haustion, wear and tear, etc., as conceded by defendant, and as claimed by plaintiff in its return and allowed by the collector and Commissioner. It further provides that in computing net income no deduction shall in any case be allowed in respect of any amount paid out for new buildings, or for permanent improvements or betterments made to increase the value of any property or estate. It follows that this claim for deduction, in the sum of $94,275.03, or any part thereof, cannot be indulged. It appearing that the grounds upon which plaintiff relies for recovery are untenable, and there being no dispute that the amount of the tax levied was correct, if plaintiff's contentions are not sustained, it follows that judgment must be entered for the defendant; and it is so ordered. Regulations 65. ART. 518. Business leagues, chambers of commerce, and boards of trade.-A business league is an association of persons having some common business interest, which limits its activities to work for such common interest and does not engage in a regular business of a kind ordinarily carried on for profit. Its work need not be similar to that of a chamber of commerce or board of trade. If it engages in a regular business of a kind ordinarily carried on for profit, the fact that the business is conducted on a coöperative basis or produces only sufficient income to be self-sustaining, is not ground for exemption. An association engaged in furnishing information to prospective investors, to enable them to make sound investments, is not exempt, since its members have no common business interest, even though all of its income is devoted to the purpose stated. A clearing house association, not organized for profit, no part of the net income of which inures to any private shareholder or individual, is exempt provided its activities are limited to the exchange of checks and similar work for the common benefit of its members. An association of persons who are engaged in the business of carrying freight and passengers by boats propelled by steam, which is designed to promote the legitimate objects of such business, and all of the income of which is derived from membership dues and is expended for office expenses and the salary of a secretary-treasurer is exempt from tax. An incorporated cotton exchange whose shares carry the right to dividends is organized for profit and is not exempt. A stock exchange is not a business league, a chamber of commerce or a board of trade within the meaning of the law and is not exempt from tax." ART. 519. Civic leagues and local associations of employees. Civic leagues entitled to exemption under paragraph (8) of section 231 comprise those not organized for profit but operated exclusively for purposes beneficial to the community as a whole. In general, organizations engaged in promoting the welfare of mankind, other than organizations comprehended within paragraph (6) of section 231, are included. within this paragraph. Under this paragraph certain local associations of employees are also expressly exempted from income taxation. The statute prescribes as conditions to exemption (1) that the membership of such an association be limited to the employees of a designated person or persons in a particular municipality, and (2) that the net earnings of the association be devoted exclusively to charitable, educational, or recreational purposes. See article 517 with reference to the meaning of "charitable" and "educational" in the Act. ART. 520. Social clubs.-The exemption granted by paragraph (9) of section 231 applies to practically all social and recreation clubs which are supported by membership fees, dues, and assessments. If a club, by reason of the comprehensive powers granted in its charter, engages in traffic, in agriculture or horticulture, or in the sale of real estate, timber, etc., for profit, such club is not organized and operated exclusively for pleasure, recreation, or social purposes, and any profit realized from such activities is subject to tax. ART. 521. Local benevolent life and mutual insurance companies and like organizations. It is a prerequisite to exexemption under paragraph (10) of section 231 that at least 85 per cent of the income of the organization in question shall consist of amounts collected from members for the sole purpose of meeting losses and expenses. If an organization issues policies for stipulated cash premiums, or if it requires advance 44 As to the exemption of an association of manufacturers, see Appeal of Waynesboro Manufacturers' Assn., (1925) 1 B. T. A. 911; as to a stock exchange, see L. O. 1121; Cum. Bull. III-1, p. 275. deposits to cover the cost of the insurance and maintains investments from which more than 15 per cent of its income is derived, it is not entitled to exemption. On the other hand, an organization may be entitled to exemption, although it makes advance assessments for the sole purpose of meeting future losses and expenses, provided that the balance of such assessments remaining on hand at the end of the year is retained to meet losses and expenses in the ensuing year. The phrase "of a purely local character" applies to benevo lent life insurance associations, and not to the other organizations specified in the paragraph. It applies, however, to any organization seeking exemption on the ground that it is an organization similar to a benevolent life insurance association. An organization of a purely local character is one whose business activities are confined to a particular community, place, or district, irrespective, however, of political subdivisions. See section 1013 (b) of the Act with reference to the exemption of mutual insurance companies under preceding revenue acts. ART. 522. Coöperative associations.-(a) Coöperative associations, acting as sales agents for farmers, fruit growers, live-stock growers, dairymen, etc., or engaged in the marketing of farm products, and turning back to the producers the proceeds of the sales of their products, less the necessary operating expenses, on the basis of the produce furnished by them, are exempt from income tax, and shall not be required to file returns. Thus coöperative dairy companies, which are engaged in collecting milk and disposing of it or the products thereof and distributing the proceeds, less necessary operating expenses, among the producers upon the basis of the quantity of milk or of butter fat in the milk furnished by such producers, are exempt from the tax. If the proceeds of the business are distributed in any other way than on such a proportionate basis, the association does not meet the requirements of the statute and is not exempt. The accumulation and maintenance of a reasonable reserve for depreciation or possible losses or a reserve required by state statute or a reasonable sinking fund or surplus to provide for the erection of buildings and facilities required in business, or for the purchase and installation of machinery and equipment, or to retire indebtedness incurred for such purposes, will not destroy the exemption. An association organized to act as a sales agent for farmers, or to market coöperatively the products of the farm, and having a capital stock on which it pays a fixed dividend not exceeding 8 per cent per annum or not exceeding the legal rate of interest in the State in which it is incorporated, and in which substantially all of the outstanding capital stock is owned by actual producers, will not for such reasons be denied exemption, but any ownership of stock by others than actual producers who market their products through the association must be satisfactorily explained in the application for exemption. In every such case the association will be required to show that the ownership of its capital stock has been restricted as far as possible to actual producers, and that the association has not voluntarily sold or issued any stock to nonproducers. Thus, if by statutory requirement all officers of an association must be shareholders, the ownership of a share of stock by a nonproducer to qualify him as an officer will not destroy the association's exemption. Likewise, if a shareholder for any reason ceases to be a producer and the association is unable, because of a constitutional inhibition or other reason beyond the control of the association, to purchase or retire the stock of such nonproducer, the fact that, under such circumstances, a small amount of the outstanding capital stock is owned by shareholders who are no longer producers will not destroy the exemption. The restriction placed on the ownership of the capital stock of an exempt coöperative association shall not apply to preferred stock sold or issued solely for the purpose of providing necessary working capital or acquiring property which is required for the conduct of the association's business, provided such stock is not entitled or permitted to participate directly or indirectly in the profits of the association, upon dissolution or otherwise, beyond the regular fixed dividends, and is issued with an express provision for its early redemption or retirement or for its redemption or retirement at the election of the association, with funds to be obtained, for example, by the subsequent sale of stock to actual producers, to the end that the producers may become the sole owners of the capital stock. The issuance of such preferred stock to non-producers will not be grounds for denying exemption so long as the voting control in the association is retained by shareholders who are actual producers. (b) Coöperative associations organized and operated as purchasing agents for farmers, fruit growers, live-stock growers, dairymen, etc., for the purpose of buying supplies and equipment for their use and turning over such supplies and equipment to them at actual cost, plus necessary operating expenses, are also exempt. The provisions of paragraph (a) relating to a reserve, sinking fund, or surplus, and to capital stock shall apply to associations coming under this paragraph. In order to be exempt under either (a) or (b) an association must establish that it has no net income for its own account, other than that reflected in a reserve, sinking fund, or surplus specifically authorized in paragraph (a). An association acting both as a sales and a purchasing agent is exempt if as to each of its functions it meets the requirements of the statute. SECTION 3.-GROSS INCOME-ITEMS PECULIAR TO CORPORATIONS Revenue Act of 1924. SEC. 233. (a) In the case of a corporation subject to the tax imposed by section 230 the term "gross income" means the gross income as defined in sections 213 and 217, except that mutual marine insurance companies shall include in gross income the gross premiums collected and received by them less amounts paid for reinsurance. (b) In the case of a foreign corporation gross income means only gross income from sources within the United States, determined (except in the case of insurance companies subject to the tax imposed by sections 243 or 246) in the manner provided in section 217. Regulations 65. ART. 541. Gross income.- The gross income of a corporation for the purpose of the tax, in general, includes and excludes the same things as the gross income of an individual. It embraces not only the operating revenues, but also gains, profits, and income from all other sources, such as rentals, royalties, interest, dividends from stock in other corporations, and profits from the sale of capital assets. As to the basis for determining gain or loss on disposition of property see sections 202-204 and articles 1561-1603. The proceeds of life insurance policies paid upon the death of the insured to any beneficiary (corporate or otherwise) are not to be included |