Poinsett Mills v. Commissioner

1924 BTA LEXIS 282 | B.T.A. | 1924

Lead Opinion

OPINION.

Geaupner:

It is the contention of the Commissioner that a corporation may be allowed a deduction under section 234(a) (1) of the Revenue Act of 1918 only when the amount claimed is an “ ordinary and necessary ” expense in “ carrying on ” its business. Insistence is made for a very limited interpretation of the phrase “ ordinary and necessary” and of the words'composing the. phrase.

The testimony adduced showed that the,piill village of the Poinsett Mills was located on property owned by the corporation and was inhabited solely by employees of the company and their dependents.

The church to which the contribution was made was conveyed by the company to the trustees of a Baptist congregation composed of about 90 per cent employees of the corporation and their dependents, but was also used by a Methodist congregation composed mainly of company workmen and their dependents. The property was to revert to the company when its use for church purposes ceased. The employees of the company were, in the majority, religiously inclined. They segregated themselves from the general population of Greenville, by choice, as to social, school, and church activities. The churches in Greenville were remote from the village. The president and general manager of the corporation testified that experience had demonstrated to the company that it must make available a place of worship for their employees in order to keep them contented and prevent a large labor turnover. That since 1920, the year in which the taxes here at issue became due, the corporation found it necessary to build a larger, more convenient and general church in order to meet the religious requirements of its employees, is corroborative of the fact that the contribution of 1920 was a donation “ for purposes connected with the operation of its business.”

The company paid the salary of a welfare worker, who operated through and in the name of the church among the employees of the company. The testimony showed that the officers of the corporation believed that better results were had from this welfare worker operating in the name of the church than in the name of the corporation. In addition to the two mentioned activities to which the company contributed, it also contributed to the maintenance of the village school and erected and supported a community assembly hall.

While no contribution, excepting that to the church in 1920, is at issue in the present case, the foregoing facts show that the Poinsett Mills had a consistent policy of welfare work among its employees which, as the president of the corporation testified, was necessary to produce an attitude of contentment toward the company among its employees, to equalize the lesser wage scale established in the section in which the company operated with a somewhat higher scale paid in other sections, and to reduce the volume of labor turnover.

Such being the purpose of the contribution, we can not but feel that the intent of the company in making the contribution here at issue was one “for purposes connected with the operation of its business.”

In these days of the larger development of the sphere of activity of churches no hard line of distinction may be drawn between charitable and religious uses in considering a contribution to a church.

The general acceptance of welfare work among employees, on the part of manufacturing, mining, and lumbering concerns, as a means of reducing labor turnover and eliminating industrial strife, is something of which this Board must take judicial notice. We believe that the Federal Government should be the last to fail to recognize the elements and value of welfare and social work among industrial organizations and that it should do everything to encourage the betterment and contentment of those who labor in industrial communities, such as the mill village of the taxpayer.

It is our opinion that a contribution made under the conditions presented by the testimony in this particular case is one which may well be considered an “ ordinary and necessary ” expense of the particular business of the taxpayer. The contribution was clearly made by the corporation for purposes connected with the operation of its business and legitimately represents a consideration for a benefit flowing directly to the corporation as an incident- to its business.