Peters v. Commissioner

Isabel Peters, Petitioner, v. Commissioner of Internal Revenue, Respondent Peters v. Commissioner Docket No. 40813 United States Tax Court 21 T.C. 55; 1953 U.S. Tax Ct. LEXIS 47; October 15, 1953, Promulgated *47 Decision will be entered under Rule 50. Petitioner's contribution in 1948 to Eagle Dock Foundation, Inc., held to be deductible under section 23 (o) (2) of the Code as a charitable contribution. R. Palmer Baker, Jr., Esq., for the petitioner. Charles M. Greenspan, Esq., for the respondent. Van Fossan, Judge. Murdock, Hill, Harron, Opper, and Raum, JJ., dissent. VAN FOSSAN *55 This proceeding involves a deficiency determined by respondent in income tax of petitioner for the calendar year 1948 in the amount of $ 712.80. Of the three assignments of error contained in the petition two have been settled by stipulation of the parties. The sole issue remaining for our consideration*48 is whether a contribution made by petitioner during the taxable year to Eagle Dock Foundation, Inc., constitutes a proper deduction from her gross income under section 23 (o) (1) or ( 2) of the Internal Revenue Code. FINDINGS OF FACT. Those facts which have been stipulated are so found and, by this reference, made a part hereof. The petitioner is an individual residing at Easterly, Huntington, Long Island, New York. Her income tax return for the calendar year ended December 31, 1948, was filed with the collector of internal revenue for the first district of New York at Brooklyn. Prior to 1948, the residents of Cold Spring Harbor, which is located on Long Island Sound, in the Town of Huntington, Suffolk County, Long Island, New York, had no bathing beach in the immediate vicinity, conveniently available to them as a matter of public right. Such residents had been permitted to use the Eagle Dock Beach, a privately owned rough beach, as well as part of the beach owned by one Johnston De Forest. There exists in the surrounding area a number of public beaches including Oyster Bay Beach across the harbor; Jones Beach (owned by the State of New York), about 30 miles distant; Sunken Meadow*49 Beach, located in a state park about 8 miles east of Northport; and Brown's Dock, located in Huntington Township. Eagle Dock Foundation, Inc. (hereinafter called the Foundation), was organized under the Membership Corporations Law of the State of New York by the filing of a certificate of incorporation on October 21, 1948. The purpose for which the Foundation was organized was to furnish public swimming facilities for those residents of Cold Spring Harbor who did not have private facilities and could not afford *56 to acquire such facilities. Its certificate of incorporation formally stated its purpose as being to "* * * establish, equip, maintain and operate a public beach, playground and bathing facilities for the children and other residents of Cold Spring Harbor School District Number 8; to create and promote better understanding and sympathy between the people of the community and to further the general welfare and health of all of the people in the said School District." Its operations were to be principally conducted within that area. The Village of Cold Spring Harbor is unincorporated and is not a legal entity. Although its boundaries are considered to be approximately*50 coterminous with those of Cold Spring Harbor District Number 8 and that portion of School District Number 11 which is located in Suffolk County, New York, there are no definite limitations thereto and the school district boundaries were chosen by the Foundation solely for convenience in drawing a line to determine who should receive admission cards to the beach. The Eagle Dock beach was purchased by the Foundation under deed dated November 13, 1948, at a cost of $ 22,293.11, which amount was raised by contributions. The initial contributors thereto totaled 97 in number. The contributions varied in size and no fixed amount was asked or suggested. During the year 1948, petitioner paid and contributed to the Foundation the sum of $ 1,000. The beach property purchased by the Foundation has been exclusively operated since its purchase for the benefit of the residents of Cold Spring Harbor. The adjoining area owned by Johnston De Forest has been rented for a dollar a year and also operated as part of the beach. Such beach is known as Eagle Dock Community Beach (hereinafter referred to as Eagle Dock) and is operated by the Foundation through a management committee, no one of the members*51 of which is a member of the Foundation. The management committee compiles annual lists of the residents of Cold Spring Harbor School District Number 8 and that portion of School District Number 11 which is in Suffolk County, mails passes to each family, maintains and improves the beach, and hires and pays a lifeguard and, on weekends, a gate keeper. No charge is made for use of the beach. The Foundation is operated and the beach supported solely by contributions which are not a condition to use of the beach. Admission thereto is by the cards mailed out by the management committee each year. The pass for the year 1952 read as follows: EAGLE DOCK COMMUNITY BEACH Cold Spring Harbor, N. Y. Dear Neighbor: The attached pass will identify you as being privileged to use the facilities of the Eagle Dock Community Beach. *57 Last year, through hard work and financial contributions, we built a new bath house, a life guard watch-tower and generally succeeded in making our beach more pleasant to use. This year we hope to install toilet and shower facilities and, if sufficient funds are forthcoming, to add some clean sand above high water. This, added to life guard protection, gate *52 tending, and general maintenance will again require generous contributions. These are our sole source of income. Please send your contribution immediately to one of the following committee members: W. M. MacLaury (chairman), Wm. Ammarell, James W. Cooper. The vast majority of contributions consist of $ 5 or $ 10. In 1951, the management committee received 131 contributions out of about 310 or 315 cards mailed out. In 1952, the management committee received about 189 contributions out of 350 cards mailed. There is no restriction or discrimination in the use of Eagle Dock other than its restriction to the residents of Cold Spring Harbor School District Number 8 and that part of School District Number 11 which is located in Suffolk County. The population of the Village of Cold Spring Harbor is approximately 1,000, consisting of some 350 families, the bulk of whom live in Cold Spring Harbor School District Number 8. Eagle Dock represents 25 per cent, or more, of the total public beach footage within the Town of Huntington, which town is a political subdivision of the State of New York. It has received active assistance of such public-minded groups in the community as the Cold Spring*53 Harbor Volunteer Fire Department, the two Cold Spring Harbor Boy Scout Troops and the Cold Spring Harbor Civic Association. Cold Spring Harbor School District Number 8, School District Number 11, and the Town of Huntington in Suffolk County, New York, are municipal corporations within the meaning of subdivision 2 of section 3 of the General Corporation Law, Consolidated Laws of New York, which reads as follows: 2. A "municipal corporation" includes a county, city, town, village and school district. The Foundation is a corporation organized in the United States under the laws of a state thereof. In the event of its dissolution, its property would be distributed to a trustee to be held for public benefit. It is a corporation no substantial part of the activities of which is devoted to carrying on propaganda or otherwise attempting to influence legislation. Following acquisition of the beach property by the Foundation, such property was in the spring of 1949 granted exemption from local property taxes on the 1949-1950 assessment roll and subsequent rolls of the Town of Huntington in Suffolk County, New York, under section 4, paragraph 6 of the Tax Law of the State of New York. *58 *54 The respondent has ruled that the Foundation is "* * * exempt from Federal income tax under the provisions of Section 101 (8) of the Internal Revenue Code as an organization not organized for profit but operated exclusively for the promotion of social welfare." The Foundation is not included in the United States Treasury Department's "Cumulative List of Organizations, Contributions to Which are Deductible under Section 23 (o) and Section 23 (q) of the Internal Revenue Code," as revised to June 30, 1952. OPINION. The sole issue presented here is whether petitioner's contribution to the Foundation in the taxable year is deductible under section 23 (o) (1) or ( 2) of the Internal Revenue Code. 1 *55 The question chiefly argued by the parties on brief is whether or not petitioner's donee was organized and operated exclusively for charitable purposes within the meaning of section 23 (o) (2), supra. It is petitioner's position that the evidence adduced herein conclusively establishes the charitable nature of the purposes underlying the organization and operation of the Foundation. To sustain this position, petitioner points to the ruling of the Commissioner exempting the Foundation from income tax under section 101 (8) "* * * as an organization not organized for profit but operated exclusively for the promotion of social welfare * * *," and cites T. H. Moss Tie Co., 18 T. C. 188, in which a contribution made to a trust fund established and maintained for the betterment and welfare of company employees was allowed the donor as a deduction. It is true that the term "social welfare" encompasses within its meaning a multitude of ends, the promotion of which, while highly commendable, may or may not meet the test of the statute as coming within the category of "charitable," depending on the facts and circumstances peculiar to each. An organization*56 devoted primarily *59 to social ends does not qualify, but social welfare is a very different thing. The term "social" is narrow and primarily self serving. The term "social welfare" is broad in purpose and entirely unselfish. The fact that an organization does or does not qualify as tax exempt under one or the other of the subsections of section 101 of the Code is not automatically determinative of the deductibility of contributions thereto under section 23 (o) (2). T. J. Moss Tie Co., supra. To be so deductible the organization must, in fact, be organized and operated exclusively for charitable purposes. The word "charitable" is variable in its connotation depending upon whether it is used in the narrow or broad sense. Charity in its narrow sense includes only gratuities bestowed upon the needy or for the relief of suffering. In its broader meaning, charity is not so limited but also embraces any benevolent or philanthropic objective not prohibited by law or public policy which tends to advance the well-doing and well-being of man. George E. Turnure, 9 B. T. A. 871. Also see Ould v. Washington Hospital, 95 U.S. 303,*57 wherein the Supreme Court cited with approval the following definition of charity used by counsel in Vidal v. Girard, 2 How. 311: Whatever is given for the love of God, or the love of your neighbor, in the catholic and universal sense -- given from these motives and to these ends, free from the stain or taint of every consideration that is personal, private, or selfish. * * * The foregoing definition has subsequently found widespread usage in the courts. The proof in the instant case, in our opinion, establishes that the motives underlying the organization and the operation of the Foundation were free of all personal, private, or selfish considerations. The evidence clearly shows that the dominant purpose in establishing and maintaining the Foundation was to provide convenient swimming and recreation facilities for all persons residing in Cold Spring Harbor school district of the Town of Huntington and especially those who could not afford individually to acquire and maintain such facilities. A contribution was not a prescribed condition to the use of Eagle Dock by any resident of Cold Spring Harbor. It was open to contributors and noncontributors*58 alike. No fees were charged. See James Irvine, 46 B. T. A. 246. In our opinion the Foundation, a nonprofit organization dedicated solely to the promotion of social welfare, should be classified as charitable as that term is used in the statute relied upon. Wherefore, respondent erred in disallowing petitioner's contribution thereto under section 23 (o) (2). The above holding makes it unnecessary to consider petitioner's argument that her contribution is also properly deductible under section *60 23 (o) (1) as a contribution for the use of a political subdivision of the State of New York. Decision will be entered under Rule 50. Footnotes 1. SEC. 23. DEDUCTIONS FROM GROSS INCOME. In computing net income there shall be allowed as deductions: * * * * (o) Charitable and Other Contributions. -- In the case of an individual, contributions or gifts payment of which is made within the taxable year to or for the use of: (1) The United States, any State, Territory, or any political subdivision thereof or the District of Columbia, or any possession of the United States, for exclusively public purposes; (2) A corporation, trust, or community chest, fund, or foundation, created or organized in the United States or in any possession thereof or under the law of the United States or of any State or Territory or of any possession of the United States, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation;↩