The opinion of the court was delivered by: MCLEAN
This is an action pursuant to 28 U.S.C. § 1346(a) for refund of income taxes allegedly erroneously and illegally assessed against and collected from plaintiffs for the year 1957. Plaintiffs paid the assessment, under protest, on July 1, 1960, filed a claim for refund, and upon a disallowance of that claim, began this action. It is undisputed that the filing of the claim and the institution of suit were timely.
The action involves two wholly unrelated questions: (1) whether a gift made by plaintiffs to the Dunham Hollow West Stephentown Community Association was properly deductible as a charitable contribution, and (2) whether profits made by plaintiffs upon the sale of certain parcels of real estate were capital gains or ordinary income. The two questions will be separately treated in this opinon.
The Gift to the Dunham Hollow West Stephentown Community Association
I find the facts to be as follows.
West Stephentown, New York, is a rural community in southern Rensselaer County. Some of its residents commute to Troy. Others are local farmers and laborers. Some residents have a reasonably adequate income, others are very poor. Many of them, prosperous and poor alike, have children.
In 1954 a group of these residents, including plaintiffs' son-in-law, conceived the idea of organizing an association to educate and assist the children of the area in various ways. They formed the Dunham Hollow West Stephentown Community Association which at first was an unincorporated association, somewhat loosely put together, but with elected officers. On October 12, 1956 the association was formally incorporated as a non-profit membership corporation under the laws of the State of New York.
All the children of the community, whether their parents were members of the association or not, were eligible to participate in the association's activities. No charge was made for that participation. The association was supported by voluntary donations made by the more affluent members. No officer of the association received any compensation.
The association's activities began in a modest way in 1954 and gradually increased over the years to 1957 and thereafter. These activities included organized athletics, instruction in camping, woodcraft and archery, and instruction in sewing and homemaking for the girls. The association also conducted 4-H Club programs. It offered some pre-school instruction for the younger children. It maintained a small library formed of books donated by members. The children were taken on trips to museums in nearby cities. Lectures were given to them on various educational topics by members of the faculty of Rensselaer Polytechnic Institute in Troy. There were also lectures on current events. The instructors and lecturers made no charge for their services.
The association was a distinct success. Most of the children of the community participated and derived substantial benefit from the various programs. The association was handicapped, however, by lack of a building of its own. Meetings had to be held in the homes of members or for a time in a rented schoolhouse. The need for an adequate physical plant was particularly apparent in the winter months.
Plaintiff James F. Johnson was born in West Stephentown, although he has lived for many years in Troy. He was interested in the work that the association was doing to help the children of his native community. In 1956 he told the officers of the association that he was disposed to donate a piece of land and some building materials to the association if the members would erect a building to constitute the association's headquarters.
This project was enthusiastically received and carried out. Many residents, young and old, pitched in and constructed a building. Masons and carpenters donated their services. The older children helped in the construction work, without pay.
Construction started in the fall of 1956 and was completed by the spring of 1957. Thereafter on July 16, 1957, plaintiffs executed a deed to the land and delivered it to the Dunham Hollow West Stephentown Community Association, Inc., the membership corporation, which, by resolution of its board of directors dated July 15, 1957, accepted the deed. Plaintiffs received no consideration for the transfer. It is stipulated that the value of the land and the miscellaneous building materials given by plaintiffs to the association was $2,018.50.
I conclude that the Dunham Hollow West Stephentown Community Association, Inc. was a charitable corporation within the meaning of 26 U.S.C. § 17(c)(2)(B). Cf. Mustard v. United States, 155 F. Supp. 325, 140 Ct.Cl. 205 (1957); Pennsylvania Co. etc., v. Helvering, 62 App.D.C. 254, 66 F.2d 284 (D.C. Cir. 1933).
No part of the corporation's earnings inures to the benefit of any private stockholder or individual. It does not carry on propaganda or otherwise attempt to influence legislation. A gift to this corporation is therefore deductible.
Defendant contends that plaintiffs selected the wrong year in which to claim this deduction and that they should have claimed it in 1956. I reject this contention. I find and conclude that the gift was made on July 16, 1957 when the deed to the land was delivered. Although by that time the building had already been erected on the land, it belonged to plaintiffs until they delivered the deed. The fact that Johnson had ...