The opinion of the court was delivered by: BONSAL
This is an action for a refund of $168,338.53 in Federal income taxes paid by the plaintiff, Educational Fund of the Electrical Industry (Educational Fund) for the years 1958 through 1961. The court has jurisdiction under 28 U.S.C. § 1346.
The action was tried before the court without a jury and the parties thereafter submitted proposed findings of fact and conclusions of law.
Pursuant to Rule 52(a), F.R. Civ. P., the court makes the following findings of fact and conclusions of law.
In 1956 and 1957, Local 3 of the International Brotherhood of Electrical Workers (Local 3), a labor union representing electrical workers employed in and around New York City, was a party to a collective bargaining agreement (the labor agreement) with four employer associations of electrical contractors, and some 200 independent employers (the employers). The labor agreement provided for a Joint Industry Board (the Board), consisting of 12 representatives of Local 3, 12 representatives of the employers, and one representative of the public. The Board constituted several committees, among which were the Educational Committee, established in 1949 to administer a scholarship program for the children of employees, and the Vacation Committee, which administered a Vacation Expense Fund, into which the employers contributed 4% of their weekly production payroll and from which the Vacation Committee distributed vacation benefits for the employees.
In 1956 and 1957, the Education Committee met with representatives of Columbia University to discuss establishing a school of adult education for electricians. In 1957, a program was set up whereby electricians would be able to attend courses in basic thinking processes, civics, constitutional rights and related subjects, for one week annually at Bayberry Land, an estate in Long Island, owned by the ECH Holding Company, a New York corporation, the stock of which is held by the trustees of the Pension, Hospitalization, and Benefit Plan of the Electrical Industry. Electricians whose employers contributed to the Vacation Expense Fund were eligible to attend the week-long course at the Bayberry school. Since the electricians who would attend the Bayberry school would receive no wages during that week, the Educational Committee determined that it would be necessary to make some payment to them to make up in part for wages and expenses. It was agreed that the Educational Fund would pay $140 to those electricians who attended the Bayberry school and satisfactorily completed the course, and that the money would be taken out of extra funds in the Vacation Expense Fund.
The labor agreement was modified in 1958 to incorporate provisions establishing the course at Bayberry school and providing for the payment of the $140. On February 17, 1959, the employers and Local 3 executed the Educational Fund of the Electrical Industry Agreement (the Educational Fund Agreement), which provided:
"all monies shall be deposited in a bank or trust company in the name of the 'Educational Fund of the Electrical Industry' and all withdrawals from such fund shall be signed and countersigned by two (2) trustees, one (1) of whom shall be an Employer-Trustee, and the other shall be a Union-Trustee, and accounted for to the Educational Fund of the Electrical Industry in semi-annual statements."
Thus, the 1959 Educational Fund Agreement formalized the practice which had been in effect since mid-1957.
The first group of electricians attended the course in June 1957. About 30 electricians attended each week and the course was given 40 to 45 weeks a year from 1957 through 1961, the years here involved. Electricians travelled to the Bayberry school at their own expense, stayed on the grounds from Sunday through Saturday, and attended classes, movies, and lectures. Purchase of books was not required, but the electricians spent a small amount on books during the week.
At the end of the week, checks for $140 were delivered to each electrician who had satisfactorily completed the course. No checks were given to those who had violated rules regarding conduct or who had not been in attendance for the full week.
At the end of each year, the Educational Fund sent letters to the electricians who had attended the Bayberry school that year and had received the payment of $140, informing them that the $140 would be considered income which they should report on their income tax returns.
The Educational Fund did not withhold income tax from the $140 checks. Because of the failure to withhold, the Internal Revenue Service assessed a tax deficiency, plus interest, and penalties, against the Educational Fund for the years 1958 through 1961, in the following amounts:
Assessment Penalty Interest
19 58 $29,635.20 $7,408.80 $ 10,562.18
1959 26,611.20 6,652.80 7,863.83
1960 27,871.20 6,967.80 6,608.28
1961 26,384.40 6,596.10 4,608.18
The Educational Fund paid the amount assessed, $167,769.87, plus an additional interest in the amount of $568.66 and timely filed a claim for refund of the total amount paid, $168,338.53. Thereafter, the Educational Fund commenced this action.
The questions presented are (1) whether the $140 paid by the Educational Fund to the electricians who attended Bayberry school constituted "wages" within the meaning of 26 U.S.C. § 3401(a); (2) if they did, whether the Educational Fund was an employer under 26 U.S.C. § 3401(d) liable for the payment of the tax required to be deducted and withheld under 26 U.S.C. § 3403; and ...