OPINION.
Graupner:
The statutes of California contain specific provisions relating to corporations organized for the purpose of establishing and maintaining cemeteries.' They provide that such a corporation may take and hold any property bequeathed, granted, or given to it in trust for the improvement or embellishment of a cemetery or lot thereon; for the planting or cultivation of trees, shrubs, or plants in or around such cemetery, or any lot therein, and for the improving, ornamenting, or embellishing of such cemetery, or any lot therein. (Civil Code, sec. 616.)
Regarding contracts between cemetery corporations and lot owners, the statute provides as follows:
Any cemetery corporation or association under contract for the perpetual care of a certain lot or lots in the cemetery of said corporation or association, is hereby expressly forbidden to use the funds received for the perpetual care of any lot or lots under such contract or contracts, for any other purpose than to provide the perpetual care mentioned in said contract, and it shall be the duty of the board of directors or board of trustees of a cemetery corporation or association receiving funds from perpetual care contracts to invest or reinvest such funds in bonds of the United States or the State of California, or in first mortgages on real estate, or in centrally located income producing improved real estate in any city or city and county in this State. (Civil Code, sec. 617.)
The facts before us in this appeal and the statutes governing corporations of the class to which the taxpayer belongs clearly demonstrate that the moneys taken under contract from lot or grave owners for perpetual care constitute a trust fund. Section 617 of the Civil Code of California, supra, expressly forbids the use of such funds "for any other purpose than to provide the perpetual care mentioned in said contract." How then can the taxpayer be said to have income or gain when it receives such funds? None of the moneys paid into the " perpetual care fund " can be used for any purpose other than that specified in the contract. Such funds can not be used for the profit of the taxpayer, nor can they be used for the benefit of the stockholders. They can be used only for " care " and the "care" specified in the .contract does not bring gain or income to the taxpayer.
The moneys received by the taxpayer under its contract for perpetual care and held by it under the trust obligation imposed by the statute do not come within the definition of gross income as defined in sections 233(a) and 213 of the Revenue Act of 1918. The taxpayer sells nothing upon which a gain can be made to the person who enters into a contract for perpetual care; it takes nothing which it can use for its own purposes; it receives nothing which it may distribute to its stockholders; it holds nothing which it can ultimately distribute to itself for its own uses. The taxpayer as a trustee can exercise no discretion in the accumulation or distribution of the fund accumulated from perpetual care contracts. It is bound to perform a defined service with such fund and from that there can be no gain to be classed as income. We express no opinion whether interest or increment earned by such funds would be taxable as income.
The deficiencies determined for the three years were based upon a revenue agent's report dated February 27, 1924. Portions of such deficiencies result from disallowance or changes in items in which the taxpayer acquiesces. It will therefore be necessary to recompute the deficiencies in accordance with this opinion.
Arundell not participating.