Contracting Plumbers Coop. Restoration Corp. v. U.S.
Contracting Plumbers Coop. Restoration Corp. v. U.S.
- Case NameCONTRACTING PLUMBERS COOPERATIVE RESTORATION CORP., Plaintiff v. UNITED STATES OF AMERICA, Defendant.
- CourtUnited States District Court for the Eastern District of New York
- Docket70-C-1058
- JudgeCOSTANTINO
- Parallel Citation72-2 U.S. Tax Cas. (CCH) P9731
- LanguageEnglish
- Tax Analysts Electronic Citation1972 UST 7-72
Contracting Plumbers Coop. Restoration Corp. v. U.S.
D. Logan Potts, Kadel, Wilson, Potts, 30 Broad St., Robert N. Cooperman, Goldman, Cooperman & Levitt, 122 E. 42nd St., New York, N. Y., for plaintiff. Robert A. Morse, United States Attorney, New York, N. Y., William E. Dertinger, Donald R. Anderson, Thomas R. Wechter, Scott P. Crampton, Assistant Attorney General, Department of Justice, Washington, D. C. 20530, for defendant.
MEMORANDUM AND ORDER
This is a timely commenced action brought by plaintiff, Contracting Plumbers Cooperative Restoration Corp., against the United States of America for a refund of the income taxes paid by it for its first fiscal year, the period ending December 31, 1968, in the sum of $928.72, with interest. At the outset the court determines that it has sufficient jurisdiction over this action pursuant to 28 U. S. C. §§ 1346(a)(1), 1340 (1971).
After a review of the trial minutes, the evidence and post-trial memoranda of law, this court is convinced that plaintiff should recover the taxes in question as it qualifies as a tax exempt organization under sections 501(c)(4) and 501(c)(6) of the Internal Revenue Code of 1954.
Plaintiff was incorporated on January 11, 1968 pursuant to Article 2 of the New York Cooperative Corporations Law. Section 13 of the Cooperative Corporations Law provides that cooperative corporations incorporated thereunder may not be conducted for profit. Article 2, section 1 of plaintiff's By-Laws states:
The purposes for which the Corporation is formed are to
operate and maintain within the City of New York and in
coordination with the Department of Highways and/or other
applicable agencies of the City of New York a program or
programs for rendering mutual help and service to the
Corporation's members by arranging for the repaying or
replacement of streets, curbs and sidewalks required to be
repayed or replaced by the members of the Corporation, and to
engage in all lawful activities and powers relating to the
implementation of the aforesaid program or programs as are
authorized under the provisions of Article 2 of the Cooperative
Corporations Law.
Further reference to the cooperative's By-Laws indicates that all master plumbers licensed in New York City are eligible for membership in the cooperative. (Certificate of Incorporation, paragraph 3, By-Laws, Article 3, Section 1). At present approximately 98% of all licensed master plumbers belong to the cooperative and any income, assets or surplus may not be distributed to individual members but rather exclusively to tax-exempt organizations promoting the plumbing industry in New York City. (By-Laws, article 11).
The testimony of Stanley L. Gold, former Department Commissioner for the Bureau of Operations, Department of Highways shed further light on the nature of the plumbers' cooperative. He testified that between 1964 and 1968, as a representative of the City of New York, he was engaged in negotiations with the various plumbers' associations concerning the creation of plaintiff cooperative. His testimony reveals that prior to the creation of the cooperative in January of 1968 the City was directly responsible for the restoration of plumbers' cuts. Although the plumbers paid the City $22.50 per square yard to restore the plumbers' cuts, this amount did not adequately compensate the City, as the actual cost of restoration was much higher. Consequently, the difference between the price paid by the plumbers for the restoration and the actual cost of the restoration to the City was passed on to the taxpayer. In addition, Mr. Gold's survey of 1965 indicated that only 60% of plumbers' cuts were being restored in the same year because of more pressing obligations on the Department of Highways limited manpower and equipment. The Commissioner further testified that the inefficiency of the city run operation had caused many traffic problems as well as subjecting the City to numerous law suits. He concluded by saluting plaintiff for its average restoration time of 14 work days, as opposed to the average eight or ten month restoration time in pre-cooperative days and pointed out the benefits afforded the City in reduced accidents and the consequent reduction in lawsuits against the City.
Mr. Whalen, Executive Vice President of the cooperative, testified that the cooperative was organized to relieve the plumbing industry and the community in general from the adverse effects resulting from the inefficient restoration of plumbers' cuts. He further testified that the cooperative engaged in no other activity other than the restoration of plumbers' cuts.
Given the aforementioned facts, the court first finds that plaintiff qualifies for tax exempt status pursuant to § 501(c)(4), ". . . Civic leagues or organizations not organized for profit but operated exclusively for the promotion of social welfare."
The Treasury Regulations on Income Tax (1954 Code) indicates the following:
§ 1.501(c)(4)-1 Civic organizations and local associations
of employees.
(a) Civic organizations. (1) In general.
A league or organization may be exempt as an organization
described in section 501(c)(4) if--(i) It is not organized or
operated for profit; and (ii) It is operated exclusively for the
promotion of social welfare.
(2) Promotion of social welfare. In general. An
organization is operated exclusively for the promotion of social
welfare if itis primarily engaged in promoting in some way the
common good and general welfare of the people of the community.
An organization embraced within this section is one which is
operated primarily for the purpose of bringing about civic
betterment and social improvements. . . .
The court makes reference to plaintiff's Certificate of Incorporation as well as testimony at trial which characterizes the cooperative as a non-profit organization. The court also feels that the primary purpose of the cooperative was to promote the social welfare of the people of the community. The court finds that all New Yorkers benefitted from the efficient recovering of plumbers' cuts whether they be homeowners, motorists or pedestrians. In addition the court finds that the cooperative is performing a public function which heretofore was performed by the Department of Highways, whose function was certainly to promote the public welfare. In addition, the court finds that the benefit received by the plumbers is indistinguishable from the benefit to the community as a whole, i.e., the substantial reduction injuries and lawsuits.
In so holding, the court relies on the case of Monterey Public Parking Corporation v. United States, 321 F. Supp. 972 (W. D. Cal. 1970), in which a nonprofit California corporation organized by hometown businessmen for the purpose of operating a parking facility qualified for exemption pursuant to § 501(c)(4). That court used the following reasoning:
This Court cannot say that plaintiff corporation,
organizationally or operationally, subserves, in any substantial
way, private interests. There is no question that all but one of
plaintiff's organizers were businessmen whose establishments
would tend to suffer if the traffic problemsof downtown Monterey
were not soon resolved. But this was a threat not only to
plaintiffs, but to all the City of Monterey. . . .
The City of Monterey, therefore, was the primary
beneficiary when plaintiff succeeded in constructing public
parking facilities without any significant outlay of public
funds. . . . The provision of public parking can clearly be
regarded as a burden of local government, and when this is
accomplished by private individuals, this burden is lessened
within the meaning of Regulation § 1.501(c)(3)-1. It also
results in the promotion of social welfare within the intendment
of Regulation § 1.501(c)(4)-1.
Plaintiff's organizers were also undeniably benefitted. But
this benefit is indistinguishable from that which inhered to the
community as a whole. Their profits may have been enhanced or
maintained as customers continued to shop in the downtown area,
but this observation applies equally to the profits of all
downtown businessmen, to the property values of all property
owners there, and to the value of the tax base of the entire
City of Monterey. The validation stamp system is available to
all persons and businesses, not just to the organizers. No
profits, direct or indirect, and no advertising advantages have
accrued to plaintiff's organizers which have not also accrued to
nonorganizers. The Court therefore finds that the benefits to
plaintiff's organizers do not constitute a substantial
non-exempt purpose under either of the subsections of § 501
invoked herein.
Id. at 976.
I also rely on Revenue Ruling 72-102, Int. Rev. Bull. No. 10, at 11. There, the Internal Revenue Service held exempt from federal income taxation, pursuant to § 501(c)(4).
a membership organization that was formed by a developer and
[was] operated to administer and enforce covenants for
preserving the architecture and appearance of a housing
development, and to own and maintain common green areas,
streets, and sidewalks for the use of all development residents.
The Internal Revenue Service reasoned that
By administering and enforcing covenants, and owning and
maintaining certain non-residential, non-commercial properties
of the type normally owned and maintained by municipal
governments, this organization is serving the common good and
the general welfare of the people of the entire development.
Even though the organization was established by the developer
and its existence may have aided him in selling housing units,
any benefits to the developer are merely incidental.
In addition, the case presently before this court can be distinguished from two prime decisions of the Second Circuit where tax exemption was denied. Here there are no dividends paid to the members of the cooperative as existed in Consumer-Farmer Milk Coop. v. C. I. R., 186 F.2d 68 (2d Cir. 1950), nor is there a substantial surplus of income as existed in People's Educational Camp Society, Inc. v. C. I. R., 331 F.2d 923 (2d Cir. 1964).
The court also finds that the plumbers' cooperative is a business league pursuant to Section 501(c)(6) of the Internal Revenue Code of 1954, which affords tax exemptions to
Business leagues, chambers of commerce, real estate boards,
boards of trade, not organized for profit and no part of the net
earnings of which inure to the benefit of any private
shareholder or individual.
The Treasury Regulations on Income Tax, Section 1.501(c)(6)-1 provide for the following:
A business league is an association of persons having some
common business interest, the purpose of which is to promote
such common interest and not to engage in a regular business of
a kind ordinarily carried on for profit. It is an organization
of the same general class as a chamber of commerce or board of
trade. Thus, its activities should be directed to the
improvement of business conditions of one or more lines of
business as distinguished from the performance of particular
services for individual persons. An organization whose purpose
is to engage in a regular business of a kind ordinarily carried
on for profit, even though the business is conducted on a
cooperative basis or provides only sufficient income to be
self-sustaining, is not a business league.
It is the opinion of this court that plaintiff falls within the requirements of the above regulation. Plaintiff is clearly an association of all licensed master plumbers who undeniably have a common business interest. Plaintiff promotes the business interests of the member master plumbers by efficiently restoring plumbers' cuts in New York City and thereby lessens complaints, and claims by pedestrians and motorists as well as homeowners.
In addition, plaintiff does not engage in the type of business which is ordinarily carried on for profit. The court minutes reflect the fact that the cooperative has taken over the performance of a municipal function as Chapter 28-A, § 692 of the New York City Charter authorizes the Department of Highways to maintain "cognizance and control of the . . . (c) paving, repaving, resurfacing and repairing of all public roads, streets and highways, and of relaying of all pavements removed for any cause." In addition, the court notes that the cooperative also sends inspection report forms to the Department of Highways.
The Government manfully contends that the cooperative is not "directed to the improvement of business conditions of one or more lines of business, as distinguished from the performance of particular services for individual persons" (Treas. Reg. supra). It cites the case of Evanston-North Shore Board of Realtors v. United States, 320 F.2d 375 (Ct. Cl. 1963) for the above proposition. The Evanston case dealt with a real estate multiple listing service which operated like a "stock or commodity exchange. Both are means of bringing buyers and sellers together to facilitate the sale of property." Id. at 380. The plumbers' cooperative is in no way involved in the sale of any service or product to the public. The court therefore feels it need not reach the question as to whether or not fees charged by the cooperative are in approximate proportion to benefits received by the cooperative member.
Plaintiff, Contracting Plumbers Cooperative Restoration Corporation, is therefore exempt from federal income taxation pursuant to 26 U. S. C. § 501(c)(4), (6) (1971).
This opinion is deemed to embody findings of fact and conclusions of law pursuant to Rule 52, Fed. R. Civ. P.
So ordered.
- Case NameCONTRACTING PLUMBERS COOPERATIVE RESTORATION CORP., Plaintiff v. UNITED STATES OF AMERICA, Defendant.
- CourtUnited States District Court for the Eastern District of New York
- Docket70-C-1058
- JudgeCOSTANTINO
- Parallel Citation72-2 U.S. Tax Cas. (CCH) P9731
- LanguageEnglish
- Tax Analysts Electronic Citation1972 UST 7-72
