Board of Fire Underwriters v. Commissioner

THE BOARD OF FIRE UNDERWRITERS OF THE CITY OF DULUTH, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Board of Fire Underwriters v. Commissioner Docket No. 43150. United States Board of Tax Appeals 26 B.T.A. 860; 1932 BTA LEXIS 1239; August 17, 1932, Promulgated *1239 Frank W. Wilson, C.P.A., for the petitioner. James K. Polk, Esq., for the respondent. LANSDON *860 This proceeding is for the redetermination of a deficiency in income tax for 1924 in the amount of $186.15. The petitioner contends, first, that it is an exempt corporation under the provisions of section 231 of the Revenue Act of 1924, and, second, that it was not in receipt of taxable income. *861 FINDINGS OF FACT. The petitioner is a Minnesota corporation, organized in 1895 for the purpose of operating fire patrols and salvage corps in the city of Duluth. It was incorporated pursuant to a Minnesota statute requiring the maintenance of such an organization and providing for its support through assessment against fire insurance companies operating in the city of Duluth. Operations were carried on by petitioner under such statute until some time in 1921 when the provision under which assessment could be made against fire insurance companies was repealed. Thereafter petitioner was inactive until 1923, when the National Board of Fire Underwriters took over its capital stock. During the taxable year and since 1923 the petitioner's operations*1240 have consisted of protecting property from damage by fire and water, through the use of canvas or rubber furniture covers. The petitioner answers all fire alarms within a certain radius of the fire department headquarters, attempting to reach the fire before the fire department and cover the furniture. During the taxable year the petitioner's outstanding capital stock consisted of eight shares having a par value of $10 per share. Its receipts amounted to $20,664.70, all of which was received from the National Board of Fire Underwriters pursuant to an estimate theretofore submitted by the petitioner. Each year the petitioner submitted an estimate of its needs for the coming year to the National Board of Fire Underwriters and such amount was paid to the petitioner in monthly payments. Supplemental estimates were submitted at the end of each quarter. If more money was received than necessary a report of such excess was made to the National Board of Fire Underwriters and the next monthly payment was reduced accordingly. If the estimate was less than the actual needs the additional amount was added to the next monthly payment. The petitioner expended its funds during the taxable*1241 year as follows: Compensation of officers $590.00 Repairs 224.90 Salaries, wages, etc 15,274.72 Supplies and general expense 276.56 Insurance 555.00 New equipment (rubber covers) 2,539.15 On its income-tax return for 1924 the petitioner reported the excess of receipts over disbursements in the amount of $1,204.37. Upon audit of the return the respondent determined that the expenditure of $2,539.15 was a capital transaction the amount of which was not deductible in computing net income. He added that amount to the excess reported and determined the deficiency in controversy. *862 OPINION. LANSDON: From the facts set forth above it seems clear that the petitioner was neither organized nor operated for profit. Its only receipts came by requisition from the National Board of Fire Underwriters and any excess of receipts over disbursements was diducted in arriving at future estimates. It is difficult for us to see how such operations could result in the receipt of income, which has been defined by the Supreme Court as the gain derived from capital, from labor, or from both combined; something of exchangeable value, proceeding from the property, *1242 severed from the capital, however invested or employed, and received or drawn by the recipient for his separate use, benefit, and disposal. . The petitioner was merely an agent through which the National Board of Fire Underwriters carried out one of its functions requiring the expenditure of money which was furnished to the petitioner. We are of the opinion that the petitioner was not in receipt of taxable income and that respondent erroneously determined the deficiency involved. Decision will be entered for the petitioner.