Ralph H. Eaton Foundation v. Commissioner of Internal Revenue

This is a proceeding to review an order of the Tax Court determining deficiencies in petitioner’s, income tax for the period beginning March 1947 and ending January 31, 1949. The question presented is whether a corporation engaged in ordinary business activities for profit is entitled to exemption from income tax under § 101(6) of the Internal Revenue Code, 26 U.S.C.A., solely by reason of the fact that its profits are payable to religious, charitable or educational enterprises.

Petitioner was organized under the laws of Arizona in March, 1947. Its in-corporators and directors are Ralph H. Eaton and wife and-one Kent. It has no capital stock and its articles prohibit the issuance of any. The articles state that the purpose of the corporation is to foster and promote religious, charitable and educational enterprises, and that it does not contemplate pecuniary gain or profit to the members thereof. Clearly, however, the corporation itself was not intended to operate and did not operate as a religious, educational or charitable institution. What was purposed was only that the profits from its various business activities would be turned over to such institutions. In a word,…