Forstall v. Commissioner

JAMES J. FORSTALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. NELL LOTHROP FORSTALL, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Forstall v. Commissioner Docket Nos. 59388, 59389. United States Board of Tax Appeals 29 B.T.A. 428; 1933 BTA LEXIS 941; November 24, 1933, Promulgated *941 Contributions to the League of Nations Association, Inc., held not deductible as contributions to a corporation organized and operated exclusively for educational purposes. Frederick R. Gibbs, Esq., for the petitioners. Wilford H. Payne, Esq., for the respondent. SEAWELL *428 These proceedings, consolidated for hearing and report, involve the redetermination of deficiencies of $1,070.21 and $150.75 in income tax of the respective petitioners for 1928. An issue raised in the case of James J. Forstall as to the deductibility of a contribution of $1,500 to the League of Nations was waived. In the other case the respondent admitted error in disallowing as deductions the sum of $39 representing cash stolen from the petitioner, and the sum of $3.50 representing loss sustained on a pair of oars. The remaining issue, common to both proceedings, is whether contributions to the League of Nations Association, Inc., are deductible as contributions to a corporation organized and operated exclusively for educational purposes. The parties filed a stipulation of facts, the material portions of which are set forth in our findings of fact. FINDINGS*942 OF FACT. (1) The taxpayer Nell Lothrop Forstall, during the year 1928, made a contribution of $750.00 to The League of Nations Association of Illinois. The taxpayer James J. Forstall, during the year 1928, made a contribution to The League of Nations Association of Illinois in the sum of $2,780.85. Both taxpayers deducted these contributions in computing their taxable income for the year 1928. The deficiencies herein involved arise in part from the disallowance of these deductions by the Commissioner. (2) The League of Nations Association, Inc., (headquarters New York) is a domestic corporation, not organized for profit, none of its funds inuring to the benefit of any individual. *429 (3) The Association is a membership organization supported principally by dues and contributions from its members. * * * (7) There are organized branches of the Association in 33 States and in the remaining 15 States there are committees which work through the Advisory Council of the Association in sponsoring its work. (8) The purpose of the Association, as stated in its published pamphlet, is as follows: "The purpose of the League of Nations Association is the cultivation*943 of such public opinion as will influence the government of the United States to cooperate to the fullest extent practicable in the activities of the League of Nations and to enter the League of Nations at the earliest possible date with such reservations as may seem wise. "The Association therefore sets forth the following statement of its platform, always holding in view the ultimate and primary objective, American entrance into the League: "1. Unceasing promotion of American cooperation with and support of the various commissions and other agencies of the League in political as well as nonpolitical activities. "2. Active encouragement of ratification by the United States of conventions and treaties which it has signed as the result of participating in League activities. "3. Vigorous support of the three protocols for adherence to the World Court. "4. Continued and increasing campaign of education regarding the history of the League of Nations, its purposes, methods and achievements." (9) The activities of the Association are eight in number, as follows: First: The Annual Convention. This was held in Philadelphia the past year. Second: Supplying speakers*944 and arranging meetings on international subjects for clubs, conventions, dinners, etc. A speakers' pamphlet is prepared annually for this purpose. Beside numerous speakers from this country the Association usually invites two or three prominent Europeans, to give factual information about the League of Nations. Some of such persons have been Captain Lothian Small, of the International Federation of League of Nations Societies in Brussels; M. Pierre de Lanux, Representative of the League of Nations in Paris; Fru Henni Forchhammer, Delegate from Denmark to the League of Nations Assembly; and Armando Mencia, of the Legal Section of the League. Third: Distriction of Literature. The Association keeps in touch with more than 700 libraries, which it supplies with literature on the League of Nations. It also distributes information and official League documents to many different sources, such as conventions, churches, etc. Some of this material is given away but much of it is sold for small sums. This material includes pamphlets on such subjects as "The World Court in 1930," "A Study Course on the League of Nations, the World Court and the International Labor Organization," "The*945 United States and the League - International Health," "The march of the Nations," and "A.B.C.'s of the League of Nations." The Association also has a two-reel moving picture, of which five prints are in use, and also numerous exhibits, slides, flags, and placards, which are available for exhibit purposes. Fourth: Regular Publications. The Association has four regular publications aside from the leaflets which are produced by its branches. The first is "The *430 League of Nations News," which was originally published in magazine form but has been changed to a news letter which gives in brief form the work of the League and the activities of the Association. The second publication is "The League of Nations Chronicle," published by the mid-western office. The third is "Round the World with the League of Nations," especially designed for bulletin boards in schools, colleges, etc. The fourth is a "Digest of American Editorial Opinion," which is translated and reproduced by the League of Nations for use in other countries. Fifth: Research Library. The Association maintains, in cooperation with the Woodrow Wilson Foundation, a library on the subject of the League of Nations. *946 This is located at 6 East 39th Street, New York City, and is open to and used by the public. The librarian is constantly called upon by editors, writers, etc., all over the country, for accurate information concerning the League. Sixth: Geneva Office. The Association maintains an office in Geneva which supplies the headquarters and branches here with accurate and up-to-date information as to what the League is doing, and is of service to citizens of the United States visiting the League, trying to help them in every possible way to see what the League is doing and to become acquainted with its progress, present defects and future possibilities. This office cooperates with the Geneva Research Information Committee in making available to the American public two important publications. One is a monthly summary of the League's work and the other is a careful review of some League activity. Seventh: Work in Schools and Colleges. This is divided into three parts; first, an effort to give the League of Nations a regular place in the curricula of all educational institutions from elementary schools to colleges. In furtherance of this purpose accurate information suited to the*947 needs of the various age-groups is available for teachers and educational officials. The most important of these is the pamphlet called "Essential Facts," of which about 100,000 copies have been distributed. The second part is student contests. The Association has sponsored three such contests each year, one for high school students, one for normal school students, and one for college students. The first prize for each of these is a trip to Europe, including a study of the League at Geneva. In the year 1930-31 some 7,500 students prepared for the examination in high schools, putting in an average of 27 1/2 days in work. 1,300 high schools from 48 states were enrolled. The publication studied by the students for the examination is "An Eleven Year Review of the League of Nations," which includes the "Aims and Organization of the League of Nations" and a further description of its work. Over 9,000 copies of this publication were distributed that year for the high school contest. The third part of this work is a series of models of League activities, including model assemblies, model council meetings, model labor conferences and a model World Court session. Approximately*948 7,200 students from 24 states participated in 37 model assemblies, representing 178 colleges and schools of all grades. About 130 colleges participated in 9 intercollegiate model assemblies during the year 1930-31. Eighth: Weekly Luncheons. Luncheons are held in New York during the winter, at which prominent American and foreign speakers discuss the international affairs of the day, especially as they bear on the work of the League. For example, the Association sponsored a debate on the World Court which was broadcast over the Columbia Broadcasting Network. *431 (10) The Association neither maintains nor supports any organization for political lobbying purposes. It neither contributes to nor collects for any political campaign fund. It neither advocates nor sponsors support of any political party. It neither selects nor supports candidates for political office. It neither prepares nor presents any legislative program. (11) The Director of the Association writes the article on the League of Nations which appears in each issue of "Current History" magazine. (12) The receipts of the Association are from contributions, membership fees, receipts from the sale of*949 magazines, Christmas cards, pamphlets and other publications, speakers' fees, prices charged for luncheons, dinners, etc., and entrance fees to the examinations. Its expenses consist of expenses for speakers, luncheons, etc., publication costs, conference costs, convention costs, salaries, office expenses and publicity. (13) Associations similar to The League of Nations Association, Inc., exist in many other countries, both members and non-members of the League of Nations. The certificate of incorporation of the League of Nations Association, Inc., hereinafter referred to as the Association, as filed May 11, 1923, and, revised up to and including May 28, 1930, contains the following material provisions: FIRST: The purpose of this corporation is the cultivation of such public opinion as will influence the government of the United States to cooperate to the fullest extent practicable in the activities of the League of Nations and to enter the League of Nations at the earliest possible date. * * * SIXTH: The policy of the Association shall be determined by the Board of Directors. The management of the affairs of the Association shall be vested in the Executive Committee, *950 subject to such direction as may from time to time be exercised by the Board of Directors. There shall be an Advisory Council, whose duty it shall be to advise and inform the Board of Directors as to all matters germane to the object of the Association. This Council shall be chosen annually in January by the Board of Directors and shall consist of such number as the Board may direct, and as far as may be, shall be geographically and politically representative of the nation at large. The League of Nations Association of Illinois, hereinafter referred to as the midwest branch, was organized in 1923 as a branch of the Association, with its office in Chicago, Illinois. Thereafter, by agreement with the Association, it became the midwest headquarters of the Association. The midwest branch was not incorporated, but had a so-called board of directors, officers, and an executive committee. Its activities were carried on in 13 States of the Middle West. The membership of the Association is composed of contributors to its funds. The activities of the midwest branch were under the direction of the executive committee acting in cooperation with and under the general supervision of*951 the Association. The midwest branch followed the policies and aims of the Association at all times *432 and its activities were either identical or similar to those of the Association. The midwest branch arranged meetings for speakers, alone and at times, in conjunction with the Association, conducted showings of films of League of Nations activities, sponsored debates with the League of Nations as the subject, and in general carried on information work for the Association. During 1928, 218 meetings were held under the auspices of the midwest branch. The addresses and picture showings were before business groups, literary clubs, rotary clubs, chambers of commerce, universities, high schools, and teachers' clubs. Other activities of the midwest branch consisted of holding model assemblies of the League of Nations in universities, publishing a monthly newspaper known as the League of Nations Chronicle, publishing news releases which were sent to various newspapers in the Middle West, writing a weekly editorial feature known as "This Neighborhood World", and maintaining a library in Chicago and an international relations library in the office of the Association. The*952 League of Nations Chronicle is the national publication of the Association and is mailed to all members of the Association. Subscriptions to the publication are open to nonmembers of the Association. The September 1932 edition of the League of Nations Chronicle contained an article headed, "Wanted; Million Pledge Signers L.N.A. Editorial," in which the following appears: I intend hereafter in casting my ballot for a member of the Senate or House of Representatives to give due consideration to the candidate's attitude on the foreign policy of the United States, in addition to giving consideration to his attitude on domestic problems. Name Address Please return the above, signed, to League of Nations Association at either address, 6 East 39th Street, New York City, or 203 South Dearborn Street. The edition also contained an article in which it was said that "Following the mandates of the Chicago and Philadelphia L.N.A. conventions, the Association has been developing its political technique"; that "* * * the Association is urging candidates to express their views on four fundamental points which we presented to the Democratic and Republican conventions, and which were, *953 to a considerable extent, incorporated in their platforms"; and that letters had been sent all members of the Association in the State of Missouri in which the following appeared: *433 In the light of the necessity for having senators and congressmen more internationally minded in the present crisis, the League of Nations Association urges you in selecting your candidates to give due consideration to their views on international matters as defined in these four principles, in addition to their views on local questions. The same edition contained, in addition, items of international news. The library maintained in Chicago was open to the public and was used by students, by women for study courses on the League of Nations, and occasionally by bankers and industrialists who desired to consult some financial document of the League of Nations. It was used more by students than by any other group of persons. No attempt was made to prevent literature unfavorable to the League of Nations from reaching the shelves of the library. The international relations library operated in New York City received various books on international relations and official documents of the League*954 of Nations. In 1926, when the question of membership of the United States in the World Court was before the United States Senate, the Association, in conjunction with the League of Women's Voters and the National Federation of Women's Clubs, wrote letters to the United States Senators and passed resolutions at meetings urging favorable action on the proposal. On two occasions thereafter the Association urged that the question be referred to the foreign relations committee and voted upon by the United States Senate. There was not a great deal of such activity in 1928. In some of the literature it distributed the Association urged membership of the United States in the League of Nations and the World Court for the purpose, among other things, of inducing leading people of the United States to bring about such a result. Whenever the occasion arises the Association, by means of letters and other propaganda addressed to them, urges members of Congress to vote favorably on measures involving membership of the United States in the World Court and the League of Nations. OPINION. SEAWELL: Section 23 of the Revenue Act of 1928, to the extent material here, reads as follows: In*955 computing net income there shall be allowed as deductions: * * * (n) Charitable and other contributions. - In the case of an individual, contributions or gifts made within the taxable year to or for the use of: * * * (2) any corporation, or trust, or community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, *434 no part of the net earnings of which inures to the benefit of any private shareholder or individual. * * * The parties here stipulated that none of the funds of the Association inure to the benefit of any individual. They differ only as to whether the Association was organized and operated exclusively for educational purposes, no contention being made by the petitioners that it was organized and operated for any of the other purposes set forth in the statute. In ; affirming , the court, in holding that a donation to the American Birth Control League was not deductible as a contribution to a charitable, scientific or educational*956 association, said: "Political agitation as such is outside the statute, however innocent the aim. * * * Controversies of that sort must be conducted without public subvention; the Treasury stands aside from them." Instances were given in which agitation for the repeal or passage of laws as an incident to the end sought would not take the association beyond the statute. In discussing the activities of the association before it, the court said: * * * So far, however, as its political activities were general, it seems to us, regardless of how much we might be in sympathy with them, that its purposes cannot be said to be "exclusively" charitable, educational or scientific. It may indeed be for the best interests of any community voluntarily to control the procreation of children, but the question before us is whether the statute covers efforts to proselytize in that or other causes. Of the purposes it defines "educational" comes the closest, and when people organize to secure the more general acceptance of beliefs which they think beneficial to the community at large, it is common enough to say that the public must be "educated" to their views. In a sense that is indeed true, but*957 it would be a perversion to stretch the meaning of the statute to such cases; they are indistinguishable from societies to promote or defeat prohibition, to adhere to the League of Nations, to increase the Navy, or any other of the many causes in which ardent persons engage. * * * Indeed, were we in a position to pass upon the evidence de novo, we should be somewhat slow to believe that the ends proposed did not still include convincing Legislatures and other influential persons that it was desirable in the interests of the moral and social well-being of the community that all persons should be free to control the number of their children. However commendable this may be - and we mean to raise no question as to it - it is not in our judgment one of those purposes which Congress meant to assist. * * * In the case of ; reversing , the same court expressed the opinion that "Congress did not intend to use the word 'education' in the statute in any exceptional sense * * *," and quoted with apparent approval a dictionary definition of the term. In allowing the contribution as a deduction the court*958 pointed out, however, that the corporation *435 (League for Industrial Democracy) had "no legislative program hovering over its activities." In the more recent case of , the same court, in allowing the deduction of a legacy to a foundation organized to expound the principles of Henry George, pointed out that no part of the money was to be used in "seeking the passage of legislation." In the same proceeding the court considered the deductibility of a contribution to the Manhattan Single Tax Club, a corporation having as one of its purposes advocacy of the abolition of all taxes upon industry and the products of industry and their replacement by a single tax upon land. In holding that the contribution was not deductible, the court said: * * * It [the club] has for its purposes the dissemination of controversial propaganda, which means a plan for the publication of a doctrine or system of principles. This we do not regard as exclusively educational within the meaning of the statute, but on the contrary it tends, we think, to accomplish the purpose of the person proposing it, and that purpose is to effect*959 a change in the existing system of taxation. Such a purpose does not meet the requirements of the statute. * * * In , the Citizens League of Cleveland, to which the contribution there in question was made, classified candidates for public office, and when considered desirable, advocated amendments to existing laws and presented its recommendations to the proper legislative body. We held that such activities were not educational but in the field of advocacy in political matters. The parties regard the contributions in question as contributions to the Association. There is no occasion to distinguish them, the League of Nations Association of Illinois, to which the donations were made, being merely a branch office of the Association. The certificate of incorporation of the Association, as amended (no contention is made that it read otherwise throughout 1928), gives as the purpose of the Association "* * * the cultivation of such public opinion as will influence the government of the United States to cooperate to the fullest extent practicable in the activities of the League of Nations and to enter the League of Nations at*960 the earliest practicable date." The platform of the Association, as set forth in one of its published pamphlets, is much broader, and includes "promotion of American cooperation with and support of the various commissions and other agencies of the League in political as well as nonpolitical activities" and "Vigorous support of the three protocols for adherence to the World Court." The chief objective of the Association was the entrance of the United States into the League of Nations. The development of sufficient public *436 opinion to influence the proper authorities of the United States to bring about the result desired was the declared purpose of the Association. Whether the United States should join the League of Nations is, as history relates, a highly controversial question. At times it has been the subject of bitter debate in the halls of Congress. The organizers of the Association adopted one side of the question and incorporated the Association for the stated purpose of bringing public opinion in line with their views through the dissemination of literature, public addresses, etc. They were in the final analysis advocates of a change in existing methods of dealing*961 with certain international questions by our Government. Public opinion may be, and often is, cultivated by other than educational methods. The expressed purpose of the Association is not, in our opinion, exclusively educational. Neither do we think that the operations of the Association were exclusively educational. Judged in the light of the broad meaning of the word "educate", some of the activities of the Association were educational, notwithstanding the highly controversial character of the subject. Other activities were beyond the realm of education, such as the writing of letters to legislators when the need was felt, urging our adherence to the World Court, presenting issues before national political conventions, urging members to select candidates for Congress on the basis, among other things, of their opinions on principles advocated by the Association, etc. On the whole record, we are of the opinion, and so hold, that the Association was not organized and operated exclusively for educational purposes. ;*962 ; No error was committed by the respondent in refusing to allow the contributions in question as deductions. In Docket No. 59388 decision will be entered for the respondent. In Docket No. 59389 decision will be entered under Rule 50.