St. Germain Foundation v. Commissioner , 26 T.C. 648 ( 1956 )

Saint Germain Foundation, Petitioner, v. Commissioner of Internal Revenue, Respondent

St. Germain Foundation v. Commissioner

Docket No. 54283

United States Tax Court

26 T.C. 648; 1956 U.S. Tax Ct. LEXIS 146;

June 22, 1956, Filed

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Decision will be entered for the petitioner.

Petitioner was organized and operated in the years 1942 through 1950 to propagate the teachings of the "I AM" doctrine. Religious literature was sold in connection with petitioner's activities. A staff headed by Edna W. Ballard was on tour throughout most of the year, during each of the years involved, holding classes in various cities to further petitioner's principles. No salaries were paid to members of the staff, all their normal living expenses being paid by the petitioner. Held, petitioner exempt from taxation under section 101 (6) of the 1939 Internal Revenue Code as a corporation organized and operated exclusively for religious purposes with none of its net earnings inuring to the benefit of any private shareholder or individual.

Arthur McGregor, Esq., Adam Y. Bennion, Esq., and Charles J. Higson, Esq., for the petitioner.

Paul E. Waring, Esq., for the respondent.

Mulroney, Judge.

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MULRONEY

The respondent determined the following deficiencies and additions to the tax:

Income Tax
		25 per cent additions
Year	Deficiency	to tax
		(sec. 291 (a))
1942	$ 2,658.77	$ 664.69
1943	2,282.42	570.61
1944	4,066.93	1,016.73
1945	4,167.97	1,041.99
1946	28,371.73	7,092.93
1947	26,630.81	6,657.70
1948	39,896.04	9,974.01
1949	20,067.15
1950	24,931.31
Declared Value Excess-Profits Tax
1942	$ 2,368.59	$ 592.15
1943	1,164.74	291.19
1944	2,981.58	745.39
1945	2,958.47	739.62
Excess Profits Tax
1942	$ 6,953.58	$ 1,738.40
1943
1944	6,117.26	1,529.32
1945	5,647.57	1,411.89

The principal issue is whether the petitioner was, during the years here involved, exempt from taxation under section 101 (6) of the 1939 Internal Revenue Code as an organization organized and operated exclusively for religious purposes, with no part of its earnings inuring to the benefit of any private shareholder or individual. Subsidiary issues, which arise only if the main issue is decided adversely to the petitioner, are (1) whether certain amounts of cash and other property received by the petitioner were taxable income or whether such receipts were excludible from gross income under section 22 (b) (3) of the 1939 Internal Revenue Code as gifts, bequests, or devises; (2) whether certain amounts credited to the personal account of Edna W. Ballard on the books and records of the petitioner in the years 1943 to 1946, inclusive, were includible in the petitioner's income for those years; and (3) whether petitioner's failure to file corporation income and excess profits tax returns for the years 1942 through 1948 was due to reasonable cause or to willful neglect within the meaning of section 291 (a) of the 1939 Internal Revenue Code. Mutual concessions on brief have eliminated the issue with respect to the declared value excess-profits tax (and related additions to tax), and the issue with respect to the statute of limitations.

FINDINGS OF FACT.

Some of the facts have been stipulated and they are herein incorporated by this reference.

The Saint Germain Foundation, hereinafter called the petitioner, is a non-stock corporation incorporated under the "not for profit" laws of the State of Illinois on March 24, 1938. The original incorporators were Guy W. Ballard, Edna W. Ballard, and Harry N. Rogers. Guy W. Ballard died on December 29, 1939.

Petitioner's purposes and objects as stated in its articles of incorporation and in the bylaws are as follows:

1. To educate individuals by the Ascended Masters' Instruction of the "mighty I AM Presence" which is the Law of Life and Light;

2. To give public and private lectures for the expanding of this Educational Activity and Spiritual Culture;

3. To publish and distribute books, magazines, art work, music and other literature intended and designed to convey this Ascended Master Instruction;

4. To publish "I AM" Study Groups for the expanding of this Educational Activity and Spiritual Culture in the United States of America and foreign countries;

5. To give personal Radio Broadcasts, make electrical transcriptions for Radio Broadcasting; to build or lease and operate its own Broadcasting Station, and to purchase, lease, build, control, manage and operate any activity in the Radio world that may be deemed necessary or appropriate for the expanding and perfecting of this Educational Activity and Spiritual Culture;

6. To produce, handle and distribute recordings, moving pictures, television and other inventions and agencies intended and designed to convey this Ascended Master Instruction;

7. To establish Reading Rooms for expanding this Education;

8. To establish and maintain schools founded upon this Ascended Master Instruction to educate the youth of America;

9. To work for the prevention of discord in and to give protection to the United States of America and the Americas; to develop Love for the Loyalty to the United States of America and the Ideals for which this Country was originally established, namely: The Declaration of Independence, the Constitution, the United States of America's Supreme Court and all Institutions which guarantee and give Divine Justice to the American people;

10. To educate the people to render obedience to the Highest Laws of Life, make them better citizens and True Americans;

11. To educate and help the individual attain and maintain the Perfection of Life, by harmonizing and purifying himself and his environment;

12. To lease suitable buildings and equipment, and to acquire by purchase or gifts such personal and real property as may be necessary to carry out the objects of this corporation; to receive subscriptions and donations of real and personal property and money to be applied to the uses and purposes hereinabove set forth; to take, hold, and manage real and personal property conveyed to it in trust, the income from which is to be applied to the uses and purposes hereinabove set forth, and to execute such trusts; to sell and convey any of its property, to permit the use of any of the property for educational or other lawful purposes;

13. To acquire, conduct, direct, and expand any additional facilities that may be deemed necessary or appropriate for the greater Perfection of this Educational Activity and Spiritual Culture;

And to do all other lawful and necessary or desirable things and acts germane to and for the purpose of accomplishing the objects and purposes as hereinabove set forth;

Provided that no pecuniary benefit or dividends shall ever accrue or be declared or paid or distributed to any of the members of this association but all profits and property of this Foundation shall be used to carry out the purposes of the Foundation or some part thereof as hereinabove set forth.

Petitioner is managed and controlled by a board of directors of three members. During the years involved here, 1942 through 1950, the board consisted of Edna W. Ballard, Paul H. Stickell, and Betty O. Mundy (the latter succeeding Harry N. Rogers who resigned on December 22, 1942), and during this same period Edna W. Ballard was president and treasurer, Paul H. Stickell was secretary, and Betty O. Mundy was vice president.

Petitioner was organized and operated for the purpose of propagating the teachings of the "I AM" Religious Activity. The "I AM" Religious Activity was founded in about the year 1932 upon "teachings" supposedly received by Guy W. Ballard through "revelations" from "Ascended Masters," particularly from one of the "Ascended Masters" known as Saint Germain. Seven books were published containing such "revelations." After the death of Guy W. Ballard in 1939, the "revelations" were supposedly received by Edna W. Ballard.

In the "teachings" of the Religious Activity, "Ascended Masters" are persons who, through purification and perfection of the physical body and obedience to the law of Light and Life, have attained the Ascension, while "Accredited Messengers" are regarded as appointed and educated by the "Ascended Masters" to explain the gospel of the "Mighty I AM Presence."

The Religious Activity teaches the existence of a Supreme Being. It teaches that the words "I AM" denote the existence and relationship of the God-Self in each individual, and that the "Mighty I AM Presence" is the source of all life, light, and energy, abiding above every human being, with its withdrawal from the human form resulting in death. It promises ultimate salvation achieved through successive reincarnations, to those who practice in their daily lives certain precepts as laid down in the "revelations" of the "Ascended Masters." Moral principles taught by the Religious Activity are those common to Christian doctrine. Conventional ideas of Heaven and Hell are not accepted. Students of the Activity are exhorted not to use meat, fish, fowl, liquor, drugs, or tobacco.

The religious teachings of the "I AM" Religious Activity were disseminated in the years here involved through classes held throughout the United States. From February 1936 through 1949 a monthly magazine was published carrying instructions and teachings. Groups of students were formed in the principal cities of the country, maintaining sanctuaries and reading rooms. From 1946 through 1950 there were 100 sanctuaries and many smaller reading rooms in the United States, and 16 sanctuaries in foreign countries. Some of the local groups are separately incorporated and some are not. Local groups are not financially accountable to the petitioner. They defray their own expenses and they either rent or purchase their own reading rooms and sanctuaries. The group leaders in charge of the local groups are appointed by the petitioner, and the petitioner controls the manner of conducting their meetings and the manner in which the subjects are taught. Classes are held daily in the local sanctuaries and reading rooms, and there are courses of study for those interested. Students make contributions from time to time to the local groups through the medium of "Love Gift Boxes" maintained for that purpose. Each local group retains its contributions and there is no accounting to the petitioner.

During the years here involved, Edna W. Ballard, together with eight other members of the petitioner's staff, was on tour much of the time, holding classes at the various local sanctuaries. The staff conducts an annual series of classes in Chicago during the weeks from Thanksgiving through Christmas, and an annual 2 week's class is held at Easter in Santa Fe, New Mexico. The members of the staff have adopted a simple way of life in pursuit of their principles. They are together much of the time, do all their own housework, prepare their own food, and, when on tour, do all the driving. The members of the staff, including Edna W. Ballard, do not receive salaries from the petitioner. All living expenses on tour are paid by the petitioner, and when they are in Chicago they live in one of two houses belonging to Edna W. Ballard, the other being used as her personal residence. Some of the staff members live in an apartment house in Santa Fe, New Mexico, belonging to the petitioner. A semimonthly accounting to the Chicago office was made by Edna W. Ballard and Betty O. Mundy, a member of the staff, of expenses of the staff while on tour.

Amounts spent by the petitioner's staff on tour and to entertain group leaders of the local sanctuaries were as follows:

1942	$ 11,523.27
1943	6,407.47
1944	4,045.63
1945	5,631.91
1946	8,310.94
1947	9,960.64
1948	10,174.51
1949	11,599.05
1950	10,786.10

Petitioner also spent the following amounts to rehabilitate and paint the house in Chicago belonging to Edna W. Ballard which was used by members of petitioner's staff as a residence:

Year	Amount
1944	$ 2,809.25
1945	2,617.71
1946	2,751.19
1947	3,148.12
1948	3,299.97
1949	5,677.28

Petitioner conducts two conclaves each year at Mt. Shasta, California, each running for 2 weeks, with 2 or 3 open weeks between. Youths from the various local sanctuaries attend the conclaves for training and instruction. Since 1950 a pageant has been given at these conclaves depicting the life of Christ, and some 400 youths participate. During the years 1946 through 1950 the petitioner presented six 1 1/2-hour broadcasts each year, originating from Ouray, Colorado, which were carried by direct long-distance telephone hookups to 100 sanctuaries in the United States and to 16 sanctuaries in foreign countries.

Petitioner receives funds from two sources: (1) From the sale of books, magazines, pamphlets, music, recordings, and similar items, and (2) from contributions termed "love gifts." Petitioner received the following "love gifts" and bequests in the years 1942 through 1950:

Year	Cash	Real and	Bequests	Total
		personal property
1942	$ 54,529.19			$ 54,529.19
1943	53,238.37			53,238.37
1944	54,790.48	$ 7,300.00		62,090.48
1945	74,135.39	20,822.00		94,957.39
1946	81,651.48	31,486.15		113,137.63
1947	80,236.71	22,616.00	$ 6,125.96	108,978.67
1948	180,024.42	15,964.50	1,700.00	197,688.92
1949	71,416.42	64,250.00	4,500.00	140,166.42
1950	161,267.30	83,850.00		245,117.30
Totals	$ 811,289.76	$ 246,288.65	$ 12,325.96	$ 1,069,904.37

Petitioner's net worth on January 1, 1942, was $ 31,010.62, and on December 31, 1950, petitioner's net worth was $ 438,555.68.

Petitioner's excess of receipts, from all sources, over disbursements for the years 1942 through 1950 were as follows:

1942	$ 15,228.94
1943	(357.29)
1944	24,143.85
1945	20,099.35
1946	31,920.01
1947	52,440.21
1948	117,479.01
1949	53,704.23
1950	106,752.96

The receipts called "love gifts" were received by the petitioner through the mail or while the staff was on tour. Some of the "love gifts" were made to Edna W. Ballard for her own personal use. Sums received on tour were sent to the petitioner's Chicago office for deposit, with transmittal letters, over the name of Edna W. Ballard or Betty O. Mundy, designating the amounts, names of persons from whom received, and whether the amounts were to be credited to petitioner's account or to an account maintained on petitioner's books in the name of Edna W. Ballard. The latter did not keep a bank account in her own name during the years here involved but, instead, recorded her receipts and disbursements in her account on petitioner's books.

Amounts received as "love gifts" by Edna W. Ballard personally, either from the students directly or in the form of gifts accompanying Mother's Day cards and Christmas cards, were used for personal expenses, for expenses made on petitioner's behalf, and for her son, Donald. These "love gifts" received by Edna W. Ballard were from 50 cents up to a few hundred dollars in amount. During the years here involved she also received a $ 10,000 bequest in the will of a member of the "I AM" Religious Activity. She also received some diamonds under the will of another member of the "I AM" Religious Activity. Some of the "love gifts" received by her were never recorded, either in her own records or those of the petitioner. None of the "love gifts" were ever reported in Edna W. Ballard's income tax returns for the years involved. During the years 1942 through 1950 the sum of $ 25,982.63 was disbursed from Edna W. Ballard's account for her personal expenses, expenses incurred on petitioner's behalf, and for her son, Donald. Out of this sum, a total of $ 4,590.70 represents gifts and other disbursements by Edna W. Ballard for her son, Donald. Edna W. Ballard also received from various students of the "I AM" Religious Activity the following amounts for the purpose of paying additional Federal income taxes and interest assessed against her personally during the years 1938 through 1941: $ 11,799 in 1948, $ 12,724 in 1949, and $ 8,049.50 in 1950.

Edna W. Ballard, in the years involved, had no private investments except for the stock of the Saint Germain Press, which printed various materials and sold them to the petitioner, and the two houses in Chicago, both acquired prior to the organization of the petitioner. She received rental payments from the petitioner for the use by the petitioner's staff of her real estate in Chicago as follows: $ 1,500 in 1942, $ 1,500 in 1943, and $ 1,125 in 1944. She also received the following amounts from the petitioner which were included in her income:

1942	$ 441.18
1943	425.59
1944	997.36
1945	635.45
1946	778.70
1947	642.25
1948	632.24
1949	616.33
1950	711.32

Saint Germain Press, Inc., hereinafter called the Press, was incorporated under the laws of the State of Illinois on December 12, 1939, with all the stock owned by Edna W. Ballard, who was president and whose salary in the years 1942 through 1950 was $ 3,000 per year. The Press was organized and operated solely for the purpose of printing and publishing the literature used by the petitioner in connection with the "I AM" Religious Activity. Such literature is sold to the petitioner at a 33 1/3 per cent discount from retail price. Edna W. Ballard and her husband contributed $ 10,000 capital and $ 30,914.51 of paid-in surplus, and also made a $ 20,500 loan to the Press. Over the 9-year period here involved the Press has operated at a loss.

Donald Ballard, son of Edna W. Ballard, was active in the "I AM" Activity from 1934 through 1943, during which time his living, traveling, and clothing expenses were paid by the petitioner. He served in the United States Army from 1943 to 1946. From 1946 through 1950 he was not engaged in the "I AM" work but devoted his time to the design and manufacture of sound equipment for the Saint Germain Press, and he received compensation of approximately $ 2,500 per year. He was chief engineer on the broadcasts made by the petitioner from Ouray, Colorado, five or six times a year during the years 1946 to 1950, inclusive. During this period he was supplied with living quarters by the petitioner in the petitioner's apartment building in Santa Fe. The fair rental value of the apartment was $ 65 per month. In 1946, after his discharge from the Army, Donald purchased a war surplus airplane for approximately $ 800, and subsequently this airplane was turned in (with a trade-in of $ 600) for another one costing $ 3,600. These airplanes were used in connection with the petitioner's affairs with the exception of one personal trip by Donald when the gasoline was paid for by another party. The expenses for these two airplanes were charged to the personal account of Edna W. Ballard on the petitioner's books.

On January 28, 1939, the petitioner was held to be exempt from Federal income taxes under the provisions of section 101 (6) of the 1939 Internal Revenue Code. Petitioner filed information returns (Form 990) during the years 1942 through 1948, as follows:

1942	None
1943	August 7, 1944
1944	None
1945	None
1946	April 28, 1947
1946	July 15, 1948 (Amended)
1947	July 15, 1948
1948	May  11, 1949

On May 5, 1948, petitioner filed with the Technical Staff of the Bureau of Internal Revenue at Chicago, Illinois, statement of receipts and disbursements and balance sheets covering petitioner's activity for each of the years 1938 through 1945.

On February 21, 1939, Guy W. Ballard, Edna W. Ballard, and their son, Donald, were indicted by a Federal grand jury for violation of Title 18, U. S. C. A., section 338, for using the mails to defraud. Guy W. Ballard died on December 29, 1939, and the indictment with respect to him was dismissed. On January 31, 1942, Edna W. Ballard and Donald Ballard were tried and convicted in the Federal District Court at Los Angeles. United Statesv. Edna W. Ballard, et al., No. 14,858-O. C. On appeal the District Court was reversed. Ballard v. United States, 138 F. 2d 540. Petition for certiorari was granted by the Supreme Court and after a hearing the case was referred back to the Court of Appeals for further hearing. United States v. Ballard, 322 U.S. 78">322 U.S. 78. The Circuit Court of Appeals for the Ninth Circuit sustained the conviction of both Edna and Donald Ballard. Ballard v. United States, 152 F. 2d 941. On December 13, 1946, the Supreme Court ordered the indictment dismissed on the grounds that women were intentionally and systematically excluded from the grand jury initiating the proceedings. Ballard v. United States, 329 U.S. 187">329 U.S. 187. All proceedings relating to the use of the mails by the Ballards to defraud were then closed upon the authority of the then Attorney General.

On March 27, 1945, the Commisisoner ruled, on the basis of the indictment and the conviction of the Ballards, that petitioner was no longer entitled to exemption under section 101 (6) of the 1939 Internal Revenue Code. On August 4, 1948, the Commissioner, acting upon petitioner's request for reconsideration of its status, gave as a ground for denying exempt status to petitioner the reason that some of petitioner's income inured to the benefit of individuals.

Petitioner filed corporation income and excess profits tax returns for the years 1944 through 1948 as follows:

Year	Date filed
1944	May 5, 1950
1945	May 5, 1950
1946	January 29, 1951
1947	January 29, 1951
1948	January 29, 1951

Corporation income and excess profits tax returns were also filed by petitioner for 1949 (on March 23, 1950, with an amended return filed on January 29, 1951), and for 1950 (on May 10, 1951). No such returns were filed for the years 1942 or 1943.

On October 24, 1955, the petitioner filed with the director of internal revenue at Chicago, Illinois, capital stock tax returns on Form 707 for each of the years 1942 through 1945.

Petitioner's various expenditures for the personal living expenses of members of its staff were ordinary and necessary expenses in carrying out its religious activities, and such expenditures were properly deductible in determining net earnings.

Petitioner was organized and operated, during the years 1942 through 1949, exclusively for religious purposes. No part of petitioner's net earnings inured, in the years here involved, to the benefit of any private shareholders or individuals.

OPINION.

Petitioner, to qualify as an organization exempt from the Federal income tax under section 101 (6) of the 1939 Internal Revenue Code, must meet three tests: (1) It must be organized and operated "exclusively" for religious purposes; (2) its "net income" must not inure in whole or in part to the benefit of private shareholders or individuals; and (3) it must not devote any substantial part of its activities to an attempt to influence legislation by propaganda or otherwise. Regs. 111, sec. 29.101 (6)-1. Respondent contends that the petitioner does not meet either of the first two tests given above and therefore is not exempt under section 101 (6).

At the outset it is well to note the statute grants the exemption to a religious corporation. If the corporation is not of a religious character it is unnecessary to consider the remaining qualifications. Here the Commissioner does not argue the petitioner fails in the primary attribute of being a religious organization. It is somewhat significant also that respondent's revocation of petitioner's exemption was not on the ground that petitioner lacked the necessary religious character.

Petitioner was organized and has been operating during the years 1942 through 1950 for the purpose of propagating the teachings of the "I AM" Religious Activity. Members and students of this Religious Activity seek to pattern their lives after certain "revelations." These "revelations" lay down precepts which promise ultimate salvation to those who practice them. Classes are conducted throughout the United States, and local sanctuaries are established in various cities, here and abroad, to pursue this faith. We do not believe it is necessary here to repeat in detail the nature and content of the teachings propagated by the petitioner. Nor are we compelled to decide whether the objectives of the petitioner are worthy or desirable. Our only concern is to decide whether the petitioner in this case comes within the specific statutory provisions relating to it. Estate of Anita McCormick Blaine, 22 T. C. 1195. In the early case of Unity School of Christianity, 4 B. T. A. 61, 70, we said:

Religion is not confined to a sect or a ritual. The symbols of religion to one are anathema to another. What one may regard as charity another may scorn as foolish waste. And even education is today not free from divergence of view as to its validity. Congress left open the door of tax exemption to all corporations meeting the test, the restriction being not as to the species of religion, charity, science or education under which they might operate, but as to the use of its profits and the exclusive purpose of its existence.

We think the evidence and testimony of the witnesses establish that the petitioner is an organization organized exclusively for religious purposes within the meaning of section 101 (6).

Respondent points out that petitioner received income from the sale of religious publications to students and members of the religious following and, in addition, received income in the form of fees in connection with certain annual conclaves, and respondent urges that these income-producing activities show that the petitioner was not "operated exclusively" for religious purposes. The sale of religious literature and the conclaves held to propagate the precepts of the petitioner are activities closely associated with, and incidental to, the religious purposes of the petitioner. Such activities bear an intimate relationship to the proper functioning of the petitioner, and we do not believe that income received from these activities prevents the petitioner from being an organization organized and operated "exclusively" for religious purposes within the meaning of section 101 (6). Squire v. Students Book Corp., 191 F.2d 1018">191 F. 2d 1018; Trinidad v. Sagrada Orden de Predicadores, 263 U.S. 578">263 U.S. 578.

Respondent's argument, however, focuses more intently on the contention that a part of petitioner's net income inured to the benefit of Edna W. Ballard, her son, Donald, and to other members of petitioner's staff, and that consequently petitioner cannot qualify for exemption under section 101 (6) even if we decide that the petitioner was organized "exclusively" for religious purposes. Respondent calls attention to the expenses averaging $ 7,798.50 a year over the period here involved, for hotel accommodations and meals paid by the petitioner for Edna W. Ballard and the rest of the staff while on tour; to the rental income received from the petitioner by Edna W. Ballard of $ 1,500 in 1942, $ 1,500 in 1943, and $ 1,125 in 1944 for the use of her house in Chicago by staff members of the petitioner; personal living expenses paid by the petitioner for the staff members between tours; payments of from, approximately, $ 2,500 to $ 5,500 per year over the period involved here for the upkeep and repair of the house in Chicago belonging to Edna W. Ballard and used exclusively by members of petitioner's staff; personal living expenses of Donald Ballard, son of Edna W. Ballard, paid by the petitioner in 1942 and 1943, and living quarters, with a fair market value of $ 65 per month, supplied Donald by the petitioner during the years 1946 through 1950. We cannot agree with the respondent that expenses of this nature paid by the petitioner result in channeling a part of petitioner's net income to the benefit of private shareholders or individuals. Under section 101 (6) of the 1939 Internal Revenue Code, the test is that "no part of the net earnings * * * inures to the benefit of any private shareholder or individual." Respondent in this case, for the years involved, has allowed to the petitioner as deductions practically all the expenditures mentioned here in arriving at the net earnings for those years, and in our findings we have indicated the net earnings of the petitioner, with such deductions allowed, for the years in question. There is no question about the propriety of allowing these expenditures as deductions, and respondent does not contend that a section 101 (6) organization cannot incur ordinary and necessary expenditures in its regular activities without losing its exempt status under section 101 (6). See Edward Orton, Jr. Ceramic Foundation, 9 T. C. 533, affd. 173 F. 2d 483.Regular salaries were not paid to the petitioner's staff members who devoted all their time to the propagation of the "I AM" ideas. Instead, the petitioner met all their personal living expenses, which we find to be reasonable in every respect. Cf. Mabee Petroleum Corp. v. United States, 203 F. 2d 872. Repairs and upkeep on the house in Chicago where staff members lived between tours are, similarly, ordinary and necessary expenditures made by the petitioner in conducting its activities. Edna W. Ballard, after 1944, received no rent from petitioner for the use of this house in Chicago by the staff members. Consequently, none of the expenses thus paid by the petitioner formed any part of its net earnings in the years involved here. We hold that no part of the petitioner's net earnings inured to any private shareholders or individuals in the years 1942 through 1950 within the meaning of section 101 (6) of the 1939 Code. Forest Lawn Memorial Park Association, Inc., 45 B. T. A. 1091.

Respondent also makes much of certain amounts, in the form of cash and property, received by Edna W. Ballard from various students of the "I AM" Religious Activity over the years involved here. However, the petitioner has shown convincingly, through the testimony of the auditor and that of Edna W. Ballard, as well as other items of evidence, that these receipts by Edna W. Ballard were in fact made to her individually and were never at any time includible in the income of the petitioner. Any expenditures by Edna W. Ballard from these funds, including the purchases made by her for her son, Donald, can have no bearing upon petitioner since such expenditures did not come out of its income.

During the years 1942 through 1949, legal fees of more than $ 112,000 were paid by members of a group organized among sympathizers of the "I AM" Religious Activity for the defense of Edna and Donald Ballard in certain criminal proceedings involving mail fraud. But there is no reason to attribute this amount to the petitioner. These funds were never a part of petitioner's income, and we do not see how their expenditure can affect the petitioner. Surety bond premiums of $ 375 were paid for Edna and Donald Ballard in connection with the criminal proceedings, and legal fees and costs of $ 7,507.60 in 1948 and $ 1,150 in 1949 were paid in their defense. Respondent argues that these amounts were paid by the petitioner, but we are convinced from all the evidence that these amounts were paid by the group organized to handle the defense of the Ballards. Therefore, it cannot be said that any part of the net earnings inured to private shareholders or individuals on account of such expenditures made in defending the Ballards in the criminal proceedings. Again, in the case of various amounts paid in 1948, 1949, and 1950 by various students of the "I AM" Religious Activity to meet additional Federal income taxes assessed against Edna and Guy Ballard for the years 1938 through 1941, there is no ground for attributing these amounts to the petitioner. These funds used to meet back taxes were never a part of petitioner's income, and their use cannot affect the disposition of this case.

It is true, as respondent indicates, that Edna W. Ballard and Betty O. Mundy, as two of the three members of the board of directors, were in control of the activities of the petitioner both in matters of religious instruction and in financial matters. We do not see the significance of this, however, where such control, by the majority of the board of directors, is exercised to carry out the avowed religious purposes of the petitioner and where such control is not employed, so far as the evidence and the record as a whole reveal, to channel net earnings of the petitioner to private shareholders or individuals.

Edna W. Ballard, apart from the two houses she owned prior to the years before us and apart from certain bequests received from "I AM" students, accumulated no property during the years 1942 through 1950. Gifts made to her personally were often expended to meet expenses of the petitioner, and, in fact, at the end of the period here involved the balance in Edna W. Ballard's "love gift" account, kept on petitioner's books, was transferred to the petitioner as an outright gift. Nor did the other two directors of petitioner acquire any property out of petitioner's net earnings during the years before us.

We hold that the petitioner, during the years 1942 through 1950, met the requirements for exemption from taxation within the meaning of section 101 (6) of the 1939 Internal Revenue Code in that it was an organization organized and operated exclusively for religious purposes and no part of its net earnings during those years inured to the benefit of any private shareholder or individual.

Our holding on this principal issue in favor of the petitioner makes it unnecessary for us to consider the alternative issues presented.

Decision will be entered for the petitioner.