plus such increased deficiency as may be indicated on a Rule 50 computation resulting from the further adjustment described herein, claim for which is Commissioner of Internal Revenue — . 79 hereby made pursuant to the provisions of Section 272(e) of the Internal Revenue Code. /s/ DANIEL A. TAYLOR, Chief Counsel, Internal Revenue Service. Nd Received and lodged September 8, 1954. _ Filed September 9, 1954, T.C.U.S. | Served September 10, 1954. [Title of Tax Court and Cause.] MEMORANDUM DECISION 1. Held: Income derived from the operation of a restaurant by petitioner was her income and not that of the Church organization to which she con- tributed it. | 29. Held: Part of ‘amounts contributed to a Church organization by petitioners was not de- ductible as contributions to a religious organization, since the Church was not organized and operated exclusively for religious purposes within the mean- ing of Section 23(0), Internal Revenue Code of 1939. | 3. Held: Dependency exemption for petitioner’s mother disallowed, since her support was received from the Church. | 80 Peggy Lou Riker, et al., vs. HOWARD B. CRITTENDEN, JR., ESQ, x For the Petitioners. T. M. MATHER, EgQ., For the Respondent. MEMORANDUM FINDINGS OF FACT AND OPINION Respondent determined a deficiency in income tax against petitioner -Peggy Lou Riker in the amount of $1,584.03 for 1948, and deficiencies of $86.53 and $90 for 1948 and 1949, respectively, . against petitioner Freda H. Grassmee. By amend- ment to respondent’s answer in the case of Freda . Grassmee, an increased deficiency was claimed he- eause of respondent's disallowance of an exemption claimed with respect to her mother. The cases were consolidated for hearing and de cision. . . The questions we have to determine .are (a) whether income derived from the operation of a restaurant by petitioner Peggy Lou Riker. was in- come taxable to her or to a religious organization, ‘of which she was a member; and if taxable to her (b) whether.she. is entitled to a deduction for the vear 1948 for contributions to a religious organi- zation under Section 23(0), Internal Rev enue Cod: of 1939. In the case of Freda H. Grassmee the questions are whether the contributions to the same religious organization for the years 1948 and 1949 are deductible, and whether she is. entitled to a * . Commissioner of Internal Revenue 81 4 dependency exemption for her mother for .those vears. Findings of Fact The petitioners are individuals. During her fisca! year 1949 Peggy Lou Riker lived in San Bernar- dino, Califernia. During 1948 and a part of 1949 Freda Grassmee lived in Los Angeles; in August, 1949, she moved to San Francisco. Both petition- ers’ returns for the years in question. were filed with the collector of internal revenue for the first district of California at San Francisco. Christ's Chureh of The Golden Rule is a religious nonprofit California corporation (hereafter called the Church). The Church was organized in 1944. 1n 1945 the Chureh was adjudicated a bankrupt and during 1948 and 1949 was in bankruptcy. The Chureh adopted a constitution anc canon laws in 1948. The religious beliefs of the Church are set forth in the constitution which declares a helief in a true God, in Jesus Christ, the scriptures and in salvation through repentance. The economy of the Church is declared to be based on economic equality and the property and earnings of its members in the words of the con- stitution | should be owried and managed by the Churel for the benefit of all mankind if accordance with the rules and regulations of the ecclesi- astical society of this Church, that God may 82 Peggy Lou Riker, et al., vs. be glorified and all a directly or indi- “rectly benefited. The ecclesiastical affairs of the Church are in the -hands of an organization consisting: of a senior elder, an advisory board of elders, and a college of ° * pastors. | The temporal affairs of the Church are in the hands of ‘‘temporal ageneies”’ subject to the con- trol of the ecclesiastical authorities. Such affairs are carried on through charters granted by the senior elder with the advice of the advisory hoard, to the ‘‘various congregations, iene and other temporal activities * * *.’’- According to- the canon laws of the Church, a ‘charter could be granted, withheld or revoked upon whatever térms and conditions the Church Govern- ment designated. The canon laws of the Church provide, inter, alia, that all temporal agencies are to hold ‘‘their property upon a -private trust for the ecclesiastical organization,’’ and All transfers, conveyances and sales. shall be presumed to be bona fide gifts to the Lord's work unless there be conditions or understand- . ings or promises. to the contrary if writing, duly approved in writing by the duly consti- tuted ecclesiastical Church Government. In operation, activities of Church members are of two types. Some members devote all of their: time to working in Church. projects and studying to be ministers of the Church’s teachings. These Commissioner of Internal Revenue 88 are called student ministers, and they live in apos- tolie societies called ‘“‘Student Minister Training Projects.’’ One purpose of these projects, most of which were engaged in commercial cetivities, is to spread the teachings of the Chureh by having the publie witness the application of these teachings in everyday life. Some projects were not engaged in commercial activities but simply operated resi- dential facilities for Church members. Members living in both types’ of projects contributed their earnings to the Church. Other Church menihers lived at home and participated in Church activities. The Church operated a theological seminary. The principal temporal agency ‘of the Church is | the Elected Delegates Committee (hereafter called the Committee) which was formed in 1946. During 1948 and 1949 thé Committee eperated various student minister training projects. It also operated the Church treasury and carried on vari- ous commercial activities in competition with pri- vately owned enteiprises, Including, among others, a restaurant, a laundry, a lumber yard, bulb gar- dens, farming, stock raising and a warehouse. These enterprises were operated for profit. Gross receipts from the operation of these projects were sent. to. the Committee covered by a. form stating that the transfer was an outright gift from the * project manager and was to be used only for Church pur- poses, . _ For 1948 and 1949 the Saad filed amended returns of income on Treasury Department form - 84 Peggy Lou Riker, et al., vs. 990 as an organization exempt under section 101 of the Internal Revenue Code of 1939, and also amended returns as an apostolic society on the partnership form 1065, The returns showed the Committee’s gross income for 1948 as $484,981.44, of which $347,489.99 was reported as received from the operation of student minister training projects, and $137,491.45 from contributions and gifts. “In 1949 gross income of $409,590.05 was reported, of which $352,528.70 was from the operation of student minister training projects and $56,033.27 was from vifts and contributions. On the Committee's re- turns. as an apostolic society, the undistributed pro_ rata share of each member of the apostolic society Was reported as $342.27 for 1948 and $316.17 for 1949. During the taxable years Peggy Lou Riker was a member of the Chureh. Prior to joining the Church Peggy Lou and her husband had operated a drug store in partnership with his parents. The partnership was dissolved and Peggy Lou and her husband took the fixtures of the business and made a cash settlement with his parents. The fixtures were then used to set up a student minister train- ing project to operate a restaurant under the name of **Your Food Fountain” (hereafter sometimes called the Fountain). Peggy Lou was manager of the project and the business license was in her name. Her'duties included giving religious instrue- tion to ‘members’ of the project, who varied in number from 12 to 17. All of the receipts from the Commissioner of Internal Revenue 85 operation of the Fountain were turned over to the Committee on a form such as that described above, signed by Peggy. Lou as project manager. Funds were in turn allocated by the Committee from the Church treasury for the operation of the Fountain and the living expenses of the members of the group. - While the bankruptcy proceedings of the Chureh _ were pending, Peggy Lou sued the trustees in bank- ruptey to establish her ownership of the equipment of the Fountain. An agreement was made in May, 1947, between Peggy Lou and the trustees relating to the Fountain while the litigation was pending, which provided that Peggy Lou was to operate the estab- lishment until the lawsuit involving ownership was settled. The income during this’ period was to be- long to Peggy Lou and she was to pay the trustees certain amounts to be deposited by the trustees in a trust fund account. All operating expenses were to be paid by Peggy Lou. From May, 1947, until July, 1948, the restaurant was operated under this agreement. Of this. period, from.May, 1947, until Fanuary. 1948, the restaurant was run as a “Chureh project,” and the earnings “were turned over to the Committee by Pégey Lon. From January, 1948, until June, 1948, Peggy Lou ran the business in private partnership with-other persons who were not members of the Church, and from June until September, 1948, she operated the business on a percentage basis with a prospective purchaser of the business. Her partnership share 86 _ Peggy Lou Riker, et al., vs. of the restaurant’s earnings was contributed to the Committee. For five months of her fiseal year 1948, January 20 to June 30, Peggy Lou filed partner- ship returns for three different partnerships that operated the restaurant in thiy, period. In July, 1948, the assets of the restaurant were sold to the Committee for $1,500. Peggy Lou consented to the sale. Peggy Lou filed an income tax return for her fisenl vear 1948 (October 1, 1947, until September 30,°1948), which disclosed a net profit of $7,568.25 from the operation of a restaurant business under the name of ‘‘Your Food Fountain.’’ A memo- randum attached to the return read as follows: Item 2. Wages, ete. Taxpayer was employed by Own Business’ for a gross Income of $8959.11 during the taxable vear. However, under the rules of the apostolic society fof which taxpayer is an associate) that all in the society share their income, $8959.11 was contributed to and became vi part of the income of the apostolic society, and is reported as part thereof, Taxfiaver would therefore be taxed twice on the same income by reporting at as wages and also’ as a dividend. For this reason, this latter sum is reported only as part of the dividend or taxpayer's pro rata share | of the net income of said apostolic religious society. (See Item No. 3 Dividends.) Item 3. Dividends. 1/575 interest in $217,001.54 net income of the Elected Delegates” Committee of the Eeclesiastieal Commissioner of Internal Revenue 87 Society of Christ’s Church of The Golden Rule, and Apostolic Religious Association for its account- ing period of Oct. 1, 1947, to Oct. 1. 1948, This was ‘not received as a dividend, but is reported under See, 101(18)—Per person in Association $377.39. Number of persons in taxpayer's family who were. in association and obtained support from Society during period: Me Ries WITT. 6c css cee cbse esse $754.78 In her return for 1948 Peggy Lou claimed the sum of $8,959.11 as gifts to the Church. This claim was disallowed by the Commissioner and this action was alleged as error in the original petition, In an amended petition it was prayed that the income of the Fountain bé found to be the income of the Church, Facts With Relation to Petitioner Freda H. Grass- mee. Freda H. Grassmee was employed in a law office in Los Angeles during 1948 and 1949. She was a member of the Church. She contributed practically all of her salary for those years to the Committee. She and her mother lived in a Church residential project and participated in religious activities of the Church. Both ‘received. their support from the Church. Freda’s income tax returns for 1948 and 1949 contained memoranda as to the disposition of her income similar to that attached to Peevey Lou’s return. On her returns for both years she claimed a dependency exemption for her mother. 88 Peggy Lou Riker, et al., vs. The Commissioner disallowed the deductions claimed as contributions to the Church in 1948 and 1949. In an amended answer he claimed increased deficiencies based on disallowance of the depend- eney credits claimed for Freda’s mother. . Opinion Tietjens, Judge: — In the petition originally filed petitioner Peggy Lou claimed that all of the income derived from the operation of the restaurant ‘‘Your Food Foun: — tain’? was donated by her to the Elected Delegates’ Committee. By amendment to her petition she claimed that the income was nof hers but was the Committee’s; that her only income was her propor- tionate share of the Committee's net income for the year, which, though not actually received, was ap- portioned te her as a member-of an ‘apostolic asso- ciation.” Peggy Lou made her return for 1948, the year in question here, on a fiseal year basis, October 1, 1947, until September 30, 1948. Our findings show that she entered into an agreement in May, 1947, - with the trustees ino bankruptey under which she was to operate the Fountain until her claim to ownership of the restaurant equipment was judi- cially determined. This agreement expressly ‘pro- _ vided that all funds derived from the operation of the restaurant were to belong to her, and she was to make certain payments to the trustees. It ap- pears that she, continued to operate the restaurant + Commissioner of Internal Revenue 89 under this agreement until July, 1948, when the yestaurant equipment was, sold to the Committee. According to her testimony, during that part of her fiscal year from October, 1947, to January, 1948, she ran the restaurant as a Church project, she heing project manager; and from January to June, 1948, the restaurant was run as private -business by a partnership of which she was a member. Dur- ing the latter period the operation of the resteurant was not a Church project. Although the restaurant equipment was sold to the Committee in July, 1948, Pegey Lou continued to operate the business until September, 1948, on what she termed a ‘‘percentage basis”? with another person who was interested in buying the property. Late in 1948 or early in 1949 the Fountain was sold, the Committee receiving the purchase price. In the October-January’ period the vross receipts of the business were turned over to the Committee by Peggy Lou as a gift..and in the came manner she turned over her share of the proceeds of the business in the January-June and dune-September periods. On the basis of the foregoing evidence we think it is clear that at least during the October to July — period Peggy Lou operated the restaurant under the agreement with the trustees in bankruptcy and the income she received from its operation was bers and not the Committee's. Income is taxable to the one who eninis it or otherwise creates the right to receive it and to enjoy the benefit of it when paid. Helvering v. Horst, 311 U.S. 112 (1940). The in- 90 Peggy Lou Riker, et al., vs. come was earned principally as a result of Peggy Lou’s efforts in operating the restaurant. Accord- ing to the agreement with the trustees she had an unqualified right to receive the funds from the operation of the restaurant and her testimony was that she actually received them. That her enjoy- ment of the income‘ consisted of donating it to the Committee cannot relieve her of the liability for tax on its receipt. Helvering v. Horst, supra. The status of the income from the operation of the restaurant in the period from July to the end of Peggy Lou’s fiseal year, September, 1948,.is less certain. There is no breakdown as to what amount — "of restaurant income was earned in this period. Petitioner has the burden of overcoming the cor- rectness of respondent’s determination that the in- come was hers. To meet this burden the evidence is that the restaurant equipment was owned by the Committee in this period, and upon the sale of the restaurant late in 1948 or early in 1949, the pur- chase price went to the Committee. On the other hand, Peggy Lou testified that she operated the restaurant in this period on a percentage basis with a prospective purchaser, and that she received a share of the receipts of the business, which she donated to the Committee. On this- state of the ‘record we can hold only that petitioner has failed to meet her burden of proof, and that respondent’s determination should stand. Having determined that the income from the operation of the restaurant was taxable to Peggy Commissioner of Internal Revenue 91 a] ‘Lou, the next question is whether a part (15 per cent of her adjusted gross:income) of the amount she turned over to the Committee may be deducted as a charitable contribution under section 23(0), Internal Revenue Code of 1939. The refusal of the respondent to permit any amount as a contribution to a religious organization was one of the assign- ments of error in Peggy Lou’s amended petition. The same question is presented in the case of Freda (irassmee, who was privately employed and turned over almost all of her income to the Committee. That part of section 23(0) which is pertinent here provides: In computing net ‘income there shall be allowed as deductions: (o) Charitable and Other Contributions. — In case of ‘an individual, contributions or gifts pay- ment of which is made within the taxable vear to or for the use of: {2) a corporation, trust, or community chest, fund, or foundation, * * * 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 * * * | te an amount which in all the above cases combined does not exceed: 15 per centum of the taxpayer's . adjusted gross ineome. - 92 Peggy Lou Riker, et al., vs. The respondent claims (a) that the Committee was not organized and operated exclusively for the purposes required by the statute, because one of its principal activities was the operation of various ” business ventures; and (b) that since the senior elder of the Church has exclusive control of the Church and its property, the earnings of the Church may inure to his benefit or to the benefit of other . Church officials who are empowered to request an election as senior elder. Our findings of fact show that according to the constitution and canon laws of the Church the Committee was set up to handle the temporal affairs — of the Church, as distinguished from its spiritual or ecclesiastical affairs. In carrying out this purpose it operated a restaurant, a laundry, a lumber mill, and various other commercial enterprises, which were its principal sources of, income during the years in question. In determining whether an entity is ‘organized and operated exclusively for- religious, charitable, * * * or educational purposes’” within the meaning of section 101(6), Internal Revenue Code of 1939, in order to determine its qualification as a tax exempt organization, this Court has denied exemptions to those organizations set up to engage in business activities, despite the fact that the in- come earned is to go to an exempt organization. So. ‘even if we assume so far as this phase of the case is concerned, that the ecclesiastical society of the Church, the beneficiary of the Committee's earn- ings under the Church constitution, is a religious Commissioner of Internal Revenue 93 .organization qualified under section 23 (0) this does not help petitioners. We are cognizant that some of the circuit courts have differed with us on this ques- tien, and hold that where the organization in ques- tion is operated to produce income for a tax exempt body, the producing entity is also exempt from tax- ation under section 101: Roche’s Beach, Ine.. v. Commissioner, 96 F. 2nd 776 (C.A.2, 1938), reversing 35 B.T.A. 1087; C. F. Mueller Co. v. Commissione;,- 190 F. 2d 120 (C.A.3, 1951), reversing 14 T. C. 922; contra, United States v. Community Service, 189 F. 2d 421 (C.A.4, 1951), certiorari denied, 342 U. S. 932 (1952). The language of section 101 (6), ‘‘or- ganized and operated exelnsively for religious * * * purposes,’ is identical with that ‘of section 23 (0), — which describes the types of organizations to which contributions are deductible. We think our decisions under section 101 (6) should have equal applica- bility where the qualification of an organization under section 23 (0) is in question. Following our prior decisions, we hold that the Committee. was not organized and operated exclusively for religious purposes, because the reason for its organization. as shown by the constitution and laws of the ‘Church, was to conduct the temporal affairs of the Church and these in fact consisted principally of various commercial enterprises. Our holding that the Committee does not qualify as a religious organizatien to which contributions - are deductible under section 23 (0) does not com- pletely dispose of the question of the deductibility 94 —C Peggy Lou Riker, et al., vs. of petitioners’ contributions, since such contribu- tions are deductible if ‘‘made * * * to or for the use of’’ a qualified organization. In John Danz, 18 T.C. 454 (1952), (aeq. C.B. 1952-2, 1), we held that contributions to a trust set up to benefit exempt charitable’ organizations were deductible, even though the trust itself did not qualify as organized and operated exclusively for the purposes enumer- ated in section 101 (6), since such contributions were “for the use of’? the exempt charitable organi- zations. To the same effect is United States v. Weed, U.S.D.C. Mo., May 11, 1954 (C.C.H. 54-1 U.S.T.C. 9414; 1954, P.H. @72,631). Our hold- ing in John Danz cannot be aptly applied here, since we do not think that the ecclesiastical society of the Church can qualify as organized and op- erated exclusively for religious purposes. In that case there was no question that the beneficiary organizations qualified under section 23 (0), and the entity engaged in business was not carrying on the work of the beneficiary organizations. Here the laws of the’ Church provide specifically that a temporal agency is to act for the ecclesiastical Church; A temporal agency is required to be char- tered by the ecclesiastical Church Government, and the charter may be revoked upon whatever terms the Church Government may designate. All prop- erty or income received by a temporal agency is to be held in trust for the benefit of the ecclesi- astical society of the Church. Thus it is apparent _ that the Committee is an agency of the ecclesiastical sodety of the Church for carrying out the latter's Commissioner of Internal Revenue 95 . temporal functions; this being so, its commercial activities should properly be ascribed to the ec- clesiastical society itself in determining the latter’s qualification under section 23 (0). In fact, we have before us little evidence of activities of a purely . spiritual nature, as commonly understood, being carried on by the Church. ‘Although the ecclesias- tical society was established to administer the spirit- ual functions of the Church, the Church’s principal function seems to have been the various projects supervised by the Committee, which were engaged in different business activities. Cf. Trinidad v. Sa- grada Orden, 263 U.S. 578 (1924). This is under- standable in light of the fundamental beliefs of the Church, which are-not typical in that the emphasis is not on formal religious worship. The Chureh has no chureh buildings. Its principal reliance is on having its members live in a manner exemplifying Christ's teachings, particularly by living in a self- less manner. Its student minister training projects, while engaging in commercial activities, were de- signed to permit the public to witness the applica- tion of Christ’s teachings to evervday life. Thus the very means chosen by the Church to attain its spiritual purpose involve engaging in commercial activities through its principal temporal agency, the Committee, and we eannot say that the eeclesi- astical society was éperated exclusively for religious purposes as. required by section 23° (0). Conse- quently the petitioners are not entitled to deduc- tions for contributions for the use of a religious or- ganization. 96 Peggy Low Riker, et al., vs. The respondent has also disallowed the depend- -ency exemptions claimed by Freda Grassmee for her mother for, 1948 and 1949. During these years the mother lived with Freda in a Chureh project and received her support directly from the Church. Freda’s theory, we take it, is that part of the earnings she, turned over to the Committee was for the support of her mother. There is no evidence that the support received by the mother was con-. ditioned on the making of a contribution or the pay- ment of money by Freda. We think the record supports the claim made in the Commissioner’s an- swer that Freda did not contribute over half of the support of her mother and the Commissioner's elaims for increased deficiencies are approved. Decisions will be entered under Rule 50. Reeeived August 1, 1955. Served August 11; 1955, ~The Tax Court of the United States Washington Docket No. 46978 PEGGY LOU RIKER, Petitioner, vs. : . COMMISSTONER OF INTERNAT REVENUE, | Respondent. DECISION Pursuant to the determination of the Court as set forth in its Memorandum Findings of Fact and Commissioner of Internal Revenue — 97 Opinion filed August 11, 1955, the respondent hav- — ing duly filed a proposed computation in accord- ance therewith and the petitioner having failed, after dué notice, to file a counter proposed compu- tation or to object at the hearing on December 14, 1955, to the computation as made by the respondent, it is hereby Ordered and Decided: That there is a deficiency in income tax in the amount of $1,404.68 for the ‘taxable year 1948. /s/ NORMAN O. TIETJENS, Judge. Entered: December 15, 1955. Served: December 16, 1955. The Tax Court of the United States Washington ‘Docket No. 46979 FREDA H. GRASSMEE, Petitioner, ’ Ys. COMMISSIONER OF INTERNAL REVENUE, | Respondent. DECISION Pursuant to the determination of the Court as set forth in its Memorandum Findings of Fact and 98 Peggy Lou Riker, et al., vs. Opinion filed August 11, 1955, the respondent hav- ing duly filed a proposed computation in accord- ance therewith and the petitioner having failed, after due notice, to file a counter proposed compu- tation or to object at the hearing on December 14, 1955, to the computation as made by the respond- ent, it-is hereby Ordered and Decided: That there are deficien- cies in income tax.in the amounts of $84.80 and $25.50 for the.taxable years 1948 and 1949, respec- tively. rs /s/ NORMAN O. TIETJENS, Judge. Entered:. December 15, 1955. - ‘ Served December 16, 1955. [Title of District Court and Cause. ] Docket No. 46978 and 46979 PETITION FOR REVIEW The above named petitioners, Peggy Lou Riker and Freda H. Grassmee, herewith petition for re- view of the decisions dated December 15, 1955, in the above-entitled matter (consolidated at the time of trial) which said decisions determined a defi- ciency of $1404.68 against the petitioner Peggy Lou Riker for the taxable year 1948, and determined a deficiency of $84.80 against the petitioner Freda ° Commissioner of Internal Revenue 99 ? ‘H. Grassmee for the year 1948 and the sum of $25.50 for the taxable year 1949 against said pe- titioner Grassmee, and from the whole of said de- cisions. Petitioners and each of them declare that they seek said review in the Cireuit Court of Ap- peals of the United States, in and for the Ninth Cireuit; state that up to and including 1953 and at all times herein mentioned prior thereto, each of the petitioners was a resident of the City and County of San Franciseo, and since 1953 each states that she .was and now is a resident of the County of Marin, State of California, and at all times both said petitioners were and now’ are residents of the Northern District of California, Southern Division, and each filed her personal income tax returns in- cluding the returns involved in the above-entitled matter, with the Collector of Internal Revenue, San Francisco, California. The nature of the controversy in the ahove-entitled matter is the amount of income and deductions subjeet to personal income tax for the petitioners Riker during the calendar vear 1948, and Grassmee during the calendar vears 1948 and 1949; that both of the petitions involve the deduecti- hility of gifts by each of the said) petitioners te their religious society, Christ's Church of the Golden Rule, up to 15% of. their income, said gifts and each of them being exclusively for religions purposes and were paid to the principal temporal agency of said church, to wit, the Elected Delegates ‘Committee of the Ecclesiastical Society of Christ's Church of the Golden Rule; that the matter involv- 100 Peggy Lou Riker, et al., vs. ing the petitioner Riker involves in addition thereto, whether said petitioner is taxable for only a proportional share reported for the taxable year 1948, of an activity of the said religious society in the conduct of its religious practices, in the aposto- lie form covered by Section 101, Subdivision 18, or whether the said petitioner Riker is taxable for the related income, the fruits of the efforts of a group ‘of which she was an official, in the conduct of their ministry and religious practices in said church. Dated this 13th day of January, 1956. /s/ HOWARD B. CRITTENDEN, JR. - Attorney .for Petitioners Peggy Lou Riker and Freda H. Grassmee. HOWARD B. CRITTENDEN, JR., Attorney at Law. Affidavit of service by mail attached. © Filed January 16, 1956, T.C.U.S. Commissioner of Internal Revenue 101 In the T ax Court of the United States Docket Nos. 46977, 46978, 46979 WOLF H. GROSSHEIM and ORPHA GROSS- HEIM; PEGGY LOU RIKER, FREDA H. GRASSMEE, “ Petitioners, VS. 7 * . COMMISSIONER OF INTERNAL REVENUE, Respondent. PROCEEDINGS Courtroom 421, Appraisers Building, 630 Sansome Street, San Francisco, California: Tuesday, November 2, 1954. The above-entitled matter came on for hearing, pursuant to notice to the parties, at 2:00 o'clock p.in. Before: Honorable Norman O. Tietjens, Jr, Presiding. Appearances : HOWARD B. CRITTE NDEN, JR., ES For the Petitioners. T. M. MATHER, ESQ., Kor-the Respondent. . * * 102 - Peggy Lou Riker, et al., vs. a. ee MARIAN T. HUFF was ealled as a witness by and on behalf of the pe- titioners, and, having first duly affirmed, was ex- amined and testified as follows: The Clerk: Will you_state your name, please? The Witness: Marian T. Huff. | The Court: If you will pay attention to the questions that your counse! asks you and try to an- “swer the question as it is asked and-in as loud and clear a voice as voy ean, so we can all understand vou, please. The Witness: All right. Direct Examination By Mr. Crittenden: Q. Mrs. Huff, what is: your connection with Christ Church of the Golden Rule? A. Tam Student Minister of Christ Chureh of the Golden Rule, Mr. Crittenden. [11] 3 Q. Do you hold any position ? AL Yes, Lam Secretary to the Elected Delegates Committee. ; Q. Are you a member of that Committee / A. Yea; Tam. | Q. . And does that Chureh operate under the- any particular Constitution ar laws? A. Yes. Our Chureh is organized under a Con- stitution and Canon laws. ~ Q. I see. . Commissioner of Internal Revenue 103 (Testimony of Marian T. Huff.) Q. (By Mr. Crittenden): I show you here a certified copy of. the. Church’s Constitution and Canon Laws, and ask. you if that is. the Organic Law.of the organization ? A. Yes, that-seems to be a complete copy, Mr. Crittenden. Mr. Crittenden: May I offer this in evidence as the Petitioner’s Exhibit next in order? The Clerk: WwW ell, pardon me. Did I unde retand there is [12] a stipulation of facts in | this case .Mr. Crittenden: No. ~The Clerk: Therc is not? Well, this is Petition- er’s Exhibit No. 1. | Mr. Mather: No objection. The Court: It will be admitted. (Petitioner’s Exhibit Number 1) was re- ceived in evidence. ) Q. (By Mr. Crittenden): Now, under that Constitution and the Canon Laws was there any appointment made as to the Elected Delegates Com- mittee as to what the position of the Elected Dele- gates Committee was undér those Laws and Consti- tution ? A: The Elected Dele antes Committee ts a tem- poral agency of this Church and it functions under a charter from the Ecclesiastical Church Govern- ment and as the temperance—the main one for the Churehi—it handled the Apostolic Community's common treasury. “ ean il 104 Peggy Lou Riker, et al., vs. (Testimony of Marian T. Huff.) Q. Now, in 1948 did you file an amended return for the organization under the 990 form? A. Yes, we did. Q. 1 will show you a copy. Is that'a copy that eame from your files? A. That is riglit. Q. Now, there was a list—this is complete with these [13] inserts, is it? You may examine them. A. I believe so, Mr. Crittenden, ves. | Mr. Crittendef: Counsel; we ask if we may have a stipulation to use the copy instead of the Gov- ernment’s original. Mr. Mather: IT have no objection. Mr. Crittenden: All right. I will offer in evi- denee as the Petitioner’s Exhibit next in order-— The Clerk: This is the amended return ? Mr. Crittenden: That is the amended return for the vear ending September 30, 1948, for the Elected Delegates Committee. on form 9990, | The Witness: Was’ that for the vear 1948 or 49, Mr. Crittenden ? , Mr. Crittenden: That is the “48. T will have the “49 in time. The Court: It will be admitted. (Petitioner's Exhibit) Number 20 was re- ceived in evidence. ) | ' Q. (By Mr. Crittenden): Now, at the san time was 1065 return filed for the same period / A. Yas. ¢ (). And this is an amended réturn that I am showmng you: there. Is that a copy From) Your Commissioner of Internal Revenue 105 (Testimony of Marian T. Huff.) ‘files? [14] A. That is correct. Q. Now, was there a list of names in there in addition to the—— A. Yes. — Q. And how many names appeared on it? A. . Well, in 1948 there were 575, I. believe. Let me check just a second.. It shows in here. 575 in 1948. | Mr. Crittenden: Now, may we have the sfpula- tion to use this copy instead of the original in the. possession of the Government ?. Mr. Mather: No objection. Mr. Crittenden: We will offer this in evidence as Petitioner’s Exhibit next in order. ; The Clerk: Exhibit No.3. amended return. The Court: It will be admitted. (Petitioner’s Exhibit Number 39 (was) re- ceived in eidence. ) QY. (By Mr. Crittenden): Now, there is an amended return by the same Committee for the vear ending September 30; 1949, on Form @90, and loask you if this is a copy from your tiles? A. That is correct. Mr. Crittenden. [15] - aa * * Mr. Crittenden: * * * We will offer this in eVvi- dence as the Petitioner’s Exhibit next in number, Mr. Mather: No objection. The Clerk: Petitioner’s Exhibit No. 4. The Court: [It will be admitted. (Petitioner's Exhibit Number 4 was re- ceived im evidente. ) Sinaia) ns 106 Peggy Lou Riker, et al., vs. (Testimony of Marian T. Huff.) Q. (By Mr. Crittenden): At this time did you file a form on behalf of the Committee on the ‘Form 65? A. Yes, that was done each year. Q. And was there a list of names of the mem- bers of the group that were attached on the original that was filed? = A. Yes. | Q. That is not included in that copy? A. No, that is not inciuded in that. Q. How many names were included? A. 602 in 1949. [16] * * * The Court: It will be received. (Petitioner’s Exhibit Number 5 was re- ceived in evidence. ) . Q. (By Mr. Crittenden): Now, Mrs. Huff, dur- ing each of these years did all of the individuals named in these returns file individual returns? A. Yes, there were individual returns made. Q.. Now, for the year 1948 I show you a photo- static copy of Peggy Lou Riker’s return, and I will show you a mimeographed sheet. Was that type of a sheet attached to each one of the returns? A. Yes, that is the form upon which we re- ported it. . « : Q. Now, when I say ‘teach one of the individ- uals,’” was that by family groups or by each indi- vidual who was named in the complete return? A. Each individual that is named in the com- plete return. | Commissioner of Internal Revenue 107 (Testimony of Marian T. Huff.) Q.. Well, now, for instance, Peggy Lou Riker had a daughter? - A. Yes. Q. How was that handled? A. I would have to examine the records to see for certain how that was reported. Q. There are two returns shown here, two per- tions? [17] . A. That is right. What I was hesitating about: is- whether it was by name or by count. Yes, there are two portions there. Q. So that these were filed by family groups? A. That is right. at Mr. Crittenden: Now, to keep the record straight, the witness was shown and testified from thix photostatic copy of the Riker return, Mav | put all of these in as.one composite return by stip- ulation ? , . “My. Mather: Well, I have no objection to—I - think the partnership return should go im as one and the individual returns as another for identifi- cation purposes, | Mr. Crittenden: All right, We are going to offer in evidence this photostatie copy which is, as T un- derstand ‘it, the Government's copy in lieu of the original. Mr. Mather: That is correct. | Mr. Crittenden: Of the return of Peggy Lou Riker, which included in it this mimeographed sheet showing two—one fractional interest reported at $377.39 each, a total of $754.78, and on Page 1 under ‘‘Item 3° the sum of *‘‘knter here total 108 Peggy Lou Riker, et al., vs. _ (Testimony of Marian T. Huff.) : amount of your different dependencies on attached memorandum ’’—$754.78, which is shown on the face of the return. - : We are offering that in evidence as the Petition- ers’ Exhibit next in order. [18] ’ The Clerk: Petitioner’s Exhibit No. 6. Mr. Mather: No objection. The Court: It will be admitted. _(Petitioner’s Exhibit No. 6 was received in — €@videnee.) - Q. (By Mr. Crittenden): Now, during these—— * . & * Mr. Crittenden: I am offeripg these with the same stipulation from counsel, these photostats may be accepted in lieu of the originals of the three part- nership returns of Mrs. Riker, ** Your Foods Foun- tain.” There are various periods of time from January 20, 1948, to and including June 30, 1948, and these are offered as a composite exhibit next in order. The Clerk: Petitioner’s Exhibit No. 7. Mr. Mather: No objection. [19] The Court: .They will be admitted. (Petitioner's Exhibjt No. 7 was received in evidence. ) | Q. (By Mr. Crittenden): Now, during the vears 1948 and ‘49 did the Elected Delegates Com-. mittee have any sources of income ? Commissioner of Internal Revenue 109 . (Testimony of Marian T. Huff.) A. Yes, we had sources of income from the ap- plication of our training and also from donations and contributions that were made by the individ- gals, members of the church. Q. Now, when a donation or contribution or any form of money came in from any project, how was that transmitted ? . | A. Well, all funds that were accepted by the Elected Delegates Committee had to be released to them on a regular gift form. No. 399 was the num- ber of the form that we used during those two years. | oa Q. Just as an example I have one here that is signed by Peggy Lou Riker. [I will ask you if you ean identify that for me. A. Yes, that is the type of release that the Com- mittee requires on all funds that were turned over for their use. Q. Did you accept any money without a 399 form ? A. No, sir. Q. Did you accept. any money outside_of the organization membership itself? , A. Not for use in our ecclesiastical work, no. [20] | Mr. Crittenden: We will offer in evidence as Petitioner’s Exhibit next in order, which is a Gov- ernment Form No. 399, signed by Peggy Lou Riker. Mr. Mather: No objection. Mr. Crittenden: Dated January 1, 1945, and, counsel, | gave you a photostat of that. 110 Peggy Lou Riker, et al., vs. (Testimony of Marian T. Huff.) Mr. Mather: Well, I have a copy of it. I don't have a photostat of it, but I have a copy. Mr. Crittenden: Well, here you‘are. The Clerk: Petitioner’s Exhibit No. 8. The Court: Admitted. ( Petitioner’s Exhibit No. 8 was received in evidence. ) Q. (By Mr. Crittenden): Now, Mrs.. Huff, in thix religious organization will you deseribe the var- ious groups of people as to whether they are in the Apostolie Sociéty or outside so the Court may un- derstand the type of organization it is? A. Well, in order for the Court to understand the radieal way in which this Chureh functions, | would have to brieflvy—if I may, your Honor—ex- plain somewhat of the reasons why this church was formed. There are some aspects of this church that are very like any other church. We have congregations and we have precepts and interrogations of Christ Jesus’ teachings, and that is [21] about as far as we ean go along the line of what most people consider to be a ehurch. - The reason for forming this church is based upon this: ne We believe that one of the reasons the world has failed to find its Heaven here and now as Christ Jesus its way shower said could be done is beeause for 2000 vears all that people have done is to study and talk about the way of. lif: that Christ Jesus - Commissioner of Internal Revenue ——‘'111 (‘Testimony of Marian T. Huff.) came to teach us, that it has never seriously been. lived by men of the world in the way that Christ Jesus expected His Disciples and those whom His Disciples taught to follow His teachings. There would have been no point in founding another church to have steeples and spires and con- gregations gathering one day a week to have the teachings of The Master explained to them. Heaven knows there are churches enough in the United States and the world that have been trying to do that for centuries, so when this church was formed it was with the idea that its members would. make a life of this church, that they would live these teachings in whatever walks of life in which they were asked to serve, and that maybe by actually applying these teachings we would be able to prove all of the premises that the Master Christian made to the world 2000 years ago. Now, if we can bear that in mind, it will help us to understand how this church functions, One of the laws that [22] Christ Jesus came to give us was this: ‘‘That giving does not impoverish, ner does withholding enrich.’’ That is, most of the ills of the world are suffered because man’s selfishness and his greed and his desire to get something for himself rather than to give all that he has to glorify his Creator. , If giving does not impoverish, then we call into play a very basic universal law that when one gives with no thought of return there is a multiplication 112 Peggy Lou Riker, et al., vs. (Testimony of Marian T. Huff.) of universal law which takes place that brings back to that person all that he needs. The Master Christian expressed it this way: ‘‘Why take ye thought for what ye shall eat or drink or wherewithall ye shall be clothed, for Your Father knoweth that ye has need for all these things, but seek ye first The Kingdom of God and His enpeoneeeme and all these things shall be added unto you.’ Therefore, anyone becoming a methber of the Church does so with the full understanding that it is a way of life, that he goes to Church 24 hours a day, that everything he does, every bit of effort .he gives, every bit of material possession he may give will never in return endure to him personally in any form of benefit. : He takes up his studies and begins to learn the very radical interpretation that this Chureh places upon Christ [23] Jesus’ teachings, and his life from then on is dedicated to the Lord’s work, and he has just one thing to learn, and that is that he must learn how to give selflessly if he is to aceom- plish what he came into this (hurech to be a Min- ister for. Prédicated upon that, we decided that if we, were | going to live these teachings, then we would be able to produce a working éxample of how you take Christ Jesus’ teachings and apply them to your everyday life. and produce the results that he said could be brought to pass. He didn’t say that you would be taken care of Commissioner of Internal Revenue 113 (Testimony of Marian T. Huff.) if you did just carpentry work like He did. He said that the law was ever operative, and that it applied to all walks of life, and He chose His Disciples from all walks of life, and he took them through the land to the people in all walks of. life. So He proved it to us that if we were going to live His teachings, it didn’t matter what we did with our hands, that Christianity was something to be lived 24 hours a day in everything you do. So in order to bring our Ministry to the world in a way that they would be able to see how it actu- ally worked, we had to have a cross section of proj- ects, what we call Student Minister Training Proj- ects in which we would permit the public to come in and see us daily us we applied these . teach- ings [24] to whatever we happened to he doing. . That is the principal way in whielf we promul- gate and spread the teachings of our chureh, Con- sequently, we have no chureh buildings, so-called. Q. Now, Mrs. Huff—— A. Yes. | Q. ——-vou have given us the outline of those who were working in the ministry, Are there any members of the Church who aré net aetually en- gaged in the Ministry ? pen A. That is the one point, Mr. Crittenden, at the beginning of my remarks I said we were like churches in several respects that we do have congre- gations. Those congregations are different classifi- cations of membership. Some of them live in their own homes, some » of them have not come in and taken up the study of ey 114 Peggy Lou Riker, et al., vs. (Téstimony of Marian T. Huff.) the Ministry but they contribute their efforts and they study, and they are definitely members of this Church. © But student ministers in this Church who take up this work as a life’s work must live in the Apos- tolie Society, they must dedicate their entire lives to learning how to live this way of life in order that they may be teachers and way showers as ‘was Christ Jesus. — Q. Now, Mrs. Huff, were these people who were not living on the projects holding meetings, or do they hold meetings of any kind? [25} A. They have meetings in their homes, yes, Mr. Crittenden, and from time to time some of the stu- dent ministers in the church visit them and conduct services with them. 7 They are in close touch ‘with the ecclesiastical part of our work, but they are not required to live under the conditions that student ministers do, and . they are not a part of the Apostolic Society, , so- called. Q. Now, among the Apostolic Society, what do you call the groups when they live together? A. Those are called Student Minister Training Projects. : Q. And where are these located in general terms, throughout the United States or just-—— A. At one time we had student minister train- ing projects located throughout California and part. ~ of Oregon. 04 Q. In 1948 sini "49? Commissioner of Internal Revenue 115 (Testimony of Marian T. Huff.) A. In 1948 we still had some student minister training projects in Oregon as well as California. Q. Were they a-part of the Apostolic Society group? A. Oh, yes, yes. . Q. And at this time in 1948 was there a group in San Bernardino? A. Yes. | Q. Where was that located?” A. It was located out on Base Line, East Base Line, San Bernardino. [26] Q. With Mrs. Riker? A. With Mrs. Riker, ves. It was known as “Your Foods Fountain.”’ | — Q. And was there a group in Hollywood? ‘A. Yes. We had several in Los Angeles, there was a group in Hollywood. Q. Was Mrs. Riker—correction—Mrs. Grassmee and her mother a member of any one of those? A. They lived with the group at Holly wood, (). Now. what was the ébjective of these par- ticular groups that vou have deseribed ? 1 don’t mean to go into a bread picture, but what were they attempting te do. in, each particular group? A. Well, these student minister training proj- ects were set up, as [said a moment ago, for the purpose of making it possible for the student minis- ters to express and live in their daily activity the teachings of their. church. Q. Did they come in contact with the public in these places? A. Many of them did. At that time we had a / 116 Peggy Lou Riker, et al., vs. (Testimoriy of Marian T. Huff.) number of projects where that condition existed, and we established them primarily for the purpose of being able to more widely disperse and promul- ‘gate our teachings by having the public come in di- reci contact with our student ministers in training. Q. Now, were there places like, for instance, San [27] Bernardino, where any particular appli- eations were undertaken to the publie of these teachings ? A. Oh, very definitely. Q. Well, where was that done in San Bernar- . dino? ; A. That was at ‘Your Foods Fountain’? on Base Line just outside of San Bernardino. (. How was that formed originally ? A. Well, as I reeall, Mr. and. Mrs. Riker were in business in San Bernardino, and they disposed of that business and took the fixtures from it and purchased this property out on East Base Line and built up the student minister training activity. there. | 7 Q. AppPoximately how many people were there in 1948, or, say, from September, 1947? A. Conservatively, I would imagine at least twelve, maybe more: but I am sure there was at least a dozen student ministers there. Q. Now, was there any income to the Committee from that activity ? A. All of the proceeds from that activity, ves, eame to the Elected Delegates Committee of ¢ Christ Church of thé Golden Rule. Commissioner of Internal Revenue 117 (Testimony of Marian T. Huff.) » Q. And how was it received in this particular . form? A. It was released by Mrs. Riker, as the oper- ator of that activity, to the Elected Delegates Com- mittee on form [28] 399. Q. Was that all the gross rec eipts up to Januar Vv of 1948? A. Oh, yes, ves. There was an account. Our _ banking arr uni is this: The returns from any student miniator *eén vou tell me what period this is for? : : A. Well, I couldn't. give the exact number of days that that would be from, but this is January 12, 1948. Whether it would be a week's income or not, I couldn’t say right now. Q. And it represents $550.00; is that correct ? A. Yes, it does. Q. Now, Mrs. Riker, was. this money the diffe Se ence between what was taken in and the expenses of operation ? A. No. Q. Or was it the total gross receipts? A. It was the total gross receipts. Q. And who earried the license in which this ‘activity was conducted ? A. Lalid. Q. It was in vour name? A. Yes. it was in my name. @. As an individual ? A. Yes. There had to be someone who operated the business. It was in my name. t Q. Now,-explain to the Court what your position was in the Chureh. Did you have any official busi- ness at that time? A. . IT was known as a Project Manager for the Church [70] projects. 146 | a ggy hen Riker, et al., Tentiinony of Peggy Lou Riker. ) -Q. And did that‘involve any duties of instruct- ing, or tedching, other—teaching the others on the project ? | A. Yes, it did. All ecclesiastical work, studies, came through me, and [I instructed the group. Q. Approximately how big was the group dur- me this period of time? A. Tt was between 12 and 17. T ean't be sure right now, it has been so long ago. ~(). Now, they all lived together? =| A. Yes. QM. And how would the expenses of this—how were the expenses of this fountain handled ? \.. Weli-— ; Q). Youshad to buy tee cream, and pay P.G.&.F. bills. and pay sales tax. How did vou do that? A. Well, we were operating a ehureh project. “Therefore, all-of the proceeds from that activity of demonstrating our ministry went into the ecclesi- astieal—-went into the elected Delegates Committee, and we were set up ona budget to take care of the expenses of that activity. Q. Well, now, vou had purchased—suppose vou had. purehased so many gallons of ice cream for sale through this project. How would that be audited or reimbursed later on? [71] A, You mean during the period where the gross receipts were sent in? Q. From September of 1947 to and including January of 1948, | \. That would be on material and supplies for operating that particular project sent in to the J Commissioner of Internal Revenue 147 (Testimony of Peggy Lou Riker.) Elected Delegates Committee and entered into their hooks, . Q. Would vou be reimbursed for any expenses that were paid out of the project funds? A. There were two accounts, one for operating expenses of the business as a project activity, and the expenses for the group which was on a budget: and we were reimbursed through the elected Dele- gates Committee. ; (). Now, for instance, the expenses of this proj- ect we'll sav the P.GL&k. bill for ** Your Foods Fountain,’ how would that be paid ¢ A. It would be paid from the account for the business. Q. And how would vou replace that account after vou paid that bill? You drew that from the Klected Delegates Committee, didn't vou? A. Yes, from that revolving fund, ves. Q. Yes, but vou had te replace the revolving fund. Who gave vou that money ? - A. The Elected Delegates Committee deposited it to me. [72] | | Q. How often did they give vou money for vour revolving fund ? | A. oT believe at that time it was weekly. (). And did vou submit, vour bills, and receipts and expenditures to the Committee ? A. Yes, I did. Q. And they would reimburse you to the extent shown; is that right? A. Yes. QQ. Now, as to living expenses, could vou tell s 148 | Peggy Lou Riker, et al., vs. (Testimony of Peggy Lou Riker.) me how much that ran for that group during this . period of: time? | A. Well, it was very low because we raised some food from the ranch, and I believe at that time there were between twelve and seventeen persons. If I remember correctly, it was something around $85.00 a month. | Q. Was that for a person or for all: of the group? A. That was for the whole group’s expenses. Q. And did vou have to pat for your living ex- penses out of that? A. The whole group was taken care of out’ of that amount. Q.. How about vour daughter? A. Yes. Her subsistence came from that, too. Q. Your daughter needed some clothes. Where did that come from? [73] : A. It came through—from that budget. Q. This sum of $80.00 a month ; is that correct ? A. Yes. Q. That wasn't a lot of money per person, was A. No, it wasn't: it was very small. Q. Now, the Trustees in Bankruptey, made an agreement with vou under which’ vou listed the premises, that is, the one that was put in evidence, wasn't it? A. Yes, that’s right. Q. That was the Petition in 1947, wasn't it? A. Yes. Q. Then the purchase of the property of ‘Your Commissioner of Internal Revenue 149 - (Testimony of Peggy Lou Riker.) Foods Fountain”’ from the Trustees in Bankruptey was made by whom ? . A. By the Elected Delegates Committee. Q. And they signed the note, did they? A. Yes. . Q. And they paid the money ? A. Yes. Q. And in 1948 did you anticipate that the busi- ness would be sold by the Committee ? A. Yes. | Q. And that the agreement would be reached with the Trustees in Bankruptey so that the title could be cleared ? A. Yes, that’s right. Q. And that is when the project ended as such: is that [74] correct ? AL Yes. Q. Now, how did you run the business then from January in 1948—we'll say for the next six months? A. That is when the partnership started, I he- lieve the first partnership. Q. Let’s find out when the first partnership was. A. There were so many different arrangements it is awfully hard for me to follow those dates. -Q. IT show vou the first partnership return, Jan- uary 20th to April 30th. Who were the partners that were with vou? 7 A. This is very faint here. Martha Smallwood was my—one of my sisters, Harriet Berry and Ruth Farlow, they were my sisters, too, who came in to help me until the sale of the project took place—- or the business, 150 Peggy Lou Riker, et al., vs. (Testimony of Peggy Lou Riker.) Q. Now, how were the funds. handled? Did any of this go into the Elected Delegates Committee ? A. -All of my share of the partnership went to the Elected Delegates Committee. Q. Where did you live at that time? A. On the raneh in Highlands, which is just a short distance from the cafe. Q. It was Tun as a private business, then, while it was attempting to be sold? [75] A. Yes, it was. Other than my share, which went te the elected delegates committee. Q. Now, on Mav Ist to May 30th vou had an- other partnership. That was just a change in per- sonnel, was it ?- = A. Yes, one of my sisters remained for a short time there, Ruth Farlow, and then another lady by the name of Lorraine Crittenden came in. a Q. No relation of mine. is it anv relation of vours? ‘ A. T don’t know, could be. No, she is no relation of mine. Q. Each of the partners received a share of the profits ? A. Yes, Q. What did vou do with your profit ? A. Sent them to the Elected Delegates Commit- - tee. ‘ Q. Now, from June first to June 30th was there “any change in the partnership? A. No. Well, my sister withdrew at that time and that left myself and Lorraine Crittenden. Commissioner of Internal Revenue 151 (Testimony of Peggy Lou Riker.) _Q. Now, after June 30th until September of 1948, how was the business conducted ? A. I beheve that was on a percentage basis with this Mr. Tobin who expected to buy the business. Q. And he was an intended purchaser ? A. Yes, he was. Q. As soon as you could get the matter cleared ‘up? [76] ~- | A. -Yes, as soon as the title could be cleared he expected to purchase the business, ves. Q.. Now, what did vou do with vour share of the money in that operation ? A. \y share at that time also’ went to the Klected Delegates Committee, all of it. Q. Do you know how much it was? A. It was very small. At that time. clearing the title and with everything, the expenses were so great that there really wasn’t very much léft to divide, and I gave him the benetit of the greater portion because of these expenses that occurred be- cause of the title. | Q. And that accounts for the balance of that veai ? A. Yes. | Q. During that time, did your daughter live with vou? A.. Yes, she did. - Q. How old was shé in 1947 and “48? A. She was seven, seven and eight. Q. And you have included her in your return as a dependent? A. Yes, I did. Q. She lived with the group? A. Yes, she did, in this project. 152 Peggy Lou Riker, et al., vs. (Testimony of Peggy Lou Riker.) | Q. In that project? A. Yes. [77] Q. And all the bills were paid out of’ this re- yelving fund? A. Yes, they were. Q. Did vou take eare of the disbursement of © those funds? A. Yes, I did. Q. And vou accounted to the Elected Delegates Committee? — A. Yes, 1 did. Everything had receipts to show for the expenditures. | Q. And that was after 1948 that the sale was actually made of the physical assets of the business | of “Your Food Fountain,’ wasn’t it ? A. Yes. I don’t remember the exact date, though, whether that was the first of 1949 or whether it was the last of 1948. | Q. Now, who received the sale. price of that property ? A. Everything that came from the transaction of that sale was deposited to the Elected Delegates Committee. “i Q. Now, Mrs. Riker, would vou deseribe to the Court what this project was at * Your Foods Foun- tain’ from September of 1947 to January of 1948? A... It was a student ministers’ training project for the purpose of demonstrating our teachings, Christian teachings that were—-our interpretation of Christ Jesus* teachings, Q. How many other members of the church group were with [78] vou in that project ? A. How many during that period? Commissioner of I nternal Revenue 153 (Testimony of Peggy Lon Riker.) Q. How many others were there as ‘* Your Foods _ Fountain’’? , | A. Well, during this period there was a differ- ent number. At the time the partnership started, why, naturally there were only a few left on the. project, but during the period preceding the part- nership there were at least 12 persons there demon- strating Christianity. . Q. Were any of them paid any salary or in- come ¢ A. No, they were not. — Q. Do you know how the budget was set, who determined the budget as to living expenses? A. .The chureh officials demonstrated that—de- termined that, and I really can't say just how they determined it, on what scale, whether it was the number of ‘persons or how that was measured. Q. It wasn’t the committee that determined that. the Elected Delegates Committee ? A. No. Q. That was the church officials themselves ? A. Yes. Mr. Crittenden: That is all. Cross-Examination By Mr. Mather: *Q. I show vou, Mrs. Riker, Petitioner's Exhibit 6 which [79] is the income tax return for 1948, and direct vour attention to the $8959.11 shown. thereon. Was that ineome that you turned over to the church from the operation of your own business ? A. It was the income turned over to the church 154 Peggy Lou Riker, et al., vs. (Testimony of Peggy Lou Riker.) from the operation of the student minister training project. Q. Well— A. Operated under my name. Q. It says ‘Taxpayer was employed by own business.” What does that mean? | A. Well, that is because the license was in my name. — é Q. I see. ©