Citations
- 509 F.2d 187
Full opinion text
AINSWORTH, Circuit Judge:
This is a tax refund suit of Restland Memorial Park of Dallas [Taxpayer], a cemetery corporation, relative to federal income taxes paid under protest for the fiscal years ended June 30, 1965, 1966 and 1969, in the total sum of $86,095.62. At issue is whether the District Court correctly held that Taxpayer failed to qualify under Section 501(c)(13) of the Internal Revenue Code of 1954 (26 U.S.C. § 501(c)(13)) which allows an exemption for:
“(13) Cemetery companies owned and operated exclusively for the benefit of their members or which are not operated for profit; and any corporation chartered solely for burial purposes as a cemetery corporation and not permitted by its charter to engage in any business not necessarily incident to that purpose, no part of the net earnings of which inures to the benefit of any private shareholder or individual.”
The District Court without a jury tried the case on stipulated facts and found that Taxpayer failed to meet any of the requirements of the tests for exemption under the statute and entered a judgment in favor of the Government. Taxpayer limits its appeal to the last-mentioned exemption, following the SemicoIon, in subsection (13) of the statute above set forth.
The facts as stipulated show that Taxpayer, a Texas corporation, organized in 1953 as a nonprofit lot owners association, owns and operates a perpetual care cemetery. One of the original incorporators, George Young, was the former president, general manager and virtual owner of Realty Development Corporation [Realty], a profit cemetery corporation, which was the predecessor to Taxpayer. Young sold his stock in Realty to Taxpayer in consideration of the sum of $1,482,000, evidenced by a note in that amount payable in semiannual installments, final payment on which was made in January 1972. Assets of the predecessor corporation included 190.154 acres of land, developed but unsold grave sites, improvements including a mausoleum, and accounts receivable in the approximate amount of $1,000,000. Taxpayer owned no assets prior to the transfer, but presently owns all of the outstanding stock of its predecessor, and its cemetery consists of approximately 285 acres, the result of three additional subsequent transfers of land from Young in 1954, 1961 and 1965.
The District Court’s findings of a prohibited inurement under Section 501(c)(13) of the Internal Revenue Code of 1954 are predicated on the three following sets of circumstances: 1) the 1954, 1961 and 1965 land conveyances from Young, the consideration for which was a certain percentage of the gross receipts from future sales of lots and improvements thereon, as contrasted to a fixed sum; 2) the close relationship, interlocking management, directorship and ownership existing between Taxpayer and other related entities, including a funeral home, life insurance company and a trust company; • and 3) allowance-, of personal expenses and other benefits by Taxpayer to Young and its executive officers.
We agree that the interrelation of these three features constitute prohibited inurement to the benefit of a private individual under Section 501(c)(13) thus precluding tax-exempt status for Taxpayer.
1. The land conveyances.
In 1954 and 1961 Taxpayer acquired from Young and his wife 11.343 and 104.677 acres of land, respectively, adjacent to the cemetery, for which Taxpayer agreed to pay Young 20 per cent of the gross receipts from future sales of grave spaces, plus 10 per cent of the gross receipts from future sales of niches and crypts on the property acquired under the agreements. No maximum price was determined, but minimum annual payments after a certain number of years were required under the agreements. These minimum payments have not been made to date, Young having agreed to delays as they became due. A third contract was executed in 1965 by which Taxpayer acquired an additional 25 acres of land which Young had placed in trust for his daughter in 1964, for which Taxpayer agreed to pay to the trust 15 per cent of the gross receipts from future sales of property. Similar to the two prior contracts, there was no fixed price but a required minimum payment. In each instance, shortly after the properties were acquired, Taxpayer had them dedicated for cemetery purposes.
2. The relationship between Taxpayer and other associated entities controlled by Taxpayer and its executive director.
a. Restland Funeral Home, Inc.
In 1956 Taxpayer sold 2.356 acres of formerly dedicated cemetery land to Young for $10,165. Young then formed a profit corporation, Restland Funeral Home, Inc., of which he was the sole shareholder, for the purpose of constructing a mortuary adjacent to the cemetery. Taxpayer entered into an agreement with Young to lease space in the funeral home, which lease was in turn pledged as collateral in obtaining a loan for the construction of the building. Young is president of Restland Funeral Home, Inc. Its vice-president and secretary-treasurer, C. H. Shackelford and Harry Thompson, respectively, are also officers of Taxpayer corporation — Shackelford as vice-president, and Thompson as vice-president-secretary. Taxpayer shares certain joint expenses with the funeral home including overhead, advertising charges and salaries. Taxpayer does not charge the funeral home the usual $25 fee which it charges other funeral homes for the use of its cemetery chapels. Taxpayer maintains office space and operates a flower shop and memorial salesroom within the building. Sixty-four per cent