The opinion of the court was delivered by: NOONAN
This case was tried before the court sitting without a jury. The evidence presented consists of two printed stipulations marked plaintiffs' exhibits Nos. 1 and 2 respectively.
Plaintiffs' exhibit No. 1 is a 179 page stipulation and an exhibit annexed thereto, which exhibit is conceded to be a true copy of the Last Will and Testament of the decedent. Plaintiffs' exhibit No. 2 is a supplemental stipulation. The various matters stipulated in the two exhibits are set forth therein in outline form, and are also numbered consecutively. Stipulated facts numbered 1 through 312 are set forth in plaintiffs' Exhibit No. 1; those numbered 313 through 321 are set forth in plaintiffs' Exhibit 2. In the interests of clarity and brevity, the court will adopt those numbers wherever necessary.
The decedent died on July 19, 1948, and his Will was admitted to Probate on September 10, 1948. Suit was brought by the executors of the decedent's estate under the provisions of the Internal Revenue Code of 1939, as amended, 26 U.S.C.A. § 1 et seq., seeking a refund plus interest on a principal amount of $ 2,132,282.63 in estate taxes paid by them pursuant to direction of the Commissioner of Internal Revenue, refund of which amounts the Commissioner has disallowed upon their claims for such refund. Plaintiffs assert that the amounts in controversy were erroneously and illegally collected. This opinion is rendered in lieu of formal Findings of Fact and Conclusions of Law.
In a 146 paragraph complaint, (amended by stipulation between the parties and order of the court) the plaintiffs set forth fifteen causes of action, the determination of all of which hinges on the court's disposition of certain issues arising under Articles 'Eighth' and 'Thirteenth' of the Will here involved.
Basically, these issues are the deductibility of certain bequests, and of certain expenses incurred in connection with the administration of the decedent's estate.
The stipulated facts to which reference was made above are deemed incorporated herein for the purposes of this opinion.
The specific bequests which the plaintiffs assert (and the defendants deny) to be deductible from the decedent's gross estate in determining the decedent's net taxable estate, the determination of the amount of the charitable deduction properly allowable to this estate, and the deductibility of certain funeral expenses, amounts paid by the executors out of the estate pursuant to an order of the state court, and other alleged miscellaneous administration expenses, are all governed by interpretation of portions of Section 812 of the 1939 Code as amended.
The first specific point urged by the plaintiffs is that certain portions of the estate which were willed to the New York County Lawyers' Association, The Association of the Bar of the City of New York, and the New York State Bar Association are deductible under the provisions of Section 812(d) in determining the decedent's net taxable estate.
The deductibility provided by that subsection applies to 'Transfers for Public, Charitable, and Religious Uses', and specifies that such bequests to be deductible must be:
'to or for the use of any corporation organized and operated exclusively for * * * charitable, scientific, literary or educational purposes, * * * no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation * * *'.
Thus there are three primary indicia set forth: the purpose for which the organization was organized, the manner in which it is operated, and that no substantial part of its activities is made up of attempts to influence legislation.
In its certificate of incorporation the New York County Lawyers Association lists as its purposes:
'* * * the cultivation of the science of jurisprudence; the promotion of reforms in the law; the facilitation of the administration of justice; the elevation of the standards of integrity, honor and courtesy in the legal profession; the cherishing of the spirit of brotherhood among members of said Association.'
The Association of the Bar of the City of New York was incorporated on April 28, 1871, by an Act of the New York State Legislature (Chapter 819 of the Laws of 1871, subsequently amended by Chapter 134 of the Laws of 1924). Section 1 of that Act sets forth the purposes of the Association in language virtually identical to that quoted in connection with the New York County Lawyers' Association.
Equally similar is the verbiage governing the purposes of organization set forth in Sec. 1 of the Act of the New York State Legislature incorporating the New York State Bar Association (Chapter 210 of the Laws of 1877).
On their faces therefore, the sets of articles of incorporation indicate that none of the three organizations was organized exclusively for charitable, scientific, literary, or educational purposes. Further, it is clear that one of the purposes of each of them was the 'promotion of reforms in the law'. This would suggest that one of the purposes of organization was 'attempting to influence legislation.'
While the articles of incorporation are not the exclusive indicia of the purposes of an organization, they are certainly some evidence of those purposes. Sun-Herald Corporation v. Duggan, 2 Cir., 73 F.2d 298, as subsequently modified in Roche's Beach, Inc. v. Commissioner, 2 Cir., 96 F.2d 776. Also see Sun-Herald Corporation v. Duggan, 2 Cir., 160 F.2d 475.
Further evidence pertaining to these purposes may be drawn from the characterizations of the organizations in the state of their incorporation, no clear federal characterization having been made. United States v. Proprietors of Social Law Library, 1 Cir., 102 F.2d 481. The later decision in the case of Hassett v. Associated Hospital Service Corp., 1 Cir., 125 F.2d 611, does not prevent the state court's judicial analysis of the facts pertaining to a particular organization of that state from being worthy of some weight in determining the character of that organization for federal estate tax purposes.
The Brooklyn Bar Association, in a suit brought by an employee, claimed exemption from payment of a state unemployment tax by virtue of the wording of the statute (formerly New York Labor Law, Sec. 502, subd. 3(d); now New York Labor Law, McKinney's Consol.Laws, c. 31, Sec. 560(4)) exempting employer corporations 'organized and operated exclusively for religious, charitable, scientific, literary or educational purposes.' The Brooklyn Bar Association's certificate of incorporation cited the same purposes of organization as were cited by those corporations which we are called upon to characterize in this case.
In that case, a referee held that the association was not exempt, the referee's decision was affirmed by the Unemployment Insurance Appeal Board, and the Board's decision was appealed to the Appellate Division of the New York State Supreme Court.
In affirming the decision of the Board, the court stated:
'Among the activities of appellant are rendering legal aid to the poor, conducting public radio broadcasts, providing public lectures on legal and other public questions, examination and making recommendations on proposed legislation, contributing to the Joint Conference on Legal Education, hearing and prosecution of grievances against members of the bar, assisting in the arbitration of disputes, conducting a library for the use of the profession, examination into the unlawful practice of the law, conducting of memorials for members of the bench and bar, providing entertainment for its own members, giving an ...