
    HORACE HEIDT FOUNDATION v. THE UNITED STATES
    [No. 361-52.
    Decided March 4, 1959.
    Plaintiff’s motion for rehearing overruled June 3, 1959]
    
      
      Mr. Robert V. Smith for tbe plaintiff. Messrs. Smith, Ristig <& Smith were cn the brief.
    
      Miss June A. Murray, with whom was Mr. Assistant Attorney General Charles K. Rice, for the defendant. Messrs. James P. Garland) and David A. Wilson were on the brief.
   JONES, Chief Judge,

delivered the opinion of the conrt:

The plaintiff sues for a refund of income taxes from September 6,1949, through May 31,1950, together with interest. It is the plaintiff’s position that during that period it was entitled to exemption from taxes under the provisions of section 101(6) of the Internal Revenue Code of 1939, as amended (26 U.S.C. (1952 ed.) §101), as a corporation operated exclusively for charitable and educational purposes.

Horace Heidt is a well-known entertainer who has been engaged in show business for some 34 years. The greater part of bis popular career has been spent as the director and master of ceremonies of an amateur-hour-type radio broadcast called the “Youth Opportunity Program.” Mr. Heidt had always evidenced a desire to help young artists. His radio program was devised to provide an opportunity for them to appear in a public performance and through competition among themselves to develop their particular talent.

In order to accommodate young people of this type and also to assure as far as possible that the quality of their performance would be acceptable to large audiences, Mr. Heidt employed talent scouts to travel in advance of his show and give auditions to such aspirants preliminary to a final hearing and selection by him. The sponsor for the Youth Opportunity Program was Philip Morris & Company, Inc. (hereinafter referred to as “Philip Morris”).

During the year 1947, Horace Heidt’s advance agents promoted public interest in both the Youth Opportunity Program and its sponsor’s product by arranging for the display of suitably designed placards in the towns and cities which they visited, thus giving publicity both to Mr. Heidt’s program and to its sponsor’s product. That activity became known as the merchandising or advance publicity phase of the Heidt operations. It was carried on by the General Publicity Service, Inc. (hereinafter referred to as “General Publicity”), a corporation organized in 1948, all of whose stock was owned by Mr. Heidt. Under the Philip Morris contract for promotional and publicity work for the Youth Opportunity Program, General Publicity received $2,500 a week. Another source of income for General Publicity was the revenue from the sale of souvenir programs for the show.

During the presentation of the Youth Opportunity Program, Mr. Heidt became convinced that there was a need for some kind of organization to which talented young people who aspired to become professional entertainers could look for assistance and protection while they prepared for advancement in that field. In his work with the Youth Opportunity Program, he found many young people whom he considered as having exceptional talent but who lacked sufficient funds for special training to assist them in getting started in that work. In addition, Mr. Heidt realized the unsatisfactory environment in which, young people often lived while they were trying to break into the entertainment field. With this attitude Mr. Heidt established the Horace Heidt Foundation in 1949 under the laws of the State of California.

The bylaws of the Horace Heidt Foundation provided that its corporate powers should be vested in a board of three directors and that the three organizers should constitute the first board of directors. While the first board of directors consisted of Horace Heidt’s attorney, A. L. Abrahams, the latter’s secretary, and another woman from the latter’s office, shortly after the organization of the Foundation, Mr. Heidt became its president and he has at all times had general charge of all affairs of the Foundation.

In order to supply the Foundation with a source of income to carry out its projects, Mr. Heidt in 1949 sold all of his stock in General Publicity Service (100 shares constituting all of the capital stock) to the Foundation for $500,000. The $500,000 was payable as follows: $25,000 in cash and the balance at the rate of $5,000 monthly without interest until paid. The price of $500,000 which the Foundation agreed to pay Horace Heidt for the entire capital stock of General Publicity was determined by taking five times what he considered the potential annual net earnings of the Foundation. No payments on the stock purchase price were made after May 31,1952, and the balance owing Mr. Heidt for his stock is $360,000.

Immediately upon the sale of the stock, General Publicity was dissolved and the Foundation acquired net liquid assets in excess of $75,000. Thus, the Horace Heidt Foundation took over the business activities of merchandising and the sale of souvenir programs.

While the contract of sponsorship with the Philip Morris Company had only approximately two years to run when the Horace Heidt Foundation was organized, Mr. Heidt was optimistic as to his ability to secure a renewal of the contract,, or, in the alternative, a comparable contract with a new sponsor. However, the Philip Morris contract was not renewed in 1951 and no new sponsors were obtained for 1952,. but sponsors were obtained for 1953 and subsequent years.

Mr. Heidt did not arrange for the Foundation to carry on. any of the merchandising or advance publicity of the new sponsors. [Relatively small amounts of income from work of that character or from the sale of programs were received by the plaintiff after 1951, because of the denial in 1950 of the plaintiff’s application for exemption from income tax under section 101(6) of the Internal Revenue Code.

From its inception the Horace Heidt Foundation was of great assistance to the young people whom Mr. Heidt had discovered through his radio program and who had subsequently become part of the Horace Heidt troupe. The Foundation paid salaries to the young entertainers. It provided them with available medical assistance, and paid for the general education and special instructions for many of these young people while they were associated with Mr. Heidt. It provided them with a place to live while they were not touring the country presenting one of Mr. Heidt’s shows. During the summer of 1950 when the city of Los Angeles was having a severe polio epidemic, the Foundation bore the expense of spraying the area of Van Nuys, a suburb of Los Angeles, where Mr. Heidt’s ranch was located and the place where the young people of his troupe lived. The Foundation made numerous contributions to charities.

The young entertainers who were associated with Mr. Heidt in his Youth Opportunity Program also displayed their talents on “The American Way” show, a program calculated to demonstrate “the American way of life” to civilian and military audiences in the United States and in Europe.

On July 10, 1950, the plaintiff filed with the Internal Revenue Service form 1023 entitled “exemption affidavit,” claiming exemption from Federal income tax under section 101(6) of the Internal Revenue Code. On November 15, 1950, tbe Commissioner of Internal Revenue advised the plaintiff that it was not exempt from Federal income taxes under that provision. The plaintiff’s request for reconsideration of its claim for exemption was denied on May 29, 1952.

The question presented in this case is whether the Horace Heidt Foundation is entitled to an exemption from Federal income taxes under the provisions of section 101(6) of the Internal Revenue Code of 1939 from the period of its organization on September 6,1949, to May 31,1950. In order for the plaintiff to come within this provision for the tax period in question it must meet the following conditions:

1. It must be organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes.
2. No part of its net earnings can inure to the benefit of any private shareholder or individual.
3. It cannot carry on propaganda to influence legislation.

We are not concerned here with the third requirement because neither party suggests, nor do we hold, that the plaintiff sought in any way to influence legislation. The important provisions are numbers 1 and 2.

Even though the articles of incorporation of the Horace Heidt Foundation set out verbatim certain provisions of section 101(6) of the Internal Revenue Code, it is necessary to look behind these articles to obtain a realistic view of the workings of the Foundation. The Horace Heidt Foundation was organized by a man who had had many years of experience in the entertainment field. Although primarily concerned with his orchestra and a talent scout program, Mr. Heidt in 1949 conceived the idea of discovering young people who had talent but who lacked sufficient funds for special training. His thought was to assist these young people in getting started in show business and to feature them on a program he would direct. He arranged to have some of the young entertainers live on his ranch in Yan Nuys, California, when they were not on tour with the show. When the young performers were touring with Mr. Heidt, they would obtain musical instruction, proper living quarters, and medical assistance, as well as pay for their services. Financing this program dedicated to young people interested in the entertainment field and who were featured on Mr. Heidt’s shows, was the stated purpose for which the Horace Heidt Foundation was established.

Although the plaintiff asserts that Mr. Heidt’s charitable interests were exemplified by the fact that it made educational, medical, and public health expenditures (findings 16, 17, 18, and 19), the defendant’s argument that Mr. Heidt’s concern was not exclusively charitable, but also indicated his own prime interest of maintaining the popularity of his shows and the performers, as well as reducing his personal expenses, is convincing. In order to be entitled to exemption under section 101(6), a foundation must be “organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes”, and no fart of the net earnings of the corporation can “inure to the benefit of any frivate stoclcholder or individual.” [Emphasis supplied.] If profits, whether direct or indirect, inure to the benefit of an individual, then the Foundation cannot be considered a charitable one. See Smith v. Reynolds, 43 F. Supp. 510. Profits need not be measured by monetary return. In these circumstances Horace Heidt received a great benefit by establishing an organization whereby the recipients of the organization’s charitable services were in his employ and benefiting him. See Northwestern Municipal Ass’n v. United States, 99 F. 2d 460.

Although many of the activities of the Foundation were benevolent, according to the congressional intent they cannot come within the statutory meaning of “charitable.” The essential element of a charitable institution under the exemption provision is that exclusively public, rather than private, interests are served. The institution must perform essential services, the burden of which otherwise would fall upon the Government. See Ways and Means Committee Eeport on the Eevenue Bill of 1938 (H. Eep. No. 1860, 75th Cong., 3d Sess.) (1939-1 Cum. Bull. (Part 2) 729, 742). The young people who received both educational and medical assistance, as well as encouragement, were in reality Mr. Heidt’s employees and were, in fact, on a salary basis (findings 13 and 14), even though there was no binding agreement between him and these people (finding 20). In order to keep these young entertainers physically fit and able to display their talents on his program, it was to Mr. Heidt’s advantage as a director of a radio program and as an employer to provide these services.

The courts in construing section 101(6) of the Internal Eevenue Code have followed one of two tests: the “source” of the income, or the “destination” of the income. This court has adopted the majority view that the destination of the income of the corporation, that is, the purpose and objective to which it is devoted, rather than its source, is the ultimate test.

In following the “destination” test, we hold that while a considerable portion of the expenditures of the plaintiff foundation could be classified as having a charitable purpose (findings 13 and 15), when the whole record is reviewed it becomes evident that those who benefited from the Horace Heidt Foundation were Mr. Heidt himself and the young people who were featured on his shows. The destination of the income of the corporation included private gain, rather than being exclusively for the public benefit.

Mr. Heidt’s efforts on behalf of the young people whom he trained and assisted to get a start in the entertainment field are commendable. He received numerous awards from charitable organizations. The courts have given a liberal construction in applying statutory provisions which exempt charitable, religious, and educational activities. But when all of the facts connected with the Horace Heidt Foundation, including the actual working of the Foundation and its intimate connection with Mr. Heidt personally, are given consideration we find that the plaintiff organization does not fall within any of the provisions of section 101(6) of the Internal Revenue Code of 1939. It is therefore not exempt from taxation during the period in question.

The petition will be dismissed.

It is so ordered.

Fahy, Circuit Judge, sitting by designation; Laramore, Judge; MaddeN, Judge; and Whitaker, Judge, concur.

EINDINGS OF FACT

The court, having considered the evidence, the briefs and argument of counsel, and the report of Trial Commissioner Richard H. Akers, makes the following findings of fact:

1. The plaintiff was organized on or about September 6, 1949, as a nonprofit corporation under the laws of the State of California. The articles of incorporation read, in part, as follows:

II. That this corporation is organized and shall be operated exclusively for religious, charitable or educational purposes and no part of its activities shall consist of carrying on propaganda or otherwise attempting to influence legislation.
III. That it is a corporation which does not contemplate the distribution of gains, profits or dividends to the members thereof.
Ht ^ # # #
VII. This corporation shall have all of the rights and powers set forth in Section 9501 of the Corporations Code of the State of California.

2. No provision was made in the articles of incorporation or in the bylaws for the disposition to be made of the property of the corporation in the event of its dissolution. However, on October 22,1951, which was subsequent to the period involved in this proceeding, the plaintiff amended its articles of incorporation by the addition of the following provision:

VIII. In the event of the dissolution of the corporation, after the payment or satisfaction of all debts of the corporation, the remaining assets and funds of the corporation shall be conveyed or transferred to such religious, charitable, scientific, literary or educational organization or organizations, 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, as the Board of Directors in their absolute discretion may determine and no funds or property shall be distributed among or revert to any member, officer or director of this corporation.

3. The plaintiff’s bylaws provided that its corporate powers should be vested in a board of three directors and that the three organizers should constitute the first board of directors. While the first board of directors consisted of Horace Heidt’s attorney, A. L. Abrahams, the latter’s secretary, and another woman from the latter’s office, shortly after the organization Horace Heidt became its president and he has at all times had general charge of the affairs of the corporation, including the selection of the members of the board of directors, of which, by virtue of his office as president, he was its chairman. On October 16, 1951, the bylaws were amended to provide that the board of directors and officers should serve without compensation.

4. At the time of the organization of the plaintiff, there was in existence another corporation known as General Publicity Service, Inc., hereinafter sometimes referred to as “General Publicity,” which had been organized in 1948 with a paid-in capital of $1,500, and all of whose stock was owned by Horace Heidt, the individual heretofore referred to. General Publicity was organized for the purpose of engaging in the business of promotional and adyance publicity service under a contract of Horace Heidt with Philip Morris & Company, Inc., hereinafter sometimes referred to as “Philip Morris,” the sponsor at that time for Horace Heidt’s Youth Opportunity Show, a commercial advertising show for Philip Morris, and also for the publication and sale of souvenir programs of the show. Under that contract with Philip Morris for promotional and publicity work, General Publicity received $2,500 a week and from the sale of souvenir programs for the fiscal year ended September 12, 1949, a gross income of approximately $98,000. Its net operating profit before Federal income taxes for the fiscal year ended September 12,1949, was $89,334.44.

5. On or about September 8, 1949, the plaintiff acquired all the capital stock (100 shares) of General Publicity for a stated price of $500,000 and in accordance with a resolution of the plaintiff’s board of directors which read in part as follows:

Resolved That this corporation purchase from Horace Heidt all of the issued and outstanding capital stock of General Publicity Service, Inc., a California corporation, viz, 100 shares, without par value, for the agreed and fixed price of $500,000.00, payable $25,000.00 in cash on or before September 28,1949, upon delivery of certificate representing said shares issued in the name of this corporation, and the balance in equal monthly installments of $5,000.00 each; the first installment to become due and payable on November 1,1949, and a like installment on the 1st day of each calendar month thereafter until the full purchase price is paid,. Said deferred payments to be represented by the promissory note of this corporation, payable in installments, as aforesaid, without interest; and
Be It Further Resolved : That in the opinion and judgment of the Board of Directors and each director of this company, the said shares of stock to be purchased pursuant to this resolution, are determined to be of the value of $500,000.00 to this corporation and of the reasonable market value of said sum; and
* * * * *

On the same day, the plaintiff’s board of directors adopted a further resolution which read in part as follows:

Whereas, this corporation has acquired and is the owner of all of the issued and outstanding capital stock of General Publicity Service, Inc., a California corporation; and
Whereas, in the opinion of the Board of Directors of this corporation it is advisable to take the necessary proceedings to dissolve said General Publicity Service, Inc., and to distribute its assets to its shareholders, viz, to this corporation, its sole shareholder,
Now, Therefore, Be It Resolved: That the officers of this corporation be and they are hereby authorized and directed to proceed with the dissolution of said General Publicity Service, Inc., and to execute the necessary certificates, notices, consents and documents in order to dissolve said General Publicity Service, Inc., and to file them, or such of them as should be filed, in the office of the Secretary of State of the State of California; and * * * * *

6. Immediately upon the acquisition of the stock of General Publicity and in accordance with the resolution set out in the preceding finding, the plaintiff proceeded with the liquidation and dissolution of General Publicity, thereby acquiring all of the assets of General Publicity in the amount of $79,257.41, consisting of cash, $73,972.70, accounts receivable, $2,500, and inventories, $2,784.71, and one item of liabilities, accounts payable, $3,792.55, that is, net assets in the amount of $75,464.86. Under the purchase agreement, the plaintiff paid to Horace Heidt $25,000 in cash and, in addition, agreed to pay him $5,000 a month until the balance of $475,000 of the $500,000 purchase price was paid. The installment note for the balance of the purchase price read as follows:

In installments as herein stated, for value received, I promise to pay to Horace Heidt, or order, the sum of Four HuNdred Seventy-five Thousand Dollars, without interest, in installments of Five Thousand Dollars, or more, on the 1st day of each month, beginning on the 1st day of November 1949, and continuing until said principal has been paid.
Should default be made in payment of any installment of principal when due, the whole sum of principal shall become immediately due at the option of the holder of this note. Principal payable in lawful money of the United States. If action be instituted on this note, I promise to pay such sum as the Court may fix as attorney’s fees.

7. The price of $500,000 which the plaintiff agreed to pay Horace Heidt for the entire capital stock of General Publicity was arrived at by Horace Heidt’s counsel by taking five times what he considered the potential annual net earnings of the plaintiff. As shown above, the business conducted by General Publicity consisted of the promotional and advance publicity operation and the sale of programs. Thereafter these two business activities were carried on by the plaintiff in substantially the same manner as they had been carried on by General Publicity. While the contract with Philip Morris had only approximately two years to run when the plaintiff was organized, Horace Heidt was optimistic as to his ability to secure a renewal of the contract or, in the alternative, a comparable contract with a new sponsor.

However, the Philip Morris contract was not renewed upon its expiration at or near the end of 1951. As will hereinafter appear, at or about that time the plaintiff was advised of the denial of its application for exemption from income tax under section 101 (6) of the Internal Eevenue Code. No new sponsor for the Horace Heidt show was obtained for 1952 but sponsors were obtained for 1953 and subsequent years, such new sponsors including American Tobacco Company, Westinghouse Electric Company, and Swift & Company. However, in view of the rejection by the Commissioner of the plaintiff’s application for exemption from income tax, Mr. Heidt did not arrange for the plaintiff to carry on any of the merchandising or advance publicity of the new sponsors, and only relatively small amounts of income from work of that character or from the sale of programs were received by the plaintiff after 1951.

By May 31, 1952, the balance due on the installment note ($475,000) executed in connection with the acquisition of the stock of General Publicity for $500,000 had been reduced to $360,000. No payments were made on the note after May 31, 1952.

8. Horace Heidt, referred to above, is a well-known entertainer who has been engaged in show business for some thirty-four years. In his experience in that field, he observed that there were a large number of young artists scattered throughout the United States who had latent potential talent but who lacked sufficient funds to obtain needed special training for entertainment careers, or because of illness or other misfortune were unable to carry on their training. In order to assist these people, he conceived the idea of organizing a show, the radio broadcasting of which would be under a sponsor, which would provide an opportunity to offer their entertainment specialty in public performance and through competition among themselves to develop their particular talent. In these performances, the audience would vote for the person they considered having the best qualifications and in that manner some fine talent would be discovered.

In order to accommodate young people of this type and also to assure as far as possible that the quality of their performance would be acceptable to large audiences, Horace Heidt employed talent scouts to travel in advance of his show and give auditions to such aspirants preliminary to a final hearing and selection by him. The title for the show thus conceived and organized was the “Youth Opportunity Program.”

9. Some time in the year 1947, Philip Morris & Company, a tobacco manufacturing firm, agreed to sponsor the Youth Opportunity Program for radio broadcasting. During the time this agreement was in effect, Horace Heidt’s advance agents promoted public interest in both the Youth Opportunity Program and its sponsor’s product by arranging for the display of suitably designed placards in the towns and cities which they visited and giving publicity both to the show and its sponsor’s product. That activity became known as the merchandising or advance publicity phase of the ITeidt operations. By 1948 the show with its attendant operations just described had proved so successful that Philip Morris executed a new contract for three years under which Philip Morris paid $2,500 a week for the merchandising or advance publicity work.

At or about that time in 1948, as shown in finding 4, the corporation known as General Publicity Service, Inc., was organized and thereafter carried on the merchandising or advance publicity work under the Philip Morris contract and the sale of souvenir programs to those in attendance at the various shows. Upon the liquidation of General Publicity to the plaintiff, these two activities were carried on by the plaintiff.

10. During the presentation of the Youth Opportunity Program, Horace Heidt selected from among the young people who appeared on that show those whom he considered to possess exceptional talent and enrolled them in his organization on a permanent basis as paid performers. Using that talent, he organized a stage show by the name of “The American Way.” It was based to a large extent upon the performers’ own experiences of opportunity and success and was designed to illustrate the advantages of living under our form of government. While they were thus employed, these youthful performers were under Horace Heidt’s personal supervision and guidance. They were paid standard or union wages and in addition were provided to some extent at least with singing and dancing lessons and, in the case of juveniles, instruction by tutors.

11. While there was a relationship between the Youth Opportunity Program, as presented on radio or television, and The American Way stage show, they were separate and distinct business arrangements. Income from the Youth Opportunity Program arose from the commercial sponsor’s payment under the contract, and income from The American Way shows came from paid admissions to that show. As heretofore shown, the merchandising or advance publicity work under Plorace Heidt’s contract with Philip Morris, as the sponsor of his Youth Opportunity Program, was carried out by the plaintiff as well as the sale of souvenir programs at The American Way shows, and from these two activities the plaintiff received its income.

12. As a result of his extensive experience as an entertainer with young people, including his work with the Youth Opportunity Program and The American Way, Horace Heidt had become convinced of the need for some kind of organization to which talented young people who aspired to become professional entertainers could look for assistance and protection while they prepared for advancement in that field. In his work he found many young people whom he considered as having exceptional talent but who lacked sufficient funds for special training or otherwise to assist in getting them started in that work. In addition, Mr. Heidt was aware of the unsatisfactory environment in which young people, particularly girls, often lived in entertainment areas such as Hollywood while trying to break into their chosen profession. Since Mr. Heidt felt that there was no other organization in existence which would take care of the needs just described, he organized the Horace Heidt Foundation, the plaintiff in this proceeding, in the manner and for the purposes set out in the preceding findings.

13. As heretofore shown, the two sources of income of the plaintiff were advance publicity or merchandising work under the Horace Heidt contract with Philip Morris and the sale of souvenir programs to those who attended the Horace Heidt shows. These programs were copyrighted by the plaintiff. The following summary statement shows the income, operating expenses, youth welfare and charitable expenses of the plaintiff for the fiscal period ended May 31, 1950, and the fiscal years ended May 31, 1951, and 1952:

14, The items of salaries and expenses for shows at army camps, set out in the preceding statement, represent the amounts expended in those years by the plaintiff in putting on The American Way show at military bases both in this country and in Europe at the request of various military agencies. The salaries of the performers at these shows, and at least a substantial part of the other expense, were paid by the plaintiff. One of the principal features of the shows was the demonstration of the American way of life by depicting the four freedoms; namely, freedom of opportunity, freedom of speech, freedom of religion, and freedom from want. The purpose and effect of this show on the military personnel was to raise their morale and to help to make clear to them the value of their fighting to preserve our way of life. In 1950 this show was presented at army camps and before civilian personnel in Europe where it was useful in combating communism.

15. The item of donations set out in the operating statement in finding 13 represents contributions made by the plaintiff to charitable organizations and projects. The various items making up the total of $8,850 for the fiscal period ended May 31, 1950, which items are illustrative of those for the fiscal years ended May 31,1951 and 1952, are as follows:

Salvation Army---$1,000. 00

American Legion_ 250.00

Boy Scouts of America_ 1,000.00

March of Dimes_ 375.00

Possibilities Unlimited_ 2,000. 00

Elyria, Ohio, Jr. Chamber of Commerce Polio Fund- 250.00 Indianapolis Kiwanis Club — Camp Kiwanis Fund for Boy

Scouts of Indiana- 1,000. 00

National Conference of Christians and Jews_ 500. 00

Grand Rapids Exchange Club — Youth Activities Fund_ 250. 00

Indianapolis Police Officers’ Benefit Assoc_ 100.00 Detroit Metropolitan Council of Optimist Clubs — Boys’

Work Fund_ 1,000.00

Jewish War Veterans of Springfield- 500.00

Minneapolis Police Officers’ Benefit Assoc_ 600.00

Los Angeles Police Relief Assoc. — Veterans’ Fund_ 25.00

First Christian Church of North Hollywood, Calif_ 100.00

Total donations_$8, 850.00

16. The amount of $567 for medical expenses set out in the operating statement for the fiscal period ended May 31,1950, consists of two items: $551 for hospital care, etc., for treatment of a back condition of Jeannine Meister and $16 for medical treatment of Jesse Owens while on tour with the Horace Heidt shows. Jeannine Meister was a talented young dancer who developed a spinal condition some five months after joining Mr. Heidt’s show, which condition rendered it impossible for her to carry on her profession. The plaintiff defrayed the expenses of an operation which included not only the item of $551, set out above, but also an item of $137.50 in the fiscal year ended May 31,1951, and $567.28 in the fiscal year ended May 31,1952. While the operation was successful, she was unable to continue in the entertainment field, of which possibility Mr. Heidt was aware when he agreed to have the expenses defrayed by the plaintiff. She is now married and has two children.

Jesse Owens was a young teen-age colored shoeshine boy whom Horace Heidt discovered in Ohio. While he exhibited considerable talent as a singer without having had any previous training, he was without financial means to further a singing career. While on tour with Horace Heidt, the •plaintiff contributed $16 for medical treatment for him during the fiscal period ended May 31, 1950. The plaintiff likewise contributed $500 for vocal lessons for him for the same period, and $18 for music lessons for him in the fiscal year ended May 31,1951.

17. The amount of $615.88 shown for educational expenses in the statement of operations for the fiscal period ended May 31,1950, was made up of the following items:

Ralph Sigwald — for vocal lessons in New York City_$103. 88

Jesse Owens — for vocal lessons_ 500.00

Lila Jackson — for vocal coaching lessons_ 12.00

Ealph Sigwald, when discovered by Horace Heidt, was a 27-year-old janitor from Charleston, South Carolina. At that time he weighed 467 pounds. He had shown considerable talent as a baritone singer with only church singing as a background. He had worked since he was 14 years old and was without sufficient financial means to advance his singing career. With some difficulty, Horace Heidt persuaded him to join his show in 1949, at which time he was, paid a salary of $175 a week. He has continued with Mr., Heidt since that time on a union wage scale basis. As shown above, the plaintiff paid for vocal lessons for him in New York City during the fiscal period ended May 31, 1950, in tbe amount of $103.88. In addition, the plaintiff paid for vocal study for him in New York City during the fiscal year ended May 31, 1951, the amount of $1,000. In addition to these educational expenses for music, the plaintiff, in the fiscal year ended May 31,1951, contributed $14 for a medical checkup, and in the fiscal year ended May 31, 1952, $21 for a checkup and weight reduction treatment. After seven years his weight was reduced from 467 to 215 pounds. He has become a very popular entertainer on the Horace Heidt shows.

The item of $500 for vocal lessons for Jesse Owens was referred to in the preceding finding.

18. While the total amounts for medical expenses for the fiscal years ended May 31,1951 and 1952, were much larger than the amount for the fiscal period ended May 31, 1950, and described above, the items making up the totals in each instance were similar in nature, that for the fiscal year ended May 31, 1951, being made up as follows:

For physicians maintained on weekly basis, etc., to treat members of organization at ranch and on tour-$1,484.95

Gilbert Shepard — hospitalization, etc- 82.05

Jackie Joslin — for emergency operation, hospital care, anesthetic, nurses at home, etc- 557. 05

Ted Adkins_ 8. 00

Edward Krieg- 61.00

Don Mcllvaine_ 15.00

Jeannine Meister — for treatment of back condition- 137.50

■Reita Green — hospitalization for plastic surgery- 91.35

L. G. Shepard- 14.00

Ralph Sigwald — checkup- 14.00

Jack Rowley — for treatment of back condition- 36.00

Shirley Mitchell — treatment of cold on tour- 5.00

•Don "Wilson_ 40.00

Russ Budd — for X-rays, etc_ 56. 00

Jack Imel — checkup_ 4.00

Barbara Madrid — checkup_ 4. 00

Jesse Owens — checkup- 8.00

Madeline Bayless — treatment of cold_ 8.00

Evelyn Brill_ 3. 00

Total medical expenses- 2,628.90

The aid furnished to Eeita Green, as set out in the above list, and a further amount of $465.50 for a similar purpose in the following year, are illustrative of the conditions under which the plaintiff paid for medical services for other persons in that list. Eeita was a yonng girl 14 years of age when she was discovered by Mr. Heidt in 1950. At that time she was auditioned and accepted by Mr. Heidt as a dancer and paid the union scale of $85 to $90 a week for her part in the Horace Heidt show. About six months after joining the show, she told Mr. Heidt of a complex she had on account of her nose and asked him if there was some way she could have some plastic surgery to remedy the situation. At the time of the inquiry she did not expect Mr. Heidt to pay for the surgery nor did she know the plaintiff was in existence. At first Mr. Heidt questioned whether any surgery was required but after further consideration he told her that he thought such surgery would help her features. Accordingly when they got to Mr. Heidt’s ranch in California, Mr. Heidt arranged for a doctor to take care of the matter at the expense of the plaintiff. The operation was successful and of substantial benefit to Miss Green who developed into a splendid dancer and singer and who has remained with the Horace Heidt show.

19. During the summer of 1950 when the city of Los Angeles was having a severe polio epidemic, Mr. Heidt observed that the town of Jackson, Mississippi, had attained what he considered good results against the incidence of that disease by spraying the town and outlying areas. While he was unsuccessful in getting the health authorities of Los An-geles to try out a similar spraying operation, he did obtain from them permission to spray an area at his own expense at Van Nuys which is a suburb of Los Angeles. The cost of this operation was borne by the plaintiff and is set out in the statement of operations in finding 13 as “fogging expenses” for the fiscal years ended May 31,1950,1951, and 1952.

20. While the individuals who were discovered and assisted by Horace Heidt and by the plaintiff in the manner hereinbefore indicated were paid performers on a union scale basis with Mr. Heidt’s show, Mr. Heidt did not require them to execute a contract for their services with him. They were free to leave his shown at any time and they were under no obligation to make any payment to him on account of any future connection they might make in show business.

At times, particularly during the summer when the performers on Mr. Heidt’s show were not on tour, some of these young people whom Mr. Heidt had selected as having exceptional talent lived at his ranch in Van Nuys, California. This ranch consisted of fourteen acres of ground and had twelve bungalows, a rehearsal hall, motion-picture studio, an accountant’s office, and a publicity office. These young people were not charged anything for food or lodging while at the ranch and, at the same time, were paid “on location” union wages, which were something less than the union wage scale on tour. While the ranch was at all times owned by Mr. Heidt, it was a part of Mr. Heidt’s general plan eventually to transfer the ranch to the plaintiff, but the transfer was never made.

21. On July 10, 1950, the plaintiff filed with the Internal Eevenue Service form 1023 entitled “exemption affidavit,” claiming exemption from Federal income tax under section 101 (6) of the Internal Revenue Code and the corresponding provisions of prior revenue acts, stating thereon that the specific purposes for which the corporation was formed were “to contribute toward youth welfare, improvement and education and miscellaneous charitable, educational and scientific movements.”

22. Under date of November 15, 1950, the Commissioner of Internal Revenue advised the plaintiff that it was not exempt from Federal income taxes under the provisions of section 101 (6) of the Internal Revenue Code, his letter of rejection concluding as follows:

Inasmuch as a substantial part of your activities is the operation of a business for profit, it is the opinion of this office that you are not organized and operated exclusively for the purposes specified in section 101 (6) of the Internal Revenue Code and are not entitled to exemption under that provision of the law. Accordingly, you are required to file Federal income tax returns on Form 1120.
The collector of internal revenue for your district is being advised of this action.

23. On December 7 and 11,1950, January 2 and September 12,1951, the plaintiff requested reconsideration of the Commissioner’s denial of its claim for exemption and submitted additional information in support of that claim.

24. On or about November 30, 1951, the plaintiff through its counsel was advised orally that the Commissioner would not change his prior ruling of November 15, 1950, denying the plaintiff’s claim of exemption. However, the official ruling affirming his prior ruling of November 15,1950, denying exemption was not issued until May 29,1952.

25. In the meantime, the plaintiff timely filed on form 990 the annual returns required of organizations exempt under section 101 (6) of the Internal Eevenue Code for the period beginning September 6,1949, and ended May 31,1950, and for fiscal year ended May 31,1951.

26. The plaintiff on December 11,1951, after having been orally advised on or about November 30,1951, that the Commissioner would not favorably reconsider his prior ruling denying exemption under section 101 (6) of the Internal Eevenue Code, filed under protest on form 1120 its corporation income tax return for the period, beginning September 6, 1949, and ended May 31, 1950. That return showed a net income for such period in the amount of $37,037.24 and an income tax due of $12,129.73, remittance of which accompanied the return. Attached to the return was an affidavit of Horace Heidt explaining the delay in filing the return, including the plaintiff’s claim for exemption and its denial hy the Commissioner, and averring that the delay in filing was due to reasonable cause and not to willful neglect, and that the return should be accepted without penalty.

27. On or about December 12, 1951, the plaintiff filed a claim for refund of the entire amount of income taxes paid, as set out in the preceding finding, for the period commencing September 6,1949, and ended May 31,1950, stating as a ground therefor that the plaintiff was exempt from corporation income tax under the provisions of section 101 (6) of the Internal Eevenue Code.

February 21,1952, the plaintiff received from the Internal Eevenue Service a notice of penalties and interest in the amount of $3,993.95 for the period September 6, 1949, to May 31,1950, by reason of the failure of the plaintiff to file its corporation income tax return within the prescribed time for the filing of such return. After protest by the plaintiff, a deputy collector advised the plaintiff’s counsel that its account bad been forwarded to the Los Angeles office to be held in abeyance pending action on its claim for refund. No action has been taken on the claim for refund by the Commissioner and the penalties referred to have not been collected.

CONCLUSION OF LAW

Upon the foregoing findings of fact, which are made a part of the judgment herein, the court concludes as a matter of law that the plaintiff is not entitled to recover, and the petition is therefore dismissed. 
      
       “§ 101. Exemptions from tax on corporations.
      “* * * the following organizations shall be exempt from taxation under this chapter—
      *****
      “(6) Corporations, and any community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, 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 * * *”
     
      
       The articles of incorporation read, in part, as follows :
      “II. That this corporation is organized and shall be operated exclusively for religious, charitable or educational purposes and no part of its activities shall consist of carrying on propaganda or otherwise attempting to influence legislation.
      “III. That it is a corporation which does not contemplate the distribution of gains, profits or dividends to the members thereof.
      * * * * *
      “VII. This corporation shall have all of the rights and powers set forth in Section 9501 of the Corporations Code of the State of California.’*
     
      
       The Commissioner’s letter stated in part:
      “Inasmuch as a substantial part of your activities is the operation of a business for profit, it is the opinion of this office that you are not organized and operated exclusively for the purposes specified in section 101(6). of the Internal Revenue Code and are not entitled to exemption under that provision of the law. Accordingly, you are required to file Federal income tax returns on Form' 1120.
      “The collector of internal revenue for your district is being advised of this action.”
     
      
      
         Sico Company v. United States, 121 C. Cls. 373; Trinidad v. Sagrada Orden, 263 U.S. 578 ; C. F. Mueller Co. v. Commissioner, 190 F. 2d 120 ; Roche’s Beach, Inc., v. Commissioner, 96 F. 2d 776 ; Debs Memorial Radio Fund v. Commissioner, 148 F. 2d 948; Commissioner v. Orton, 178 F. 2d 483; Willingham v. Home Oil Mill, 181 F. 2d 9 ; Arthur Jordan Foundation v. Commissioner, 210 F. 2d 885 ; Lichter Foundation v. Welch, 247 F. 2d 431.
     