19 T.C. 1146">*1147 The Commissioner has determined deficiencies in the petitioner's income taxes for the calendar years 1943, 1944, and 1945 in the amounts of $ 45,687.01, $ 48,120.07, and $ 9,363.83, respectively.

The Commissioner, in his notice of deficiency, did not allow any net operating loss carry-back for the years 1944 and 1945. By a stipulation filed in this proceeding, the parties agree that the petitioner had a net operating loss for the year 1946 of $ 91,266.60, and a net operating loss for the year 1947 of $ 105,846.99; and that the adjustment of the taxable net income shown in the notice of deficiency for the years 1944 and 1945, on account of the net1953 U.S. Tax Ct. LEXIS 212">*214 operating losses, results in a deficiency for the year 1944 of $ 8,943.99, and no deficiency for the year 1945.

The only question presented for decision is whether the petitioner is exempt from income taxes, as a business league, within the purview of section 101 (7) of the Internal Revenue Code.

The income tax returns for the years in question were filed with the collector for the district of Maryland.

FINDINGS OF FACT.

The facts which have been stipulated are found as facts and the stipulations are incorporated herein by this reference.

The petitioner was incorporated in 1910, as a nonstock corporation under the laws of the State of Connecticut. It has its principal office in Washington, D. C. The petitioner is an organization composed of individual motorists, and incorporated and unincorporated automobile clubs and associations, sometimes hereinafter referred to as affiliated clubs.

The objects and purposes for which the petitioner was organized as stated in its charter, are as follows:

a. To aid in the establishment and maintenance of a uniform and stable system of laws relating to the regulation and use of automobiles and motor vehicles, and the rights and privileges of the1953 U.S. Tax Ct. LEXIS 212">*215 owners and users thereof.

b. To promote the construction, maintenance, improvement and supervision of highways that are safe, convenient and accessible to motor vehicles.

c. To educate the users of motor vehicles and the public at large in the principles of traffic safety.

d. To collect and distribute information as to all matters or things of whatsoever character concerning motor vehicles, or of interest to the users thereof.

e. To conduct and participate in exhibitions, contests, and safety activities and to offer and grant awards, in connection with the interests of the users of motor vehicles.

19 T.C. 1146">*1148 f. To organize, supervise and grant affiliation to other corporations, associations and organizations with objects and purposes similar to those of this corporation.

g. To engage in any activity permitted by law intended to further and protect the interests of the users of motor vehicles.

h. To do any and all acts or things incidental, necessary, or convenient to the accomplishment of these objects and purposes.

Membership in the petitioner, according to its bylaws, is available to, and during the taxable years was composed of, individual motorists, automobile clubs, state associations1953 U.S. Tax Ct. LEXIS 212">*216 comprised of five or more automobile clubs, and commercial vehicle organizations representing the owners or operators of commercial vehicles used in the transportation of passengers. The National Association of Motor Bus Operators was the only commercial vehicle organization member of the petitioner during the taxable years.

One of the petitioner's principal activities is the operation of what it calls "divisions" which are similar to and perform all the functions of an automobile club in the areas in which they are located. In the taxable years the petitioner operated six divisions and one branch, hereinafter also referred to as a division.

An individual motorist may acquire membership in the petitioner by becoming an associate member, or by joining one of the divisions operated by the petitioner, or by joining a club affiliated with the petitioner, i. e., an automobile club or state association member of the petitioner. Individuals who reside in a territory not served by an affiliated club, or by one of the divisions operated by the petitioner, are admitted to membership as regular associates. The number of associate members during the taxable years was nominal. Individuals1953 U.S. Tax Ct. LEXIS 212">*217 who reside in a territory served by an affiliated club may join the petitioner only through the affiliated club. Individual members of affiliated clubs enjoy a dual membership status in that, under the petitioner's bylaws, they are also members of the petitioner.

The petitioner has prescribed certain standards which an automobile club or state association must meet in order to secure membership. Notably, the club must establish and maintain standard motor club service in the area in which it operates, and must attract a membership equal to at least 2 per cent of the car registrations in the area. The certificate of membership, or franchise, which the petitioner issues to automobile clubs or associations defines the territorial jurisdiction of the club and the obligations which the club undertakes to perform. The club thereby becomes entitled, exclusively, in the designated area, to "the rights, privileges and protection" secured by membership in the petitioner, and to the use of the AAA identification and good will. The state associations and automobile 19 T.C. 1146">*1149 clubs issue membership cards and auto identification tags to their individual members, who are also members of the1953 U.S. Tax Ct. LEXIS 212">*218 petitioner. The cards and tags all bear the emblem of the petitioner with the name of the association or club usually appearing in the border of the petitioner's emblem.

The incentive for joining the petitioner is the right to receive the various services and benefits accruing to members. The individual motorist who joins the petitioner as an associate member or through one of the divisions, receives the motoring and travel services, as hereinafter referred to, directly from the petitioner. The individual motorist who joins a club affiliated with the petitioner receives the standard motoring and travel services from the club of which he is a member. In addition, by virtue of his membership in the petitioner, he acquires the right to receive other benefits such as foreign travel service, and "reciprocal service" on a nation-wide basis. An individual motorist acquiring membership in the petitioner as an associate, or by joining a division, or by joining an automobile club affiliated with the petitioner, is entitled, when traveling outside the jurisdiction of his home division or club, to reciprocal service, i. e., to the motoring and touring services of any other division of the1953 U.S. Tax Ct. LEXIS 212">*219 petitioner or affiliated club. This reciprocal service to members on a nation-wide basis is the most attractive feature of membership in the petitioner. The automobile club or association members, in addition to receiving an exclusive franchise, are, likewise, entitled to various services and benefits provided by the petitioner, as hereinafter set forth.

In 1943, 1944, and 1945, respectively, there were 640, 644, and 647 automobile clubs and associations affiliated with the petitioner, and they constituted 95 per cent of all such organizations operating in the United States. During the same years individual membership in the petitioner was comprised of the following:

The annual dues of the regular associates, the division members, and the commerical vehicle organization members of the petitioner are fixed by and paid directly to the petitioner. The state association and automobile club members of the petitioner pay no annual dues as such. The annual dues of the individual1953 U.S. Tax Ct. LEXIS 212">*220 members of the state associations and automobile clubs affiliated with the petitioner are regulated by and paid to the association or club. The state associations and 19 T.C. 1146">*1150 automobile clubs, in turn, pay to the petitioner annual dues for each of their individual members at a rate fixed in the bylaws of the petitioner. Article 12, section 1, of the petitioner's bylaws, reads, in pertinent part, as follows:

Each state association and automobile club member of this corporation * * * shall pay to this corporation the annual dues of each individual member at the rate of twenty-five cents for each individual member, whether new or renewal, recorded within the preceding month; and said dues shall be reported and paid on or before the fifteenth day of each calendar month.

The petitioner's bylaws provide that members shall participate in the conduct of its affairs by selecting delegates to act as their representatives at annual or special meetings. A state association or automobile club member of the petitioner, and each division operated by the petitioner, is entitled to representation on the basis of one delegate and one vote for each 1,000 paid up members, or major fraction thereof. 1953 U.S. Tax Ct. LEXIS 212">*221 A commercial vehicle organization member is entitled to one delegate and one vote for each $ 250, or major fraction thereof, paid in dues to the petitioner. Each associate member is entitled to attend all meetings of the petitioner, and the combined vote of all associates is on the basis of one vote for each 1,000 paid up associates.

The affairs, funds, and property of the petitioner are managed by a board of directors which is composed of members. The officers of petitioner consist of a president, seven vice presidents, a treasurer, an assistant treasurer, a secretary, a general manager, an assistant secretary, and such other officers as the board of directors may from time to time deem necessary or advisable. All officers except the general manager and the assistant secretary are elected by the delegates at the annual meeting. The general manager and the assistant secretary are appointed by the president, subject to the approval of the board of directors, and are the only salaried officers.

In addition, there is an executive committee and five standing committees or boards, namely, highway and legislative, national touring, traffic safety, contest, and international relations. 1953 U.S. Tax Ct. LEXIS 212">*222 The aforementioned committees or boards formulate policies and programs in their respective fields.

The provisions of the bylaws relating to disciplinary action are directed principally to the state association and automobile club members of the petitioner. Disciplinary action may be taken against a member for any of the following reasons: (1) violating the bylaws, or rules and regulations adopted by the petitioner, or the terms of any certificate of membership issued by the petitioner; (2) failing to render satisfactory motor club service within its territorial jurisdiction; (3) participating in any activity detrimental to the best interests of the petitioner; (4) interfering with, or trespassing upon, 19 T.C. 1146">*1151 the property rights or privileges of any other member; and (5) failing or refusing, upon request, to furnish to the petitioner any information relating to matters affecting the interests of petitioner.

The petitioner's activities are conducted through a number of departments. The departments operated during the taxable years included accounting, assistant secretary, club promotion, contest board, foreign travel, national touring, public relations, purchasing, traffic 1953 U.S. Tax Ct. LEXIS 212">*223 engineering and safety, administrative, credit and purchase, multigraph and addressograph, and receiving and shipping.

The petitioner promotes and engages in some activities of a civic nature, notably, in the field of traffic safety and motor vehicle legislation, which benefit the motorist and the public generally. Activities of a civic nature engaged in by the petitioner during the taxable years included the sponsorship of school safety patrols, the conduct of pedestrian protection campaigns, and the promotion of high school driver training and school safety education. The petitioner, also, participated in highway planning and safety conferences; worked for the adoption by state legislatures of a Uniform Vehicle Code and a Safety Responsibility Bill and fought practices inimicable to motorists, such as the maintenance of speed traps, and the splitting of fines imposed on motorists by enforcement officers for the violation of local traffic ordinances.

The aforementioned activities, and others of a similar nature, were promoted by the petitioner on a national basis and conducted locally by the affiliated clubs and the divisions of the petitioner as a civic service. The petitioner1953 U.S. Tax Ct. LEXIS 212">*224 provided the technical assistance and advice, secured the supplies, and prepared the printed material used in the safety and civic work. The bulk of the safety publications and supplies ¹ was sold by the petitioner to its member clubs at approximately cost. The member clubs, in turn, and the petitioner in the areas covered by its divisions, distributed the material locally without charge. A small quantity of the safety publications and supplies was sold by the petitioner to school boards and officials. The petitioner made no charge for publications representing research studies and promotional material. Sales of safety publications and supplies by the petitioner's safety department in the years 1943, 1944, and 1945, respectively, totaled $ 82,153.71, $ 86,285.41, and $ 98,144.18. During the same years 19 T.C. 1146">*1152 expenditures of the safety department exceeded revenues and resulted in department operating losses of $ 4,610.13, $ 17,983.02, and $ 30,527.27, respectively.

1953 U.S. Tax Ct. LEXIS 212">*225 The petitioner, as a national association composed of individual motorists and automobile clubs, formulates policies on matters relating to the use and regulation of motor vehicles, and works nationally for their adoption. Many of the petitioner's policies are in the interest of motorists and the public generally. ² It acts as the spokesman for its members before legislative bodies and departments of the Federal and state governments. It assists and coordinates the activities of affiliated clubs in working locally for the adoption of policies advocated by the petitioner. It represents its members in regional and national conferences, e. g., The President's Highway Safety Conference. And it conducts research studies and serves as a clearing house for information of interest to motorists and motor clubs. But the petitioner is, and during the taxable years was primarily a service organization. Its principal activities consist of performing particular services, and securing benefits, for its members, both individual members and state association and automobile club members.

1953 U.S. Tax Ct. LEXIS 212">*226 The petitioner, as hereinabove mentioned, operates divisions which are similar to and perform all the functions of an automobile club. The divisions, in the areas in which they are operated, provide for members a personalized motoring and travel service. The location of the divisions operated by the petitioner during the taxable years, and the year in which each was organized, were as follows: District of Columbia, 1923; Wisconsin, 1929; North Florida, 1929; South Florida, 1937; Boston, 1938; New Hampshire, 1938; and Louisiana, 1942 (branch). The divisions, with the exception of the District of Columbia which the petitioner considers as an experimental unit, were organized by the petitioner when the automobile clubs then affiliated with the petitioner in those areas failed to provide satisfactory motor club services to their members and reciprocal service to other members of the petitioner. The total number of division members during the taxable years, comprised less than 4 per cent of the petitioner's individual membership. But dues from the division members accounted for approximately 40 per cent of the petitioner's gross income. The divisions were operated by the petitioner1953 U.S. Tax Ct. LEXIS 212">*227 in competition with some of the automobile clubs not affiliated with the petitioner.

19 T.C. 1146">*1153 The services provided by petitioner in each of its divisions while tending to parallel were not completely uniform. They consisted mainly of the following: (1) A complete travel service which included trip planning, tour books, accommodation directories, maps and recommended routes. (2) Emergency road service which consisted of towing, changing tires, replacing batteries and other minor repairs. The road service was provided by the petitioner through contracts made with garages and service stations in the areas served by its divisions. (3) Bail bond protection up to $ 5,000 through contracts made by the petitioner with bondsmen. (4) Personal automobile accident insurance which included hospitalization, personal injury and death benefits on a sliding scale in the event of a motoring accident. The petitioner contracted for the insurance on a group basis and paid the premiums on the group policies. (5) A theft reward offered by the petitioner for information leading to the arrest and conviction of any person stealing a member's car. In addition, the petitioner, in one or more of its1953 U.S. Tax Ct. LEXIS 212">*228 divisions, provided other personal services for members which included procuring motor licenses, notarial services, brake and headlight adjustments, and advice on how to prepare and file papers in small claims courts. The petitioner made no charge for any of the above services other than the initiation fee and annual dues paid by the members. The services provided by the petitioner would have cost the members more than the dues paid to petitioner if the services were procured elsewhere.

Other activities engaged in by the petitioner for the benefit of its individual members included the following: The petitioner maintained a foreign travel service for members desiring to travel or take their cars abroad. The petitioner, through its affiliations with international associations, is authorized to issue international customs documents called triptiques and carnets. The document serves as a guarantee to the foreign country that the member will not sell his car while in the country, thereby relieving the member of posting custom guarantees in the countries visited. The petitioner charged a fee of about $ 50 for this service and required the member to post a bond with the petitioner. 1953 U.S. Tax Ct. LEXIS 212">*229 The foreign travel department also served as a ticket agent for steamship lines, provided maps, made hotel reservations, and in general, facilitated the foreign travel of a member. The operations of the department were curtailed in the taxable years, except for a part of 1945, due to the war. Prior to World War II, however, the petitioner received substantial income from the operation of its foreign travel department. ³

The petitioner's District of Columbia division operated an adult driver training school for members for which service a charge was 19 T.C. 1146">*1154 made. It held agency contracts for the sale of airline and railroad tickets, receiving a commission on airline tickets but not on railroad tickets except in the case of tours. It provided a cooperative purchasing service for members whereby they received from the petitioner a 10 per cent discount1953 U.S. Tax Ct. LEXIS 212">*230 on purchases made from participating merchants. The petitioner in return billed the merchants for 10 1/2 per cent of the purchase, the one-half per cent being added by the petitioner to cover the cost of handling.

During the taxable years the petitioner was the beneficial owner of the capital stock of the Automobile Club Service Agency, Inc., a District of Columbia corporation, hereinafter referred to as Service Agency, Inc. The corporation acted as agent for an insurance company, selling automobile insurance to the division members of the petitioner on a commission basis. Its officers were also officers or employees of the petitioner. Its business was conducted in the petitioner's offices and by the petitioner's employees. It reimbursed the petitioner, annually, for the operating expenses incurred by the petitioner on its behalf. Service Agency, Inc., has never paid a dividend. Its earnings are not reflected in the petitioner's financial statements. About 50 per cent of the division members of the petitioner purchased automobile insurance, i. e., comprehensive and public liability policies, from Service Agency, Inc. The insurance was purchased by the members at less than1953 U.S. Tax Ct. LEXIS 212">*231 the cost of similar policies obtainable elsewhere.

The petitioner also performed particular services, and secured benefits for its state association and automobile club members. With the exception of the publications, materials, and supplies which the petitioner sold to the affiliated clubs, it made no charge for the services rendered to the clubs. The services and benefits provided by the petitioner during the taxable years included the following: The petitioner granted to affiliated clubs an exclusive membership, or franchise, in the areas in which they operated, and permitted the clubs to use the petitioner's identification and good will. The affiliated clubs thereby received a substantial competitive advantage over other automobile clubs operating in their areas. The petitioner, also, made the individual members of the affiliated clubs members of the petitioner. It thereby enabled the clubs to guarantee to members reciprocal service on a nation-wide basis. And petitioner compelled each club, at the risk of losing its certificate of membership, to maintain a satisfactory standard of service. The petitioner's club promotion department furnished technical assistance and advice1953 U.S. Tax Ct. LEXIS 212">*232 on all phases of motor club operation and management, and employed a staff of field representatives to maintain a close contact with the affiliated clubs. Petitioner provided assistance to the clubs on such matters as budgets, accounting systems, and membership sales promotion programs. It 19 T.C. 1146">*1155 issued monthly a "Better Management" bulletin for the use and guidance of club managers and officers. It also prepared and issued to the clubs special bulletins covering such items of interest to motorists as gasoline and tire rationing regulations, deleterious automotive products, and other problems affecting the motorist as a result of war time restrictions. It prepared and made available to the clubs film scripts. It provided training courses for club personnel. The petitioner prepared, or purchased in bulk, and sold to the clubs at a saving to them publications, materials, and supplies used in their operations.

The petitioner's national touring department prepared and published copyrighted tour books, accommodation directories, maps, service station directories, triptiks and other travel material. The petitioner employed a staff of road reporters who compiled the data used 1953 U.S. Tax Ct. LEXIS 212">*233 in the travel publications and inspected the recommended establishments such as hotels, motor courts, and restaurants. It employed salesmen who sold the advertising and official appointments which appeared in the travel publications. The official appointments were sold to hotels, restaurants, and other establishments offering service or accommodations to travelers, provided they met the petitioner's qualifications. The official appointment entitled the appointee to display the petitioner's emblem and to use it on letterheads and in advertising, and to receive a special listing in the petitioner's tour books and accommodation directories. The travel publications were made available to associate and division members of the petitioner, as a part of the petitioner's travel service. The petitioner sold the travel publications to affiliated clubs at less than the cost of publication as the advertising and official appointment revenue served to defray a part of the cost. The affiliated clubs distributed the material to members as a part of their travel service.

The petitioner also made sales of small quantities of specialty folders to hotels and ferries. And it prepared and sold to1953 U.S. Tax Ct. LEXIS 212">*234 an advertiser, The Electric Auto-Lite Company, a booklet entitled "Keep 'Em Rolling." Gross revenue from the booklet for the years 1943 and 1944 was $ 35,000 and $ 86,931, respectively.

The petitioner's contest board department performed two functions. First, it served as the internationally recognized governing body for motor vehicle speed events in the United States. As such it sanctioned events in the automotive racing field, set safety standards, and licensed tracks and drivers for a nominal fee. Activities in the racing field were suspended during the taxable years, except for a part of the year 1945, due to the war. Prior to World War II, the petitioner received substantial income from racing events. For the period 1934 through 1939, inclusive, revenue from this source averaged about $ 25,000 a 19 T.C. 1146">*1156 year. Secondly, the department conducted tests and certified to the performance and quality of automotive products and accessories. When a laboratory test of a product substantiated the manufacturer's claims, the product was certified to by the petitioner. The manufacturer, upon the payment of a fee to the petitioner, was authorized to use the petitioner's certification1953 U.S. Tax Ct. LEXIS 212">*235 in advertising the product.

The petitioner employed salesmen to solicit members for its divisions, official appointments, and advertising. It paid sales commissions and expenses for the years 1943, 1944, and 1945, respectively, in the amounts of $ 103,262, $ 118,048, and $ 134,628. During the same years the petitioner's salary expense, for all purposes, amounted to $ 370,881, $ 421,504, and $ 498,357, respectively.

The following schedule, compiled from the financial statements of the petitioner for the years in question, shows the petitioner's sources of revenue, gross receipts and expenditures, and the net revenue transferred to surplus for each of the years 1943, 1944, and 1945.

In addition, the petitioner, during the taxable years, received grants of $ 25,000 or $ 30,000 a year from The National Automotive Safety Foundation to assist the petitioner in carrying on its activities in the traffic safety field.

19 T.C. 1146">*1157 The petitioner's surplus as of December 31, 1943, December 31, 1944, and December 31, 1945, respectively, was $ 911,736.26, $ 1,038,376.35, and $ 1,072,483.67. 1953 U.S. Tax Ct. LEXIS 212">*237 Substantially all of the surplus was accumulated between the years 1936 and 1945, inclusive. The petitioner's surplus as of December 31, 1935, was $ 97,083.

The petitioner's assets during the taxable years consisted, principally, of cash, United States Treasury bonds, accounts receivable, inventories, furniture and fixtures, and prepaid expenses.

The petitioner has never paid any dividends, nor made any distribution of its funds, to any member. The petitioner's bylaws, Article 2, section 2, provide that "on dissolution the funds of the corporation shall be distributed to one or more regularly organized charitable organizations to be selected by the Board of Directors."

The petitioner's bylaws may be amended by the board of directors or by a majority vote of the delegates present and voting at any annual or special meeting of the delegates.

The respondent in GCM 3555, VII-1 C. B. 117 (1928) ruled that the petitioner was exempt from income taxes as a club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, under section 231 (9) of the Revenue Act of 1926 and corresponding provisions of prior revenue acts. In GCM1953 U.S. Tax Ct. LEXIS 212">*238 23688, 1943 C. B. 283, the respondent revoked his prior ruling and determined that the petitioner was not a club within the provisions of section 101 (9) of the Internal Revenue Code. The Commissioner's ruling was made applicable beginning with the taxable calendar year 1943.

The petitioner is not an association of persons having a common business interest. The petitioner's principal activities consist of performing particular services, and securing benefits, for its members. The petitioner is engaged in business of a kind ordinarily conducted for profit. The petitioner's net earnings inure to the benefit of private individuals.

The petitioner was not an exempt business league during the years 1943, 1944, and 1945.

OPINION.

The petitioner seeks exemption from income tax on the ground that it is a business league within the purview of section 101 (7) of the Internal Revenue Code. The petitioner makes no claim to exemption as a club under section 101 (9) of the Internal Revenue Code. ⁴Section 101 (7) provides that "Business leagues, chambers of commerce, real-estate boards, or boards of trade, not organized for profit and no part of the net earnings1953 U.S. Tax Ct. LEXIS 212">*239 of which inures to the 19 T.C. 1146">*1158 benefit of any private shareholder or individual" shall be exempt from taxation. The term "business league" is not defined by the statute. The statutory concept of the term is, however, found in the Commissioner's regulations, Regulations 111, section 29.101 (7)-1, which have continued unchanged through successive reenactments of the statute. The regulations are printed in the margin. ⁵

1953 U.S. Tax Ct. LEXIS 212">*240 The requirements of the statute and the regulations which an organization must meet in order to qualify as an exempt business league may be summarized as follows: (1) It must be an association of persons having a common business interest. (2) Its purpose must be to promote that common business interest. (3) Its activities should be directed toward the improvement of business conditions in one or more lines of business as distinguished from the performance of particular services for individual persons. (4) It should not be engaged in a regular business of a kind ordinarily conducted for profit. (5) It must not be organized for profit. (6) Its net earnings, if any, must not inure to the benefit of any private shareholder or individual. See Associated Industries of Cleveland, 7 T.C. 1449, 1465.

The petitioner contends that it satisfies all of the aforementioned requirements. The respondent argues that petitioner fails to meet any of the tests set out in the statute and regulations. We agree with the respondent.

As observed by this Court in Associated Industries of Cleveland, supra, p. 1464:

A statute creating an exemption1953 U.S. Tax Ct. LEXIS 212">*241 must be strictly construed and any doubt must be resolved in favor of the taxing power. Accordingly, if petitioner is to avoid taxation because it is a "business league," as it contends, it must meet the tests laid down by the statute and the Commissioner's regulations which have persisted through the successive reenactments of the statute. In this connection it must be remembered that the recurrent enactment of the statute carried with it the executive interpretation thereof as expressed in the regulations. Retailers Credit Assn. v. Commissioner, 90 Fed. (2d) 47, and Underwriters' Laboratories v. Commissioner, 135 Fed. (2d) 371.

19 T.C. 1146">*1159 The petitioner, during the taxable years, was not an association of natural or legal persons having a common business interest. Membership in the petitioner, under its bylaws, was available to individual motorists without regard to business interests or activities. Individual motorists, automobile clubs and associations, and commercial vehicle organizations were all eligible for membership in, and were in fact members of the petitioner during the taxable years. Individual1953 U.S. Tax Ct. LEXIS 212">*242 motorists could acquire membership by becoming an associate member, or by joining one of the divisions operated by the petitioner, or by joining one of the state associations or automobile clubs affiliated with the petitioner. The petitioner's by laws, Article 3, section 1 (a), specifically provided that individual members of affiliated clubs were members of the petitioner. But the petitioner argues that the members of affiliated clubs were members of the petitioner for a limited purpose only, i. e., to guarantee to the individual member reciprocal service on a nation-wide basis. We note that the petitioner's bylaws contained no such restriction. The petitioner concedes that the members of its divisions had no common business interest but contends it was necessary for the petitioner to operate the divisions in order to promote the interest of its automobile club members by providing a nation-wide reciprocal service. The fact that it may have been necessary for the petitioner to operate the divisions does not aid the petitioner in meeting the requirement of the regulations that membership must be restricted to persons with a common business interest. It necessarily follows that1953 U.S. Tax Ct. LEXIS 212">*243 the petitioner could not have as its purpose the furtherance of the common business interest of all its members. Petitioner therefore fails to meet requirements (1) and (2) above.

The petitioner, also, fails to meet requirement (3) above. Although the petitioner engaged in some activities of a civic nature, notably, in the field of traffic and highway safety, its main activities were not directed toward the improvement of business conditions, generally, in one or more lines of business as contemplated by the regulations. Rather, the evidence establishes, and we have found as a fact, that the petitioner was primarily a service organization. Its principal activities, as disclosed by our findings of fact, consisted of performing particular services, and securing benefits of a commercial nature for its members, both individual members and its state association and automobile club members.

The petitioner contends that its purpose was to serve and promote the common business interests of its state association and automobile club members. It argues that, with the exception of associate and division members, it did not perform any direct personal services for 19 T.C. 1146">*1160 "individual persons" 1953 U.S. Tax Ct. LEXIS 212">*244 as prohibited by the regulations. Further, that the total number of associate and division members was insignificant, constituting less than 4 per cent of all individuals holding membership in the petitioner and its affiliated clubs. The petitioner apparently assumes that the performance of particular services for individuals is prohibited by the regulations, while the performance of services for legal entities is not. The words "persons" or "individual persons" as used in the regulations include individuals, unincorporated associations, and corporations. Automotive Electric Association, 8 T.C. 894, affd. 168 F.2d 366; Northwestern Municipal Assn. Inc. v. United States, 99 F.2d 460; Apartment Operators Association, 46 B. T. A. 229, affd. 136 F.2d 435; Underwriters Laboratories, Inc., 46 B. T. A. 464, affd. 135 F.2d 371, certiorari denied 320 U.S. 756">320 U.S. 756.

Furthermore, the petitioner's principal activities during the taxable years constituted engaging1953 U.S. Tax Ct. LEXIS 212">*245 in a regular business of a kind ordinarily conducted for profit. It therefore fails to satisfy requirement (4) above. The petitioner was engaged in business in operating the divisions which provided for members the same, if not additional, motoring and touring services as did other automobile clubs. The divisions were in competition with automobile clubs not affiliated with the petitioner. This Court has determined that automobile clubs are engaged in a regular business. ⁶ The petitioner concedes that in operating its divisions it was engaged in business. But it urges that any business activity it may have engaged in was only incidental to its main purpose and not preclusive of exemption within the rule established by the Supreme Court in Trinidad v. Sagrada Orden De Predicadores, 263 U.S. 578">263 U.S. 578. It relies particularly on Commissioner v. Chicago Graphic Arts Federation, Inc., 128 F.2d 424.

The facts in the instant case1953 U.S. Tax Ct. LEXIS 212">*246 do not support the petitioner's argument. The operation of the divisions was a major activity. Dues from division members constituted the petitioner's largest single source of income, accounting for approximately 40 per cent of the petitioner's gross revenue during the taxable years. The petitioner's position with respect to its divisions is inconsistent. It argues, on the one hand, that the operation of divisions was necessary and essential to its main purpose, i. e., the promotion of the business interests of its affiliated clubs. On the other hand, it urges that their operation was only incidental to petitioner's main purpose.

The petitioner was also engaged in competitive commercial activity in the solicitation and sale of advertising and official appointments from which it received substantial income, in the sale of travel publications and other materials and supplies to affiliated clubs, and in the operation of its foreign travel and contest board departments to mention the more important activities.

19 T.C. 1146">*1161 During the taxable years, the petitioner received over 30 per cent of its revenue from advertising and the sale of publications, and supplies. The foreign travel1953 U.S. Tax Ct. LEXIS 212">*247 and contest board departments produced no income during the taxable years due to the impact of the war on their operations. However, the record shows that in normal years the foreign travel and contest board departments were a source of substantial revenue to petitioner.

The petitioner was also the beneficial owner and operator of Service Agency, Inc., which was engaged in the business of selling automobile insurance on a commission basis to the members of petitioner's divisions. The record does not show the earnings or financial condition of Service Agency, Inc., but it does disclose that approximately 50 per cent of the division members purchased insurance through the agency, at a saving to the members.

The petitioner engaged in other business activities of lesser importance such as operating a driver training school for members in the District of Columbia in competition with others similarly employed.

The petitioner's net income for the years 1943, 1944, and 1945, respectively, was $ 115,138, $ 126,640, and $ 33,762. During the same years it paid salaries of $ 370,881, $ 421,504, and $ 498,357, and sales commissions and expenses of $ 103,262, $ 118,048, and $ 134,628. It accumulated1953 U.S. Tax Ct. LEXIS 212">*248 over a period of 10 years a surplus of almost $ 1,000,000. The fact that a surplus was accumulated, as petitioner contends, for the acquisition of a home building for the organization does not detract from the true character of the petitioner's activities. The evidence and record before us clearly establish that the petitioner's purpose to engage in business was not merely incidental and subordinate to a main purpose but was in fact a principal purpose. It defeats the statutory exemption. Retailers Credit Association of Alameda County, 33 B. T. A. 1166, affd. 90 F.2d 47.

Finally, the petitioner fails to meet requirement (6) above, in that its net earnings inure to the benefit of private individuals. The following comment of the Court in Durham Merchants Ass'n. v. United States, 34 F. Supp. 71">34 F. Supp. 71, 34 F. Supp. 71">73, is particularly pertinent here:

It cannot be successfully maintained that this is a company whose net earnings do not inure to the benefit of private individuals because it has no capital stock and stockholders. Undoubtedly the growth and success of the enterprise render its usefulness greater1953 U.S. Tax Ct. LEXIS 212">*249 to each of its membership. If its profits are used to expand and enlarge its activities, its members profit thereby. And this increased service and activity inures to the profit of its members.

See Underwriters Laboratories, Inc., supra, p. 475.

The words "private individuals" used in the statute are broad enough to include corporated and unincorporated associations as well as natural persons. Louisville Credit Men's Adjustment Bureau v. United States, 6 F. Supp. 196">6 F. Supp. 196; Underwriters Laboratories, Inc., supra, 19 T.C. 1146">*1162 p. 476. In the instant case net earnings inured to the benefit of members in various ways. Member clubs, for example, were able to purchase touring and travel publications from the petitioner at less than the actual cost due to the fact that revenue received by the petitioner from advertising and official appointments served to offset a part of the cost of their preparation and publication. Individual members profited by receiving from petitioner motor club and other services for less than the cost of the services elsewhere.

The petitioner concedes that its members1953 U.S. Tax Ct. LEXIS 212">*250 benefited by such success as petitioner attained in the conduct of its activities, but contends that the benefit accrued to the entire community of members and should not be "translated into the inuring of net earnings to a private shareholder or individual." The argument is without merit and is disposed of by the authorities cited supra.

We have considered the cases relied on by the petitioner and are of the opinion that they are distinguishable on the facts from the instant proceeding. As the respondent contends, the petitioner's main purpose and activities cannot be characterized as fostering the improvement of business conditions and practices generally in an industry, as in American Fishermen's Tuna Boat Assn. v. Rogan, 51 F. Supp. 933">51 F. Supp. 933; Commissioner v. Chicago Graphic Arts Federation Inc., supra; and National Leather & Shoe Finders Association, 9 T.C. 121. Nor was the petitioner an organization engaged in promoting the commercial, industrial, and civic welfare of a community, Milwaukee Assn. of Commerce v. United States, 72 F. Supp. 310">72 F. Supp. 310,1953 U.S. Tax Ct. LEXIS 212">*251 nor in establishing and maintaining the integrity of a local commercial market, Crooks v. Kansas City Hay Dealers' Assn., 37 F.2d 83, nor in seeking to establish and maintain "the open shop" principle in the industrial life of a community, Associated Industries of Cleveland, supra.

We hold that the petitioner is not an exempt business league within the intent and scope of section 101 (7) of the Internal Revenue Code.

Decision will be entered for respondent.