The opinion of the court was delivered by: CROAKE
The individual defendants move for an order pursuant to Rule 21 of the Federal Rules of Civil Procedure, 28 U.S.C.A. dropping GUS HALL, BENJAMIN J. DAVIS, ELIZABETH GURLEY FLYNN and PHILIP BART as parties defendant to this action on the ground that the complaint fails to state a claim on which relief can be granted against them, and for a further order pursuant to Rule 12(f) to strike paragraphs 4 to 7, inclusive, of the complaint as immaterial and impertinent.
On March 22, 1956 the Commissioner of Internal Revenue made a jeopardy assessment against the Communist Party of the United States of America for the calendar year 1951 for income and excess profits taxes in the sum of $ 261,058.38, penalties in the sum of $ 65,262.60, and interest in the sum of $ 62,952.48. Notice and demand were made to the taxpayer on March 27, 1956 but it has failed to pay any part of the assessment, except that plaintiff has collected $ 7,720.63 by seizure of property of the Communist Party, leaving a balance due of $ 381,544.83, plus interest. Plaintiff alleges that the assessment was timely in that no income tax returns were filed for the year 1951 by the Communist Party.
The Government brings this action to collect said tax assessment and demands judgment against the Communist Party of the United States of America, Gus Hall as its General Secretary, Benjamin J. Davis as its National Secretary, Elizabeth Gurley Flynn as its Chairman, and Philip Bart as its Organizational Secretary, and any other authorized officer of the Communist Party of the United States of America.
In order to properly decide the merits of this motion, it is perhaps important to clarify what I believe to be the relevant issue. There is no issue involved in this motion as to the tax liability of the Communist Party. The question before me is whether the Government is entitled to maintain an action against these officers of an unincorporated association, and if they may bring such a suit whether the complaint properly alleges facts upon which such a suit may be maintained.
It is uncontested that the Communist Party is an unincorporated association with headquarters in New York City.
Since the Government is bringing suit for taxes due for the year 1951, the tax liability of these defendants is governed by the provisions of the Internal Revenue Code of 1939, as amended. It appears that under the provisions of the Internal Revenue Code of 1939, or for that matter its successor, the Internal Revenue Code of 1954, there are no specific provisions for the taxation of unincorporated associations or its members. Thus, an unincorporated association such as the one involved in this suit will be either classified as a corporation, partnership, trust, or some other variation of these legal entities recognized by the Code. Since it is apparent that the Communist Party is not a trust, I need only interpret the definitions applicable to partnerships or corporations. Section 3797, 26 U.S.C.A. § 3797, sets forth the definitions applicable to partnerships and corporations. Section 3797 of the Internal Revenue Code of 1939 and the regulations promulgated thereunder appear to deal with the problem of determining into which of these categories an unincorporated association falls for purposes of income taxation. Section 3797(a)(2) defines the terms partnership and partner. The term 'partnership':
'* * * includes a syndicate, group, pool, joint venture, or other unincorporated organization, through or by means of which any business, financial operation, or venture is carried on, and which is not, within the meaning of this title, a trust, estate or a corporation; and the term 'partner' includes a member in such a syndicate, group, pool, joint venture, or organization.'
Section 3797(a)(3) defines a corporation as including:
'* * * associations, joint stock companies, and insurance companies.'
Internal Revenue Regulation 39.3797-1 states:
'For the purposes of taxation the Internal Revenue Code makes its own classification and prescribes its own standards of classification. The local law is of no importance in this connection * * *. The term 'partnership' is not limited to the common law meaning of partnership but is broader in its scope and includes groups not commonly called partnerships * * *. The term 'corporation' is not limited to the artificial entity usually known as a corporation, but includes also an association, a trust classed as an association * * *.'
Regulation 39.3797-2 states:
'The term 'association' is not used in the Internal Revenue Code in any narrow or technical sense. It includes any organization, created for the transaction of designated affairs, or the attainment of some object, which, like a corporation, continues notwithstanding that its members or participants change, and the affairs of which, like corporate affairs, are conducted by a single ...