Peck v. Commissioner

FREMONT C. PECK, PETITIONER, v. COMMISSIONER OF INTERNAL REVENUE, RESPONDENT. Peck v. Commissioner Docket No. 78941. United States Board of Tax Appeals 34 B.T.A. 402; 1936 BTA LEXIS 703; April 22, 1936, Promulgated *703 1. A contribution to Symes Foundation held not deductible as a gift to a religious charitable, or educational institution. 2. Expenses of operation and depreciation on a house formerly occupied as petitioner's residence held not deductible where the house was not rented or devoted to any other business use after abandonment as a residence. 3. Salary paid to petitioner's secretary held deductible as a business expense. J. Sterling Halstead, Esq., for the petitioner. George D. Brabson, Esq., for the respondent. ARUNDELL *402 This proceeding is to redetermine a deficiency of $999.85 in income tax for the year 1932 and also a claimed overpayment of $409.06 for the same year. The issues are the deductibility of (1) a payment of $5,500 to the Symes Foundation, (2) certain expenses of maintenance and depreciation on a former residence of petitioner, now claimed to be business property, and (3) the salary of a secretary employed by the petitioner. FINDINGS OF FACT. The Symes Foundation is a nonprofit corporation, organized under the New York Membership Corporation Law. Its purpose was to *403 establish title by litigation*704 to certain lands on Staten Island, claimed under grant to one Lancaster Symes by Queen Anne of England in 1708, the intention being then to sell these lands and contribute the proceeds to educational institutions which are devoted to the fostering of the principles of Evangelical Christianity. Its corporate charter states its purposes to be to take title to the aforesaid Staten Island lands, and other lands and properties either outright or in trust, with powers of rent and sale, and to use the properties or proceeds for its maintenance or otherwise "in accord with the object of its incorporation;" further: "* * * to use its resources for the physical, mental, moral and spiritual betterment and improvement of humanity." The bylaws of the Foundation provided in part as follows: ARTICLE III. Objects Section 1. The object of the corporation is to apply the principles of evangelical Christianity in human culture by the use of its resources for aid, nurture, fostering and development of institutions which are under Christian auspices, irrespective of denominational considerations; that are loyal in practice and precept to and not either neutral, negative or antagonistic toward*705 the recognized essentials of the evangelical faith; more especially to cooperate in the support and extension of higher educational institutions in the departments of science, art, literature and Biblical study, which institutions shall be distinctively evangelical in character and influence, as demonstrated in both precept and practice. The organizers of Symes Foundation bought out the interests of the heirs of Lancaster Symes and transferred them to the Symes Foundation. As yet, the Foundation has not succeeded in establishing any titles and has made no contributions whatever to any kind of charitable or educational institution. Petitioner donated $5,500 to the Foundation in 1932. The total donations received by the Foundation in 1932 were less than $10,000. There was only one other large contributor. In 1924 petitioner acquired premises at No. 31 Plaza Street in Brooklyn, New York, at a cost of $72,500. He occupied the property as a residence until 1929, when he took up his residence elsewhere and listed the Plaza Street property with a real estate agent for sale or rent. He received several offers of $75,000, his asking price for the property, but, the terms being unsatisfactory, *706 they were refused. The value of the property in 1929 was $75,000. Despite diligent effort, the property has never been rented or sold and was not rented during the taxable year in question. Petitioner's chief business is that of publisher of the Brooklyn Times. He is the largest stockholder and secretary and treasurer of the corporate owner of the Times. In addition, he had during the *404 taxable year several other business interests, including an airplane transport company of which he was president, an investment corporation, an opera house operating for profit, and others. He was also actively interested in a great many philanthropic and civic organizations, which activities he considered to be a part of his primary business of newspaper publisher. He employed a secretary at a salary of $2,940, who handled his secretarial work in connection with all of his various business and other enterprises. OPINION. ARUNDELL: The respondent disallowed the petitioner's claimed deduction of his contribution to Symes Foundation on the ground that the Foundation does not come within the purview of section 23(n) of the Revenue Act of 1932. The cited section allows deductions*707 for gifts to any fund or foundation organized and operated exclusively for religious, charitable, or educational purposes. The matter of a deduction of a contribution to Symes Foundation was before us in a proceeding brought by this petitioner in Docket No. 76293. That proceeding involved the year 1931. There the respondent had allowed the deduction and by amended answer alleged that he erred in so doing. In our opinion in that case we held the respondent's evidence insufficient to affirmatively establish his case. Both parties here take the view that our prior holding is not res adjudicata of the issue in this case. We agree with that view. Exemption once allowed does not necessarily carry over to subsequent years. Cf. . Moreover, the burden of proof in the two cases is different; in the former case the respondent had the burden of proving the Foundation not exempt, while here the petitioner is required to prove his right to a deduction. The petitioner in this case claims that the Symes Foundation is a charitable, educational, and religious corporation. In order to come within the above cited provision of the statute, *708 the taxpayer must show that the recipient of his contribution is both organized and operated exclusively for the purposes specified by the statute. ; affd., . It is obvious that the Symes Foundation itself was not operated exclusively for the specified purposes. It conducted no charitable, educational, or religious enterprises and gave no aid financially or otherwise to any other organization that did. Its activities were limited to clearing titles to land. If we are permitted to look beyond the Symes Foundation in search of the ultimate recipient of the property that it hopes to acquire, we are unable to find it. The charter of the Foundation does not name a recipient and the Foundation has not designated one. The statute, as we read it, is confined in its *405 operation to gifts to organizations in existence or to gifts which create exempt organizations, , and may not be extended to situations where the beneficiary either has not been organized or has not been identified. The petitioner says that a disallowance on this ground would be analogous*709 to disallowing a deduction of a donation made to found a charitable hospital. There is a wide difference between the two cases. In the supposed case the object would be the particular hospital; here the recipient of the Foundation's funds, if and when acquired, might be any one of a number of institutions or even one whose organization is not now contemplated. We think that we would be going far beyond the statute if we attempted to say that a donation has been made to a charitable, educational, or religious institution where no institution is named or designated with sufficient particularity that it can be identified. The petitioner testified that the board of trustees of the Foundation has on it a preponderance of trustees of Adelphi College, and it was understood that that college would be the recipient of any recoveries by the Foundation. Passing the matter of the lack of proof as to whether or not Adelphi College is an educational institution, this testimony does not bind the Foundation to contribute to the college. Moreover, the charter and bylaws of the Foundation do not require that the object of its aid, if and when given, be an exempt institution. While the Foundation*710 itself was organized as a nonprofit corporation, it does not follow that its object of applying "the principles of evangelical Christianty in human culture" by aiding institutions under Christian auspices (art. III, bylaws) would necessarily be achieved through an exclusively religious, charitable, or educational institution. It is conceivable that a corporation might be organized and operated along evangelical lines and still not be organized and operated exclusively for religious, charitable, or educational purposes. The respondent is sustained on this issue. The deductions claimed as expenses and depreciation on the Plaza Street house after its abandonment as a residence are not allowable. The statute (sec. 23(a), Revenue Act of 1932) allows only the deduction of expenses incurred in "trade or business", and only for depreciation of "property used in the trade or business." (Sec. 23(k), Revenue Act of 1932.) An abandoned residence is not converted into business property by the mere listing with an agent for rent or sale. ; *711 . Cf. ; ; ; . *406 The salary of the secretary employed to assist in petitioner's varied activities is a deductible business expense. We think that the respondent places more stress than is warranted by the evidence on the fact that the secretary took care of petitioner's correspondence other than that directly connected with his publishing business. This, as we read the evidence, was only incidental to her chief employment as secretary to the petitioner in the conduct of his various business affairs. Reviewed by the Board. Decision will be entered under Rule 50. LEECH concurs in the result. SMITH dissents.