Charles Evans Hughes

“ Association.-Associations and joint-stock companies include associations, common law trusts, and organizations by whatever name known, which act or do business in an organized capacity, whether created under and pursuant to State laws, agreements, declarations of trust, or otherwise, the net income of which, if any, is distributed or distributable among the shareholders on the basis of the capital stock which each holds, or, where there is no capital stock, on the basis of the proportionate share or capital which each has or has invested in the business or property of the organization. ”

“ The government insists that the distinction between associations and the trusts taxed under section 219 is between 'business trusts on the one side' and other trusts 'which are engaged merely in collecting the income and conserving the property against the day when it is to be distributed to the beneficiaries'; that Congress intended that all 'business trusts' should be taxed as associations. ”

“ Malley was concerned with the special excise tax provision of the Revenue Act of 1918, the ruling of the Court that the degree of the control by beneficiaries was not a decisive test in that relation could by similar reasoning be applied to the general income taxes laid by the revenue acts upon corporations and thus upon associations. These general income taxes covered both those taxes which in their nature were excise taxes on business, and as such could have been laid prior to the Sixteenth Amendment, and those taxes on other income which were permitted by that amendment. ”

“ Petitioners contend that they are trustees 'of property held in trust,' within section 219 of the Revenue Acts of 1924 and 1926, [2] and are taxable accordingly and not as an 'association.' They urge that, to constitute an association, the applicable test requires 'a quasi corporate organization in which the beneficiaries, whether or not certificate holders, have some voice in the management and some control over the trustees and have an opportunity to exercise such control through the right to vote at meetings' ”

“ The regulatory provisions of the trust instrument may take the place of 'by-laws.' And as there may be, under the reasoning in the Hecht Case, an absence of control by beneficiaries such as is commonly exercised by stockholders in a business corporation, it cannot be considered to be essential to the existence of an association that those beneficially interested should hold meetings or elect their representatives. ”

“ Malley caused increased uncertainty. That situation is put in a strong light by the action of Congress, in order to afford relief to taxpayers, in enacting section 704 of the Revenue Act of 1928 as a 'retroactive' provision applicable, as stated, to trust returns which had been filed for a taxable year prior to 1925 under previous regulations and rulings, and also by giving an option to a trustee, in specified circumstances, in relation to the Revenue Act of 1926 and prior acts. ”

“ Petitioners, the trustees of an express trust, contest income taxes for the years 1924 to 1926, inclusive, upon the ground that the trust has been illegally treated as an 'association.' The Circuit Court of Appeals affirmed the decision of the Board of Tax Appeals which sustained the ruling of the Commissioner of Internal Revenue. ”

“ Whether the trustees are named in the trust instrument with power to select successors, so as to constitute a self-perpetuating body, or are selected by, or with the advice of, those beneficially interested in the undertaking, centralization of management analogous to that of corporate activities may be achieved. ”

“ Malley, supra. We have already referred to the definitions, quoted in that case, showing the ordinary meaning of the term as applicable to a body of persons united without a charter 'but upon the methods and forms used by incorporated bodies for the prosecution of some common enterprise.' These definitions, while helpful, are not to be pressed so far as to make mere formal procedure a controlling test. The provision itself negatives such a construction. Thus unincorporated jointstock companies have generally been regarded as bearing the closest resemblance to corporations. ”

“ There were to be preferred shares of the value of $100 each and common shares of no par value. Thus those who took benecial interests became shareholders in the common undertaking to be conducted for their profit according to the terms of the arrangement. ”