Before MAJOR, Chief Judge, and DUFFY and SWAIM, Circuit Judges.
This is an appeal from a judgment of the District Court dismissing the plaintiff's claim for the refund of corporate income and declared value excess profits taxes for the years 1945 through 1948.
The plaintiff, General Contractors' Association of Milwaukee, claims exemption from taxation under Section 101(7) of the Internal Revenue Code, 26 U.S.C.A. § 101(7). This section of the Code provides exemption for "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". Treasury Regulation 111, Section 29.101(7)-1, interpreting this provision, states that:
"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. * * * 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. * * * "
This regulation in substantially its present form has been in effect since the enactment of the Revenue Act of 1918 and has the force and effect of law. Automotive Electric Association v. C.I.R., 6 Cir., 168 F.2d 366, 367; Underwriters' Laboratories v. C.I.R., 7 Cir., 135 F.2d 371, 374.
The plaintiff corporation, organized in 1915 under the laws of Wisconsin, is an association of general contractors. It is the Milwaukee Chapter of The Associated General Contractors of America, Inc., a national organization having headquarters in Washington, D.C., with approximately 112 local chapters throughout the country. The plaintiff's authorized capital stock consists of 30 shares with a par value of $100 each. During the taxable years in question the major portion of this stock was issued and outstanding, one share being owned by each of plaintiff's members.
During the years 1945 and 1946 the plaintiff's statement of "objects and purposes" in its articles of incorporation outlined, first, measures designed to promote the building construction industry and the general welfare of contractors engaged in that industry. Section 2 then stated:
"To conduct, maintain, operate and carry on a Bureau of Quantity Survey and in connection therewith supply engineering and estimating reports; to figure quantities and estimates in respect of prospective buildings, structures or contracting work. * * * "
In 1932 the articles had been amended to provide that the surveys of the Bureau might be furnished to non-members upon such terms and conditions as the Board of Directors might determine.
In January 1947, the articles of incorporation were again amended. As then amended the articles state that the "primary and principal" objectives of the Association are those designed to promote the building construction industry and the general welfare of contractors. The operation of the Bureau of Quantity Survey is then stated to be "subject, subordinate and incidental to" the objectives first mentioned.
The plaintiff's income during the taxable years in question was derived largely from dues paid by its members. There is a minimum membership fee of $60 per year. Additional dues are computed according to a graduated scale based on the dollar volume of excavation, concrete and masonry work received by a member. This schedule of charges is reduced by one-half on projects which are non-competitive, that is, work let without competition and on a single bid. The income is used to meet current operating expenses and any excess may be placed in a reserve "to promote the corporate objects and purposes" of the Association. The by-laws, as amended in 1947, expressly prohibit any distribution of the assets or revenue to the members of the Association except upon dissolution. Prior to this amendment in 1947, the articles of incorporation, Section 8 of Article VII, provided that the Board of Directors of the corporation might distribute all or any part of the corporation's reserve funds or surplus in such manner as may be prescribed by the bylaws "to members who have contributed thereto." We may assume that with that article of incorporation the by-laws authorized distribution of surplus to the members. In 1945 the membership fees collected by the plaintiff totaled approximately $25,000, in 1946, $32,000, in 1947, $44,000, and in 1948, $63,000. Net income ranged from about $4,800 in 1945 to more than $24,000 in 1948.
The plaintiff's only paid employees were an executive secretary, a stenographer and from two to three surveyors employed to make the analyses undertaken by the Bureau of Quantity Survey. Neither its five directors, its four corporate officers, nor the members of its various committees received any compensation for their efforts on behalf of the Association.
Functioning through its executive secretary and its numerous committees, the plaintiff has instituted or participated in various activities tending to promote the building construction industry and the general welfare of contractors engaged in that industry. These have included the conduct of safety schools and contests and the publication of articles and bulletins on safety and accident prevention; cooperation with labor and management groups in the negotiation of collective bargaining agreements and the adjustment of labor disputes; promotion of apprenticeship programs and the recruitment of labor; preparation of a building code and sponsorship of approved construction methods; promotion of a suggested guide to bidding procedures; and adoption of a code of ethical conduct for general contractors. The District Court specifically found that in accordance with certain of its objectives the plaintiff has undertaken "to promote and improve the ethical standards, bidding procedures, safety records, labor relations, labor supply, ...