No. 275.Circuit Court of Appeals, Second Circuit.
April 17, 1945.
Page 921
Appeal from District Court of the United States for the Southern District of New York.
Action by the American Kennel Club, Inc., against Jane M. Hoey, as executrix of the estate of James J. Hoey, deceased, to recover from the estate of the Collector of Internal Revenue income tax and interest and penalties collected for failure to file a timely return. From a judgment against plaintiff dismissing the complaint entered by the United States District Court for the Southern District of New York, the plaintiff appeals.
Affirmed.
This is an action to recover from the estate of the Collector of Internal Revenue income taxes and the interest and penalties collected for failure to file a timely return. The plaintiff is a New York corporation formed “to adopt and enforce uniform rules regulating and governing dog shows and field trials, to regulate the conduct of persons interested in exhibiting, running, breeding, registering, purchasing and selling dogs, to detect, prevent and punish frauds in connection therewith, to protect the interests of its members, to maintain and publish an official stud book and an official kennel gazette, and generally to do everything to advance the study, breeding, exhibiting, running and maintenance of the purity of thoroughbred dogs.” The plaintiff’s membership is made up of clubs and associations holding dog shows under the rules prescribed by the plaintiff and specialty clubs for the improvement of the breed of dogs. Member and nonmember clubs conduct dog shows at which competitions are held for the purpose of determining which dogs in each class most closely approximate the “standard of excellence.” These standards are promulgated by the plaintiff or with the plaintiff’s approval. The dog shows must be licensed by the plaintiffs if the records thereof are to receive recognition by the plaintiff. These shows are licensed by the plaintiff in order to avoid competing shows in the same area. The judges and handlers are also licensed by the plaintiff after proper qualification. The plaintiff itself does not conduct bench shows or field trials, although it sometimes makes cash awards at these shows.
The plaintiff’s income is derived from license fees for these shows, from registration fees, fees for certification of pedigrees, kennel names, and superintendents’ and handlers’ licenses, and the sale of its publications. The income is expended for publications, awards and prizes, maintenance of the library, overhead expenses, and other expenses incidental to the performance of its activities. Most of the income is derived from non-members. At no time has there been any distribution of funds among its members.
The plaintiff has kept genealogical records resulting from an accumulation, condensation, classification and systematization of facts relating to the genealogy of registered dogs since 1908. These records are available for inspection and use by the public. Records are published in a monthly stud book and a monthly magazine, “The American Kennel Gazette,” which also contains articles dealing with the history and breeding of dogs and the like, and includes articles by veterinarians on the health and care of dogs. The “Gazette” is sold publicly, but has always been published at a loss. The plaintiff maintains a library of some 4,000 volumes dealing with the origin and history and breeding of dogs; it includes five volumes on psychology and philosophy as applied to dogs. This library is open to the public.
The plaintiff petitioned the Commissioner for exemption under § 101 of the Revenue Act of 1936 as amended, 26 U.S.C.A. Int.Rev.Code, § 101. Pertinent portions (on which plaintiff relied in the court below and here) read as follows:
Page 922
“The following organizations shall be exempt from taxation under this chapter — * * *
“(6) Corporations * * * organized and operated exclusively for religous, charitable, scientific, literary, or educational purposes * * * no part of the net earnings of which inures to the benefit of any private shareholder or individual, and no substantial part of the activities of which is carrying on propaganda, or otherwise attempting, to influence legislation;
“(7) Business leagues, chambers of commerce, real-estate boards, or boards of trade, not organized for profit and no part of the net earnings of which inures to the benefit of any private shareholder or individual; * * *.”
The Commissioner denied the exemption. The plaintiff then filed and paid its tax and the interest and penalties thereon, and thereafter sought a refund, which the Commissioner denied. The district court, after a trial, entered judgment dismissing the complaint; in its opinion, findings, and conclusions of law, the court held that the plaintiff was not “organized and operated exclusively for scientific purposes,” that “plaintiff’s net income enures to the benefit of its members,” and that the “plaintiff is not a business league.”
White Case and Arnold J. Brock, all of New York City (Walter S. Orr, Francis L. Casey, and Arnold J. Brock, all of New York City, of counsel), for plaintiff-appellant.
John F.X. McGohey, U.S. Atty., of New York City (Laurence H. Axman, of New York City, of counsel), for defendant-appellee.
Before L. HAND, CHASE, and FRANK, Circuit Judges.
FRANK, Circuit Judge.
1. The fact that an organization derives income from services not “scientific” does not preclude exemption. Cf Bohemian Gymnastic Ass’n v. Higgins, 2 Cir., 147 F.2d 774; Oklahoma State Fair and Exposition v. Jones, D.C., 44 F. Supp. 630. But the exemption granted by the statute is only for those organizations whose “purposes” are “exclusively * * * scientific.”
The word “scientific” has a large variety of meanings. Thus, among savants, there has been much disputation as to whether, with accuracy, history or politics or economics or sociology or “law” is or can be a science.[1] Fortunately, we are not here required to decide whether in this statute Congress intended to use “scientific” in a restricted or a latitudinarian manner. For, patently, the taxpayer’s prime function is the maintenance, at a high sportsmanlike level, of the sport of dog shows and field trials. Its chief aim is to see that the dog shows are staffed by proper judges and that a fair trial is given to all entrants. However worthy this aim may be, it is not scientific. Doubtless, as plaintiff doggedly asserts, much of the data resulting from taxpayer’s activities can be used scientifically by geneticists, and probably is. But that is not enough. Gambling furnished the data to Pascal and Fermat for working out the mathematical theory of probability, a theory indispensable to modern physicists. Yet no one would say that, even if today mathematicians and physicists, for their purposes, still studied what went on in gambling houses, such institutions were organized and operated for purposes “exclusively * * * scientific.” The instant case cannot be distinguished — as was the Bohemian case, supra — from our decision in Jockey Club v. Helvering, 2 Cir., 76 F.2d 597.
2. Nor can an exemption be justified under § 101(7). Taxpayer is not a business league. The clubs which make up taxpayer’s membership are primarily interested in sport, not in business. Thus, though the plaintiff is a league of clubs, it surely is not a league of business clubs.
3. Our decision of the foregoing questions avoids the necessity of determining whether, under §§ 101(6) or 101(7), any of the profit inured to the benefit of the members.
Affirmed.
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