herewith or on or before Payment in full/-- Date of Payment and the1955 U.S. Tax Ct. LEXIS 7">*10 balance of $     in     equal monthly, or quarterly payments thereafter, until fully paid, except in the event of the death of the insured prior to maturity of any part of the indebtedness evidenced hereby. Presentment for payment and notice of dishonor waived. It is understood that the trustees herein named will, upon the completion of a cash payment totaling 10 per cent. of my subscription, and subject to the conditions set out on the back hereof, apply to The Columbian National Life Insurance Company for insurance on my life, or nominee of my election, for one and one-half times the amount of my subscription, and I agree that the statement of insurability hereon may be used as a basis for such insurance, and I request that

SHRINERS' HOSPITALS FOR CRIPPLED CHILDREN, 2211 N. Oak Park,/Full Name -- Not Initials

CHICAGO, ILLINOIS, IRREVOCABLY/Relationship to Insured be named as beneficiary in the Trustees' Certificate subject to the terms and conditions expressly stipulated on the back of this note and made a part hereof.

(signed) Elton R. Awrey (Seal)

This subscription agreement stated on its back:

I hereby subscribe the sum mentioned in the note (on the reverse1955 U.S. Tax Ct. LEXIS 7">*11 side) for the purpose of creating a fund to finance certain new construction for the Sigma Nu Fraternity in accordance with a Trust Agreement to be entered into by and between the said Sigma Nu Fraternity and the legally appointed Trustees, which Trust Agreement is made a part hereof by reference thereto.

I agree that, after I have made a cash payment of 10 per cent. on my subscription, the Trustees may apply for a policy of insurance on my life on the 35-Year Endowment Plan with premiums payable for 33 years in The Columbian National Life Insurance Company of Boston, Massachusetts, and I agree that the information and representations set forth in the Statement of Insurability executed by me may be used by the Trustees in obtaining such insurance and form a part of the Trustees' application therefor, and further that I shall be bound by the statements in the Trustees' application for insurance. If not accepted as a good and proper risk, I agree to nominate an acceptable substitute on whom the insurance may be carried, in which case I shall be bound by the statements in the Trustees' application for insurance. In either event, no liability shall attach to the Insurance Company until1955 U.S. Tax Ct. LEXIS 7">*12 it has notified the Trustees of their acceptance of the risk (during the lifetime and good health of the insured.) I further agree that if I am accepted, or such substitute is accepted, as a good and proper risk, said Policy may be issued payable to the Trustees, it being understood that such Policy is to be paid for and maintained by the Trustees with funds as provided in the Trust Agreement.

25 T.C. 643">*646 I further agree that in the event I fail to pay any part of the indebtedness evidenced hereby as herein provided, the Trustees may, at their option, surrender said Policy of insurance for cancellation without notice to or the consent of myself or any designated beneficiary and any amount so received and any and all payments previously made to the Trustees may be considered as donations to the Building Fund of Sigma Nu Fraternity and the Trustees' Certificate issued pursuant hereto shall thereupon become wholly void and of no force and effect. If, in consideration of my subscription, insurance shall be granted to a nominee of my election, the same shall be governed by the terms and conditions herein set forth.

Thomas L. Awrey paid $ 450 to the Building Fund on May 1, 1950. He signed1955 U.S. Tax Ct. LEXIS 7">*13 an identical subscription agreement, except that the phrase "Michigan State College Scholarship Fund, East Lansing, Michigan, Irrevocably," appeared on the face of the agreement instead of the phrase "Shriners' Hospitals for Crippled Children, 2211 N. Oak Park, Chicago, Illinois, Irrevocably." In making these payments, petitioners intended to aid the Building Fund as well as the named charities. Such named charities were institutions, contributions to which were deductible under section 23 (o).

Pertinent provisions of the trust agreement establishing the Building Fund trust are as follows:

TRUST AGREEMENT.

This Agreement, made and entered into this 1st day of March, 1950, by and between E. P. Alumni Chapter of Sigma Nu Fraternity Party of the First Part, hereinafter referred to as "Trustor", L. L. Frimodig, G. F. Marshall and G. C. Thomas, Parties of the Second1955 U.S. Tax Ct. LEXIS 7">*14 Part, hereinafter referred to as "Trustees" and all those individual persons who shall now be or shall hereafter become the owner or beneficiary of any insurance policy issued hereunder, Parties of the Third Part, and hereinafter referred to as "Beneficiaries".

WITNESSETH:

Whereas, it is the desire of the Trustor to organize a syndicate or group of persons who will provide funds in approximately the sum of Seventy Five Thousand ($ 75,000.00) Dollars for the purpose of financing the erection of a new Chapter House for the Trustor; and

Whereas, the Trustor is the owner of certain improved real property [Here follows the location and description of the property comprising 2.72 acres] * * *

* * * *

Whereas, the Trustor in order to accomplish the purpose above set forth, will procure subscriptions from various persons, by the terms of which the Subscriber will agree to pay the amount of such subscription to the Trustees herein for the purposes herein specifically enumerated and described, which subscription agreement will authorize the Trustees herein to apply for life insurance upon the life of each subscriber, or upon the life of any duly designated substitute, in an amount equal1955 U.S. Tax Ct. LEXIS 7">*15 to at least one and one-half times the amount of his or her subscription, and to procure said policy or policies, the same to be irrevocably made payable to the Trustees herein; and

Whereas, the Beneficiaries herein through the medium of the Trustees, will undertake to acquire by purchase the existing obligations of the Trustor, the 25 T.C. 643">*647 said Trustor being desirous of fully protecting the investment of said Beneficiaries; and

Whereas, it is contemplated that all premiums on the life insurance policies above referred to shall be paid from time to time by the Trustees from funds on hand, as hereinafter provided; and

Whereas, the Trustor is desirous that the Trustees collect, hold and administer the funds received in payment of said subscription agreements; and collect and distribute any proceeds received by the Trustees from the Insurance Company, payable under the insurance policy or policies, hereinbefore mentioned.

Now, Therefore, in consideration of the premises and the mutual promises and agreements of the parties hereto, the Trustor hereby conveys all its right, title and interest in and to the aforesaid property to said L. L. Frimodig, G. F. Marshall, and G. C. Thomas,1955 U.S. Tax Ct. LEXIS 7">*16 Trustees, to be held by them in Trust, subject to the covenants and conditions hereinafter more specifically set forth, and the Trustees herein do hereby certify that they will hold said property in Trust until all the Beneficiaries hereunder have received the benefits, in accordance with the terms of this Trust Agreement and in full satisfaction thereof, and until said Trust has been fully discharged as hereinafter provided.

The Trustees herein further agree that they will hold and distribute such monies as may come into their possession, by reason of this Agreement, for the following uses and purposes, and subject to the following covenants, conditions and trusts:

Article 1.

The Trustor will procure and deliver to the Trustees subscription agreements obtained from various persons by the terms of which each subscriber agrees to pay the sum pledged to the Trustees herein, in accordance with the terms of such agreement. * * *

Article 2.

The subscriber by signing a subscription agreement will thereby become a party to this Agreement as fully to all intents and purposes, as though he had signed this original Trust Agreement. * * *

* * * 1955 U.S. Tax Ct. LEXIS 7">*17 *

Article 4.

On receiving subscription agreements for the aggregate amount of at least Five thousand ($ 5000.00) Dollars, and on receiving the cash payments designated therein, the Trustees will, according to the terms thereof, endeavor to secure from The Columbian National Life Insurance Company, Boston, Massachusetts, a Thirty-three Payment, Thirty-five Year Endowment Non-Participating Life contract on the life of each such Subscriber, or on the life of his duly designated nominee, irrevocably payable to the Trustees. Each life contract shall be for an amount equal to at least one and one-half times the amount of the said subscription. * * *

* * * *

Article 7.

Any funds that may come into the hands of said Trustees under the terms of any policy of insurance shall be disbursed as is provided in the subscription note, 25 T.C. 643">*648 provided, however, that said Trustees assume no liability for the collection of said insurance, nor for the financial responsibility of the Insurance Company, and they are obligated solely and only to disburse properly such sum as may come into their hands by and under the terms of said policy. 1955 U.S. Tax Ct. LEXIS 7">*18 It is understood by the Trustees that all proceeds received from the insurance policy are to be held solely and irrevocably for the benefit of the insured or in case of his death for the benefit of the beneficiary named in the policy. It is expressly understood and agreed that the Trustees may deduct from any funds received from the Insurance Company under the terms of said policy, any and all indebtedness due on the related subscription agreement, the making of which was the consideration for the procuring of said insurance. * * *

* * * *

Article 9.

The insurance policy shall be non-transferable and non-negotiable but the original Subscriber and holder of an insurance policy may, at any time, without the consent of any prior Beneficiary, upon giving written notice to the Trustees and presenting said insurance policy, change the Beneficiary, provided all of the terms and conditions of the subscription agreement have been fully complied with.

* * * *

Article 13.

Out of the funds collected, the Trustees shall first pay to Mr. Lee C. Vinson, for the management and direction of the money-raising campaign, the fees and expenses agreed1955 U.S. Tax Ct. LEXIS 7">*19 to be paid therefor, in accordance with the contract entered into by and between Epsilon Rho Alumni Chapter of Sigma Nu Fraternity and Mr. Lee C. Vinson.

No part of any of the funds coming to and held by the Trustees shall be used for the payment of accruing interest on other obligations of the Trustor nor shall they be used for the payment of operating expenses or upkeep of or taxes, assessments or insurance on the real estate and improvements described in this Agreement except as specifically permitted by the terms of the next following Article.

After payment of the fees and expenses of the money-raising campaign, payment of their own fees, and payment of the insurance premiums as above provided, the Trustees shall apply the remainder realized from subscription agreements to the purchase of the following obligations of the Trustor, which are described as follows:

Bills incurred in construction of new Chapter House. * * *

* * * *

Article 14.

The Trustor agrees that it will deposit with the Trustees from time to time and at least ten (10) days before the same are due, a sum sufficient to pay the annual premiums on all insurance policies, and to secure1955 U.S. Tax Ct. LEXIS 7">*20 the performance of its obligations hereunder the Trustor agrees:

(a) That it will not sell, encumber or otherwise dispose of its above described real estate with improvements, so long as there are any insurance premiums unpaid or to be paid in the future. * * *

(b) * * * That it will and does hereby assign to the Trustees all the rents, issues, profits, income and revenue of and from the above described property 25 T.C. 643">*649 with full right and authority in the Trustees to assume the complete management and control of said property, receive and collect all income and revenue therefrom, and out of such gross income pay all necessary operating expenses and maintenance, taxes, assessments and insurance, any amount remaining to be applied to the payment of the insurance premiums on policies issued to said Subscribers.

(c) In the event of a default, and after due notice of more than six (6) months as provided in Article 13, the Trustees shall have the right to assign, sell and convey all of the property hereinbefore described at the best price obtainable to satisfy the obligations of the Beneficiaries herein and make distribution to the Beneficiaries as their interest may appear. * * *

* 1955 U.S. Tax Ct. LEXIS 7">*21 * * *

Article 20.

The Trustees herein, for themselves and for their successors, hereby accept the Trust herein declared, and assume the duties and obligations herein created and imposed upon them by this Trust, but with the express reservation that no personal liability shall attach to the Trustees under this instrument or in the performance of their duties hereunder, except as herein expressly set out, and in no event shall the Trustees be liable for the default of the Trustor or any Insurance Company or any Subscriber. * * *

* * * *

Article 23.

This Trust may be altered or amended by the agreement of the Trustor and the Trustees herein, by obtaining the consent in writing to such alteration or amendment or by approval of the Beneficiaries secured by sending notice, as hereinafter stated, to the Beneficiaries in good standing, of a meeting to be called for the purpose, and at that meeting ten (10) of the then existing Beneficiaries in good standing shall constitute a quorum. At any meeting of the Beneficiaries one of them shall act as chairman of the meeting.

The terms "Subscribers" and "Beneficiaries" 1955 U.S. Tax Ct. LEXIS 7">*22 as used in this Agreement shall mean Subscribers to the fund who are not in default, and in any action taken by such Subscribers as a body, a majority vote of the quorum, hereinbefore stipulated, shall control.

On August 1, 1950, the Columbian National Life Insurance Company issued a blanket policy of group life insurance to the trustees for the Building Fund on the individual lives of petitioners Thomas L. Awrey and Elton R. Awrey and 35 others. The proceeds of the insurance on the life of each individual were payable to the Building Fund trust either when the individuals died or after the lapse of 35 years, whichever occurred first. The amount of insurance carried on petitioners' lives was $ 750 each, and the annual premium allocable to the insurance on each of their lives was $ 32.78 with respect to Thomas and $ 41.51 with respect to Elton. The premiums varied with the ages of the donors and the amounts of insurance at the date of issuance of each policy. The trustees of the Building Fund or their 25 T.C. 643">*650 successors were irrevocably named as beneficiaries in the policy and had the right thereunder to borrow on the policy and the right to surrender the policy and receive its1955 U.S. Tax Ct. LEXIS 7">*23 cash surrender value.

On June 1, 1950, the trustees of the Building Fund issued to Elton R. Awrey a "Trustee's Certificate" which stated on its face as follows:

The Columbian National Institutional Finance Plan Guaranteed by Life Insurance

Number

25

Amount of Insurance $ 750.00

TRUSTEE'S CERTIFICATE

Non-Transferable

Trustees of the Building Fund of the

Epsilon Rho Alumni Chapter of Sigma Nu Fraternity,

East Lansing, Michigan

(Trustor)

This Certificate for $ 750.00 is issued to Elton R. Awrey, as Payee.

The undersigned Trustees certify that said Payee has executed and delivered a Subscription Note and Agreement for the benefit of the Building Fund of the Trustor, in accordance with a certain Trust Agreement dated December 29, 1949 by and between said Trustor and Trustees, which is made a part hereof by reference thereto; and

Said Trustees further certify that they have caused to be issued a Thirty-five Year Endowment Life Insurance Policy by THE COLUMBIAN NATIONAL LIFE INSURANCE COMPANY, of Boston, Massachusetts, on the life of said Payee, or nominee of his selection, and that upon payment of the proceeds of said policy, either1955 U.S. Tax Ct. LEXIS 7">*24 as an endowment or death claim, by the Insurance Company to the Trustees, or successors in Trust, same will be disbursed after deducting any unpaid balance upon said subscription, as follows:

To: Shriners' Hospitals for Crippled Children, Chicago, Illinois, if Elton R. Awrey, the Insured, is living, when the policy matures as an Endowment; or if the proceeds of such insurance become payable by reason of the death of the Insured prior to the maturity of the policy as an Endowment.

The insurance herein mentioned will remain in effect only so long as renewal premiums are paid promptly. The Trustees are to pay such renewal premiums as they come due provided the necessary funds are placed in their hands at the proper time by the Trustor, whose duty it is to provide the Trustees with such funds, all as provided by the terms of the Trust Agreement.

This Certificate imposes no liability on the Columbian National Life Insurance Company, its only liability being that stipulated in the policy of insurance issued by it.

This certificate is void unless endorsed by the Trustees upon completion of subscription payments.

The holder and Payee hereof accepts the terms and conditions of the aforesaid1955 U.S. Tax Ct. LEXIS 7">*25 Trust Agreement among which are provisions for the payment of the premiums on said life insurance by the Trustees.

25 T.C. 643">*651 A space was provided on the back of the trustee's certificate to change the beneficiary designated in the subscription agreements. Although the certificate was not endorsed on its back by the trustees as having been paid in full, respondent concedes that $ 450 was paid and that the trustees would have endorsed the certificate as having been paid in full had it been presented to them for their signatures. Thomas was issued an identical certificate on May 1, 1950, except that his name appeared rather than Elton's name and that the phrase "Michigan State College Scholarship Fund, East Lansing, Michigan," appeared instead of the phrase "Shriners' Hospitals for Crippled Children, Chicago, Illinois."

Neither Epsilon Rho Chapter of Sigma Nu Fraternity at East Lansing, Michigan, nor the Building Fund trust is an organization contributions to which are deductible under section 23 (o).

Thomas and his wife deducted on their 1950 return as a contribution to the Scholarship Fund of Michigan State College the amount of $ 450 which he had paid to the Building Fund trust. 1955 U.S. Tax Ct. LEXIS 7">*26 Elton likewise deducted on his 1950 return as a contribution to Shriners' Hospitals for Crippled Children the $ 450 which he paid to the Building Fund trust.

In determining the deficiencies, the respondent determined that only $ 32.78 of the deduction taken by Thomas and $ 41.51 of the deduction taken by Elton were allowable and disallowed the remainder of the deductions taken.

OPINION.

The petitioners each claim the right under section 23 (o) ² of the Internal Revenue Code of 1939 to deduct from income for 1950 the amount of $ 450 paid by each of them to the Trustees for the Building Fund. In support of their position they urge 25 T.C. 643">*652 that their payments to the trustees were irrevocable and, under the circumstances presented, resulted in the creation of trusts between them and the trustees; that pursuant to the provisions of such trusts the Shriners' Hospitals for Crippled Children and the Scholarship Fund of Michigan State College were designated irrevocably as the beneficiaries of the proceeds of the insurance policies; and that consequently the payments in question constituted completed gifts in 1950 "for the use of" qualified charitable and educational organizations within1955 U.S. Tax Ct. LEXIS 7">*27 the meaning of section 23 (o). The respondent contends that the position of the petitioners cannot be sustained for the reasons, among others, that any interests acquired by Shriners' Hospitals and the Scholarship Fund under the arrangements here involved were contingent and further that any gifts made by petitioners for the use of those organizations were revocable and that consequently no deduction therefor as a contribution was allowable.

1955 U.S. Tax Ct. LEXIS 7">*28 The subscription agreements or notes of the petitioners, in which the Hospitals and the Scholarship Fund were designated as beneficiaries "irrevocably," expressly provided that the trust agreement between the fraternity and the trustees for the Building Fund was made part of the subscription agreements. Although Article 7 of the trust agreement provides that "Any funds that may come into the hands of said Trustees under the terms of any policy of insurance shall be disbursed as is provided in the subscription note," Article 9 provides that "the original Subscriber and holder of an insurance policy may, at any time, without the consent of any prior Beneficiary, upon giving written notice to the Trustees" change the beneficiary. Standing alone the foregoing provision of Article 7 might indicate that only the beneficiary named in the subscription note, whether or not irrevocably designated, would be entitled to the proceeds of insurance. The foregoing provision of Article 9 standing alone might indicate that the original subscriber at will might change any previously designated beneficiary, whether or not such beneficiary had been irrevocably designated. A similar result might follow1955 U.S. Tax Ct. LEXIS 7">*29 from a consideration of the provisions of the two articles taken together. Little aid in construing the foregoing provisions of the two articles is found in the action of the petitioners and the trustees with respect to the provisions. While in the subscription notes or agreements the petitioners requested that the Hospitals and Scholarship Fund be designated as irrevocable beneficiaries in the trustees' certificates issued to the petitioners with respect to the insurance on their lives, and which expressly made the trust agreement part of the certificates, the certificates were issued by the trustees and accepted by petitioners without any expressed designation of irrevocability. On some undisclosed theory, which apparently was contrary to the position he takes here, the respondent, in determining the deficiencies, allowed deduction of 25 T.C. 643">*653 the payments of $ 450 made by each petitioner to the extent of the amount of the premiums paid during 1950 on the insurance. In the foregoing situation and because of other provisions of the trust instrument, we do not deem it necessary for present purpose to determine the effect of the foregoing provisions of Articles 7 and 9 whether1955 U.S. Tax Ct. LEXIS 7">*30 standing alone or taken together.

The trust agreement contemplated that all premiums on life insurance policies should be paid from time to time by the trustees from funds in their hands. Under Article 14 of the trust agreement, funds for such purpose were to be provided by the fraternity. In the event of default by the fraternity the trustees were authorized to take over, manage and operate the property of the fraternity and, if the results of such operation were insufficient to provide sufficient funds, then, after default of a specific period, sell the property for whatever best price might be obtainable and make distribution to the beneficiaries as their interests might appear. Under Article 20 the trustees in no event were liable for the default of the fraternity or of any insurance company or any subscriber. Obviously, the continuance of the insurance arrangement was contingent entirely upon the fraternity or its property providing sufficient funds to pay the required insurance premiums.

Article 23 of the trust agreement provided that it might be altered or amended by the agreement of the fraternity and the trustees with the consent of the subscribers, among which were petitioners, 1955 U.S. Tax Ct. LEXIS 7">*31 upon a majority vote of a quorum thereof. The language of the article contains no limitation as to the extent of any such alteration or amendment. Conceivably, under this article the trust agreement could be so altered at any time as to discontinue or eliminate the entire insurance arrangement.

In view of what has been said heretofore, we are unable to find that as a result of the petitioners' payments the Hospitals and the Scholarship Fund acquired in 1950 any greater interest than a mere expectancy, dependent upon the insurance provisions of the trust agreement continuing unaltered or unamended and contingent upon the fraternity continuing to provide funds for the payment of premiums, which could not vest until the expiration of 35 years or the prior deaths of the petitioners.

Since in 1950 nothing vested in the Hospitals and Scholarship Fund and nothing vested "for their use" in the trustees for the Building Fund as a result of the petitioners' payments, the petitioners did not make any gifts or contributions to them or for their use in that year. Accordingly, we hold that the payments in question were not gifts or contributions within the contemplation of section 23 (o) of 1955 U.S. Tax Ct. LEXIS 7">*32 the Code. Cf. Mortimer C. Adler, 5 B. T. A. 1063.

Decisions will be entered for the respondent.