lector is satisfied that it comes within the exempted class, he will eliminate it from his lists and relieve it from the necessity of making future returns. When the exemption of a corporation is conditional, in order to be relieved from liability under the law, it must file with the collector an affidavit setting forth its character and purpose, and showing that no part of any income which it receives inures to the benefit of any private stockholder or individual, and that its income is used exclusively for the promotion of the particular purposes for which it is organized. The exemptions granted to corporations of the first, second, third, fourth, thirteenth and fourteenth classes enumerated in later paragraphs are unconditional; corporations of the other classes enumerated are only conditionally exempt.*

Foreign Corporations. The provisions of Section 231 of the 1918 Law apply to foreign corporations as well as to domestic corporations, except in the case of building and loan associations and co-operative banks.5 In case a foreign corporation desires to be held exempt from the law and doubt exists as to whether or not it comes within the class of organizations enumerated in Section 231, it will be required to file a copy of its charter and by-laws and an affidavit executed by its principal officer showing the disposition made of such income as it receives and stating specifically whether or not any of the income so received inures to the benefit of any individual stockholder. The question whether or not the organization will be held to be exempt is determined by the Treasury Department upon the facts so shown.6

Exemption Limited to Classes Specifically Enumerated. Any corporation, no matter how created or organized, or what the purpose of its organization may be, is taxable

4 Reg. 33 Rev., Arts. 67 and 68.

5 The provisions of Section 11 of the 1916 Law were so held. Letter from Treasury Department dated December 6, 1916; I. T. S., 1918, ¶ 1182.

6 Letter from Treasury Department dated December 6, 1916; I. T. S. 1918, ¶ 1182.

unless it comes within the classes of organizations specifically enumerated as exempt. A corporation is not exempt simply and only because it is primarily not organized and operated for profit. If income within the meaning of the law arises and accrues to a corporation, such income will be subject to the tax unless the corporation is one of the exempt organizations expressly enumerated in Section 231. Thus, commercial men's associations, and like organizations are not exempt, as they are not expressly enumerated, although they may be corporations not organized for profit.7

Where Question as to Right of Exemption Exists. In order to establish exemption, and thus be relieved from the duty of filing returns of income and paying the tax, it is necessary that every organization claiming exemption, except personal-service corporations, file an affidavit with the collector of the district in which it is located, showing (1) the character and purpose of the organization; (2) the source from which all its income is derived; (3) what disposition is made of such income; and (4) whether or not any of it is credited to surplus or inures or may inure to the benefit of any private stockholder or individual. To such affidavit should be attached a copy of the charter or articles of incorporation and bylaws of the organization. Upon receipt of the affidavit accompanied by the copies of the charter, or articles of incorporation and copy of the by-laws by the Collector, he - will advise the organization whether or not it is exempt. If, however, the Collector is in doubt as to the taxable status of the organization, he will refer the affidavit and accompanying papers to the Commissioner for decision.9

7 T. D. 2152. See Commercial Travelers etc. Ass'n v. Rodway, 235 Fed. 370. T. D. 2152 also held farmers' mutual fire insurance companies to be taxable, but the 1916 Law subsequently expressly exempted such organizations. The 1918 Law expressly exempts

them.

8 Reg. 33 Rev., Art. 78; Reg. 45, Art. 511. 9 T. D. 2693.

Where there is any doubt as to the status of a corporation under the provisions of the law, and its exempt status has not been established by the Treasury Department, the annual return should be filed (in blank if desired) and an affidavit attached thereto setting out fully the same information. If the collector is in doubt, he will refer the statement and return to the Commissioner for decision and withhold listing for assessment until a decision is reached.10 Right of Exemption Must Be Proved on Request. Corporations enumerated as exempt are required, at the request of the Collector or Commissioner of Internal Revenue, to establish their right by showing the character and purpose of the organization, the manner of distributing the net. income, if any, or that none of the net income inures to the benefit of any private stockholder or individual. In the absence of such a showing such organizations may at any time be required to make returns of annual net income or disclose their books of account to a revenue officer for examination in order that the status of the company may be determined.11 Having once satisfied the collector as to its right to exemption, a corporation is not required to make any further showing in subsequent years unless the collector has reason to believe that the status of the organization has changed, or that its net income is inuring to the benefit of the stockholders or members.12 Collectors keep a list of all exempt corporations to the end that they may occasionally inquire into their status and ascertain whether or not they are observing the conditions upon which their ex-· emption is predicated.13

Labor, Agricultural and Horticultural Organizations (first class). The exemption of this class is unconditional. Although the language of the statute is very

10 Reg. 33 Rev., Art. 79. Letter from Treasury Department dated November 1, 1916; I. T. S. 1918, 1180.

11 Reg. 33, Art. 88.

12 Mimeograph letter to Collectors No. 1148; I. T. S., 1918, ¶ 1201. T. D. 2137.

13 Reg. 33 Rev., Art. 80; Reg. 45, Art. 511.

broad, the law undoubtedly means only such organizations as are not organized for profit, have no income inuring to the benefit of their members, and are educational or instructive in character, having for their purpose the betterment of the condition of their members, the improvement of the grade of their products, and the encouragement and promotion of the industries named to a higher degree of efficiency.14 A corporation engaged in the business of raising stock or poultry, or growing grain, fruits, or other products of this character as a means of livelihood and for the purpose of gain, is an agricultural or horticultural organization only in the sense that its name indicates the kind of business in which it is engaged and, as such, is not exempt.15 Agricultural corporations owning sugar plantations and disposing of the product thereof have been held by the Treasury Department to be organized for profit and not entitled to exemption as agricultural organizations under this provision.16 County fairs or like organizations of a quasi-public character, not themselves engaged in agricultural or horticultural pursuits, and which, by means of awards, prizes or premiums, etc., are designed to encourage better production, and no part of whose income, derived from gate receipts, entry fees, donations, etc., inures to the benefit of any private stockholder or individual, but is used exclusively to meet the necessary expenses or upkeep and operation, are held to be exempt.17 But societies or associations which have for their purpose the holding of annual or periodical race meets and from which profits inure, or may inure, to the benefit of the members or stockholders are not exempt.18

Mutual Savings Banks (second class). This class of organizations is unconditionally exempt. The mutual savings banks which are exempt are those not having a capital

14 Reg. 33 Rev., Art. 73. 15 Reg. 33 Rev., Art. 74. 16 T. D. 2090.

17 Reg. 33 Rev., Art. 73. 18 Reg. 45, Art. 512.

F. T.-18

stock represented by shares. As to what constitutes a mutual purpose see the discussion in the note to the paragraph on building and loan associations below, and the note to mutual or co-operative organizations of a local character. A Massachusetts savings bank, otherwise exempt, which establishes an insurance department under the statutes of that State, does not thereby become subject to tax upon the income received by such department.18a

Fraternal Beneficiary Societies (third class). Fraternal beneficiary societies, orders or associations are exempt it (a) they operate under the lodge system, or if they are for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and (b) if they provide for the payment of life, sick, accident, or other benefits to the members of such society, order or association or their dependents. One important characteristic of this class of exempt corporations is that they must operate under the lodge system, or be for the exclusive benefit of a society operating under such system. Such a society or organization is considered to be one organized under a charter or dispensation, with properly appointed or elected officers, with an adopted ritual or ceremonial, holding meetings at stated intervals, and supported by fees, due or assessments.19 Mutual protective associations, not operating under a lodge system are not exempt under this provision since they lack one of the characteristics of this class.20

Domestic Building and Loan Associations and Cooperative Banks 21 (fourth class). A building and loan association entitled to exemption is one organized pursuant to the laws of the United States or of some State or Territory thereof, which accumulates funds to be loaned

18a Reg. 45, Art. 513.

19 Reg. 33 Rev., Arts. 77 and 239; Reg. 45, Art. 514.

20 Commercial Travelers etc. Ass 'n v. Rodway, 235 Fed. 370. This case contains an extended discussion on the distinction between a mutual association and a fraternal association.

21 Co-operative banks were included by the 1916 Law.