dependents. Any member of the lodge who passes a satisfactory medical examination is eligible. QUESTION: Is this society exempt from taxation? ANSWER: Yes, because it is operated for the exclusive benefit of the members of a fraternity itself operating under the lodge system, and provides for the payment of benefits to the dependents of such members. REFERENCE: Sec. 231: "That the following organizations shall be exempt from taxation under this title... (3) Fraternal beneficiary societies, orders, or associations, (a) operating under the lodge system or for the exclusive benefit of the members of a fraternity itself operating under the lodge system; and (b) providing for the payment of life, sick, accident, or other benefits to the members of such society, order, or association or their dependents;" PROBLEM 206 Illustrating Corporations Exempt from Taxation-Domestic Building and Loan Associations FACTS: The Essex Building and Loan Association of New Jersey was organized under the laws of that state for the purpose of loaning money to its members in order that they might build their own homes. It later developed that the various installments were insufficient to meet the demands on the treasury of the association so that it was decided to issue full-paid certificates at a certain rate in order to have available funds to meet the demands of its members. All the members shared in the profits of the association on an equal basis. QUESTION: Is the ociation exempt from taxation? ANSWER: Yes, because it meets the test outlined in Art. 515, Reg. 62. REFERENCE: Sec. 231: "That the following organizations shall be exempt from taxation under this title... (4) Domestic building and loan associations substantially all the business of which is confined to making loans to members; and co-operative banks without capital stock organized and operated for mutual purposes and without profit;" Art. 515; Reg. 62: "In general, a building and loan association entitled to exemption is one organized pursuant to the laws of any State, Territory, or the District of Columbia, which accumulates funds to be loaned primarily to its shareholders for the purpose of building or acquiring homes. In order to be exempt the association (1) must be mutual, that is, all of its stockholders or members must share in the profits on substantially the same footing; and (2) must be operated so that substantially all of its business is confined to the making of loans to bona fide shareholders . . ." Bul. 48-20-1325, Sol. Op. 78: ". . . The test for exemption on these lines should be drawn on the line of whether the Association loans its funds in the manner of the typical building and loan association, that is, primarily for the purpose of home building and acquiring, or whether it invests its funds in the manner ordinarily done by banks and similar investment institutions. That is to say, a building and loan association which invests its funds primarily in loans for the building and acquiring of homes should not be deprived of exemption because, in order to raise funds from which to make these loans, it has become necessary to issue prepaid stock in amounts greatly outnumbering the installment stock. PROBLEM 207 Illustrating Corporations Exempt from Taxation Cemetery Companies FACTS: The Sea Cliff Cemetery Company was organized under the laws of the State of New York for the purpose of buying and managing a cemetery. Its charter provided that all lot owners were members of the company by reason of such ownership. In order to finance the project preferred stock was issued to the members who organized the company on which a semi-annual dividend of 6% was to be paid. The charter further provided that the stock was to be redeemed at par as soon as the proceeds from the sale of lots would permit. All sums received in excess of the requirements to redeem the preferred stock was to be used exclusively for the management, care and beautification of the property. QUESTION: Is the company exempt from taxation? ANSWER: REFERENCES: Sec. 231: "That the following organizations shall be exempt from taxation under this title: ... (5) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, no part of the net earnings of which inures to the benefit of any private stockholder or individual;" Art. 516: "A cemetery company in order to be exempt must be owned and operated exclusively for the benefit of its lot owners or must not be operated for profit. Any cemetery corporation chartered solely for burial purposes and not permitted by its charter to engage in any business not necessarily incident to that purpose, no part of the net earnings of which inures to the benefit of any private stockholder or individual, is exempt from income tax. A cemetery company of which all lot owners are members, issuing preferred stock entitling the holder to a semiannual dividend of four per cent, and whose articles of incorporation provide that the preferred stock shall be retired at par as soon as sufficient funds are realized from sales and that all funds realized in addition thereto shall be used by the company for the care and improvement of the cemetery property, is within the exemption." PROBLEM 208 Illustrating Corporations Exempt from Taxation-Religious, Charitable, etc., Organizations FACTS: The East Side Day Nursery was organized for the purpose of establishing and maintaining a day nursery for young children whose parents are obliged to work and have no means to provide care for their children during the day. Its income is derived from subscriptions and donations and a small amount from securities, all of which is used in promoting the activities of the nursery. It is operated exclusively for that purpose and no part of its income inures to the benefit of private stockholders or individuals. QUESTION: Is the association exempt from taxation? ANSWER: Yes, because it was organized and is operated exclusively for charitable purposes. REFERENCE: Sec. 231: "That the following organizations shall be exempt from taxation under this title. (6) Corporations, and any 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, no part of the net earnings of which inures to the benefit of any private stockholder or individual;" PROBLEM 209 Illustrating Corporations Exempt from Tax-Civic Leagues or Organizations Not Operated for Profit FACTS: The People's Forum is an association formed and supported by public-spirited men. The forum conducts meetings at which prominent speakers discuss important phases of civic and social welfare. The expenses of these meetings are met by contributions on the part of those interested in the work of the forum, the deficit, if any, being made up by the organizers. QUESTION: Is the People's Forum subject to tax? ANSWER: No. REFERENCE: Sec. 231: "That the following organizations shall be exempt from taxation under this title. . . (8) Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare;" PROBLEM 210 Illustrating Corporations Exempt from Taxation-Clubs Organized for Pleasure, etc. FACTS: The Sunshine Club of Hartville was organized for the purpose of promoting the social welfare of its members. It derives its income from membership dues and donations which are used for the purpose of defraying expenses necessary to the operation and upkeep of its rooms, and no part of such dues or donations inures to the benefit of any of its members. QUESTION: Is the club exempt from taxation? ANSWER: Yes, because it meets with all the provisions of section 231 paragraph (9). REFERENCE: Sec. 231: "That the following organizations shall be exempt from taxation under this title... (9) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private stockholder or member." PROBLEM 211 Illustrating Corporations Exempt from Taxation-Mutual Benefit Companies Whose Entire Income Consists of Assessments Made for Sole Purpose of Meeting FACTS: Expenses The Nassau Insurance Company of New York was organized |