Before WATERMAN and MOORE, Circuit Judges, and BYERS, District Judge.
William Nelson Cromwell, a prominent New York City attorney, died in 1948. In addition to specific bequests, he provided in his will that the residue of his estate was to be divided into one hundred equal parts and distributed to various groups and organizations. Three of these parts were bequeathed to the New York County Lawyers Association, three parts to the Association of the Bar of the City of New York, and two parts to the New York State Bar Association. Two parts were bequeathed to "The William Nelson Cromwell Foundation for Research of the Law and legal History of the Colonial Period of the United States; a Museum and Other Matters of a Legal Nature * * *." Two parts were given to the Alumni Association of the School of Law of Columbia University and three parts to Russian War Relief, Inc. During administration of the estate the Surrogate's Court held that these latter two organizations were disqualifed from taking, and thereafterwards the executors, acting under discretionary power given them in the will, reallocated these five parts to the Trustees of Columbia University. This appeal involves the disposition for federal estate tax purposes of these fifteen parts of the residual estate.
A federal estate tax return was filed, in which the executors claimed deductions from the value of the decedent's gross estate for all the bequests here involved, maintaining that the purposes of the recipient organizations were "charitable, scientific, literary, or educational" within the meaning of Section 812(d) of the 1939 Internal Revenue Code, 26 U.S.C.A. § 812(d). These deductions were disallowed by the Commissioner. The Commissioner also disallowed deduction of sums paid out of the estate to attorneys for individual legatees at the conclusion of litigation in the New York courts. Furthermore, the Commissioner's formula for computing the estate tax differed from that which plaintiffs would employ. The Commissioner assessed the resulting deficiency, the executors paid it, and thereafter filed with the Commissioner timely claims for refund.
The refund claims were disallowed and within the statutory period the executors brought suit in the Southern District of New York against the proper Collectors of Internal Revenue. The district court denied recovery of the taxes paid with respect to all these bequests save for the bequest to the William Nelson Cromwell Foundation. A deduction for the controverted administration expenses was also ordered. Dulles v. Johnson, D.C.S.D. N.Y. 1957, 155 F. Supp. 275. Both parties have appealed. We shall consider first those questions raised by the appeal of the executors, and then those presented by the defendant Collectors on their cross-appeal.
In order to secure a deduction for the bequests made to the Bar Associations plaintiffs must demonstrate that these bequests come within the language of Section 812(d) of the 1939 Internal Revenue Code which permits as a deduction from the value of the gross estate "[the] amount of all bequests, legacies, devises, or transfers * * * to or for the use of any corporation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes * * * and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting to influence legislation * * *." The district court held that the executors failed to carry this burden, Dulles v. Johnson, 155 F. Supp. 275. That court concluded that the Associations "exist primarily to benefit members of the legal profession, and to provide a method whereby their views and recommendations as a body on legislation of various kinds is made known to the legislators." Supra, 155 F. Supp. at page 279. The court appears to have based its conclusion on the following Association activities as they existed on July 19, 1948: (1) regulation of the unauthorized practice of law; (2) institution of disciplinary measures for professional misconduct of members of the bar and judiciary; (3) recommendations with respect to judicial administration and procedure and the endorsement of candidates for judicial office; and (4) activities in support of or in opposition to various legislative proposals.
The New York County Lawyers Association (sometimes referred to as "County Lawyers") was incorporated in 1908 under the New York Membership Corporations Law, McKinney's Consol. Laws, c. 35 (Chapter 559, Laws of 1895). The Certificate of Incorporation provided:
"The purposes for which said Association is to be formed are, 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 the members of said Association."
County Lawyers owns its own fourstory building in New York City which contains a large auditorium, a library (some 85,000 volumes as of April 1948), and a number of rooms used for conference and staff purposes. As of April 1948 there were approximately 7,000 members. The auditorium and the other facilities have been used by the Practising Law Institute for courses and lectures available to members of the bar generally. In addition, there were many other lectures and forums so available. County Lawyers publishes a magazine entitled "Bar Bulletin" which is mailed to its members and various law libraries throughout the country, and which contains articles relating to various phases of the law. Its standing and special committees comprehensively deal with a wide range of legal matters.
The Association of the Bar of the City of New York (sometimes referred to as the City Bar) was incorporated in 1871 by a Special Act of the New York Legislature (Chapter 819, Laws of 1871) (amended Chapter 134, Laws of 1924)
"* * * for the purposes of cultivating the science of jurisprudence, promoting reforms in the law, facilitating the administration of justice, elevating the standards of integrity, honor and courtesy in the legal profession, and cherishing the spirit of brotherhood among the members thereof."
The City Bar owns a four-story building in the City of New York, in which there is a large auditorium, a library of some 268,000 volumes, conference rooms, and staff and legal referral offices. The City Bar sponsors numerous lectures on a wide variety of legal subjects. The City Bar's Committee of Legal Education has sponsored a symposium on this subject at which some 45 law schools were represented. Just as in the case of the County Bar, committees are annually appointed to deal with all important phases of the law, both State and Federal. The City Bar aids in combating election frauds and actively supports legal aid work. The City Bar also publishes a magazine, entitled "The Record," which contains articles of interest both to lawyears and the public.
The New York State Bar Association (sometimes referred to as the State Bar) was incorporated in 1877 by a Special Act of the New York ...