the association, are conducting a business similar to a banking business, and are therefore subject to the tax,16 unless they fall within the class of co-operative banks.

Cemetery Companies (fifth class). A cemetery company is exempt if it is owned and operated exclusively for the benefit of its members. Companies which operate cemeteries for profit are not exempt.17

Religious, Charitable, Scientific and Educational Organizations (sixth class). Corporations or associations organized and operated exclusively for religious, charitable, scientific or educational purposes are exempt if no part of the net income accruing to the association inures to the benefit of any private stockholder or individual.

Business Associations (seventh class). Business leagues, chambers of commerce and boards of trade, not organized for profit and no part of the net income of which inures to the benefit of any private stockholder or individual are exempt. It will be noted that only three kinds of business associations are enumerated in this section and as the law is strictly construed as to exemptions other business associations would not be exempt even though organized not for profit.

Civic Organizations (eighth class). Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare are exempt.

Clubs (ninth class). Clubs organized and operated exclusively for pleasure, recreation and other non-profit16 T. D. 1655.

17 Reg. 33, Art. 90.

able purposes are exempt if no part of the net income inures to the benefit of any private stockholder or member.18 A club desiring to be registered as exempt should file with the Commissioner of Internal Revenue a copy of its charter or an affidavit of its principal officer setting forth the nature of its organization, the purpose for which it was organized, the source, if any, from which it derives income, and the disposition made of such income.19 It should, in addition to the disposition of its income, particularly show any surplus, and whether or not such surplus will ever inure to the benefit of any private stockholder or individual.20

CLUB-ACCUMULATING CHRISTMAS FUND. An incorporated club, composed of the employees of a corporation, was organized for social purposes. The only source of income of the club was the initiation fee, and this was expended solely for entertainments. Certain members, called participating members, made contributions to a "Christmas Fund," which fund was invested by the executive committee of the club as it saw fit. Shortly before Christmas in each year the investments were liquidated and the net fund distributed to the participating members in proportion to their contributions. was held that the club was organized and operated exclusively for pleasure, recreation and other non-profitable purposes and that no part of its net income inured to the benefit of any private stockholder or member. The

It

18 Such clubs were held to be exempt under the 1913 Law. although that law did not contain the express exemption which appears in the 1916 Law. (Letter from Treasury Department dated March 4, 1914; I. T. S. 1917, ¶ 1144.)

19 T. D. 2090.

20 Letter from Treasury Department dated February 12, 1916: I. T. S. 1917; ¶ 1146.

fact that the executive committee received specific dues from certain members, to be invested in various ways and thereby derived income did not take it out of the exempt class, since the funds so received were not the property of the club and were returned, together with the profit thereon, to the contributing members.21

Mutual or Co-operative Organizations of a Local Character (tenth class). Farmers' or other mutual hail, cyclone or fire insurance companies, mutual ditch or irrigation companies, mutual or co-operative telephone companies, and like organizations of a purely local character, the income of which consists solely of assessments, dues and fees collected from members, for the sole purpose of meeting expenses, are exempt. It should be noted that the essential features of this class are as follows: (a) They must be mutual or co-operative; (b) they must be of a purely local character; (c) the income must be solely from assessments, dues and fees collected from members, and such assessments, dues and fees must be used for the sole purpose of meeting expenses.

CO-OPERATIVE DAIRIES. Under the 1913 Law which did not contain the foregoing exemption it was held that co-operative dairy associations, whether issuing capital stock or not, were not exempt as agricultural organizations. In the preparation of their returns such associations were permitted to deduct from gross income the amount actually paid to members and patrons for milk, but any amount retained at the end of the year over and above expenditures was taxable as income.22 This would hold true under the foregoing exemption, but co

21 Letter from Treasury Department dated January 12, 1917. 22 T. D. 1996.

operative dairy associations are now exempt if they have the characteristics indicated in the preceding paragraph.

Associations for Marketing Produce (eleventh class). Farmers', fruit growers' or like associations, organized and operated as sales agents for the purpose of marketing the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses, on the basis of the quantity of produce furnished by them, are exempt.

Corporations

Owned by Exempt Corporations (twelfth class). Corporations or associations organized for the exclusive purpose of holding title to property, collecting income therefrom, and turning over the entire amount thereof, less expenses, to organizations which are themselves exempt from the income tax are also exempt. Such corporations were held to be taxable under the 1913 Law in the absence of an express provision in that law for their exemption.23

Federal Land Banks and National Farm-Loan Associations (thirteenth class). Such banks and associations as provided in Section 26 of the Act of July 17, 1916, entitled “An act to provide capital for agricultural development, to create standard forms of investment based upon farm mortgage, to equalize rates of interest upon farm loans, to furnish a market for United States bonds, to create Government depositaries and financial agents for the United States, and for other purposes, exempt.

are

Joint Stock Land Banks (fourteenth class). Such banks are exempt as to income derived from bonds or

23 T. D. 2137.

debentures of other joint stock land banks or any federal land bank belonging to such joint stock land bank. They are taxable, however, as to income from other sources and consequently it would seem are not exempt from the requirement of making a return of annual net income since the exemption from making returns applies only to corporations not subject to the tax.24

Income Accruing to State or Local Governments. In addition to the fourteen exemptions noted above Section 11 of the 1916 Law provides that income shall not be taxed if it is derived from any public utility or from the exercise of any essential governmental function and accrues to any state, territory or the District of Columbia or any political subdivision of a state or territory. It also provides that no income accruing to the government of the Philippine Islands or Porto Rico or the government of any political subdivision of those possessions shall be taxed. Where a state, territory or the District of Columbia, or any political subdivision of a state or territory, has prior to the passage of the law entered into a contract with any person or corporation to acquire, construct, operate or maintain a public utility no tax is levied upon the income derived from the operation of such public utility so far as the payment thereof will impose a loss or burden upon such state, territory or district or political subdivision. This provision entitles the owner of such public utility, whether a person or a corporation, to deduct the amount of income paid to the state or local government as its share, and the rulings thereon are contained in the chapters on Deductions.25

24 Act of September 8, 1916, § 13, ¶ (b). 25 See Chapter 28.