Fisher v. McCrory
| Decision Date | 31 May 1958 |
| Docket Number | Civ. No. 106 L. |
| Citation | 163 F. Supp. 132 |
| Parties | Conrad W. FISHER, Plaintiff, v. James L. McCRORY, Defendant. |
| Court | U.S. District Court — District of Nebraska |
Roger Dickeson (Mason, Knudsen, Dickeson & Berkheimer) Lincoln, Neb., Thomas M. Davies (Healey, Davies, Wilson & Barlow) Lincoln, Neb., for plaintiff.
Dean W. Wallace, Asst. U. S. Atty., Lincoln, Neb., Ernest C. Friesen, Jr., Atty., Dept. of Justice, Washington, D. C., for defendant.
Plaintiff is a member of the Eastridge Recreational Association, a non-profit Nebraska corporation, hereinafter called the Association. Defendant is Director of Internal Revenue for the District of Nebraska. This is a civil action for refund of excise taxes assessed for the years 1955, 1956 and 1957 and collected by the Association from plaintiff and paid to defendant under Sections 4241 and 4242 I.R.C.1954, 26 U.S.C.A. §§ 4241, 4242. The basic facts relating to the assessment, collection and payment of the taxes and the filing and disallowance of claims for refund have been stipulated.
The parties agree that there are three basic issues before the Court. They are
1) Whether the Association is a social, athletic or sporting club or organization within the meaning of Section 4241 of the Internal Revenue Code of 1954.
2) Whether the bond purchased by plaintiff is in fact requisite to membership in the Association and so taxable as initiation fees within the provisions of Section 4241(a) (2) of the Internal Revenue Code of 1954.
3) Whether the dues of plaintiff as an annual resident member of the Association are more than $10 so that all dues paid to the Association are subject to tax within the provisions of Section 4241 (a) (1) of the Internal Revenue Code of 1954.
The evidence establishes that prior to 1954 Strauss Bros., Lincoln, Nebraska, builders, purchased land east of Lincoln and began development of an addition, later annexed to the City, known as Eastridge; that all houses in the area have been built by Strauss Bros.; that the area is peopled by persons of middle class incomes; that largely they are younger people; that the percentage of children in the area is above the city average. Plaintiff testified that there were fourteen families in what he termed his block, with 42 children.
In 1954 a relatively small group of Eastridge residents began to discuss the need for swimming facilities especially for the children. At that time the nearest public pool was four to five miles away and there was then no plan for a public pool closer. The testimony shows that the City has now established two other pools, and altho the distance is not shown in the record, the Court from his acquaintance with Lincoln knows that for most Eastridge residents the new University Place pool is almost the same distance away as the pool called "Muny". Investigation outlined in the testimony, but unnecessary to be set forth here, resulted in the decision to construct swimming facilities, and the incorporation in December, 1954 of the non-profit association first above named. Its purpose, so far as material here, as shown by Exhibit 1A, was:
At the organizational meeting held December 7, 1954, as shown by Exhibit C, proposed by-laws were unanimously approved by the members present at the meeting. A copy appears in the minute book of which Exhibit B is a true and correct photostatic copy. At a time not shown by the evidence, many pen or pencil changes or notations have been made thereon. There is also in evidence Exhibit 2D, being a copy of the by-laws of the Association, which became effective September 9, 1955. Article II is identical in each and provides:
"The purpose for which this Association is formed is to promote the health and general welfare of its members and in pursuance thereof to construct, own and operate a swimming pool and other recreational facilities, together with such incidental objects as are appropriate in the conduct of its activities, in the County of Lancaster and State of Nebraska for the exclusive use of its members and their families."
The Court notes that under both the articles and by-laws, there can be constructed, owned and operated, not only a swimming pool, but other recreational facilities.
The by-laws provide for officers and committees to carry on the purposes of the Association. Among them (See Article X)—a program committee which, subject to the authority of the board of directors "shall prepare the program of instruction & entertainments". Pool rules and regulations are detailed. Guests are permitted under paragraph numbered 3 of Article XI, and guest rates are set, and in paragraph numbered 3(h) of Article XI, appears this statement "All guest rates subject to 20% tax". Provision is made in the by-laws, Exhibit 2D, for private parties from 7:30 p. m. to 9:30 p. m. Tuesday, Thursday and Saturday. The testimony shows that private parties are still being held but not on the days set forth in the bylaws. Children under the age of 14 are to be accompanied by their parents after 5:00 p. m.
The pool and facilities were constructed in 1955 by Strauss Bros. after bids from two other contractors had been rejected. The pool was opened July 4, 1955, with ceremonies described in the testimony. It is at the east side of the Addition, the location being clearly shown on Exhibit 6. It was constructed on a lot given by Strauss Bros. who later donated an adjacent lot used for parking of cars.
The testimony shows the pool is used approximately 80% by children and 20% by adults. The bringing of food or drinks to the pool facilities is forbidden; smoking in a limited area reserved for that purpose, has only recently been permitted; there are a few wooden benches, such as shown in Exhibit 18, where persons can be seated. The general facilities, altho adequate, are not, and the Court so finds, of the "country club" type. The degree of luxury is not the measuring stick, however, in determining whether the Association is a social or athletic club or organization under the applicable sections of the Internal Revenue Code.
Plaintiff, and some of his witnesses, contend and his counsel in argument urges, that in determining whether an organization is an athletic one, that the controlling feature is whether primarily it is for competitive events. There is testimony that swimming meets and competitions are not held. There is other testimony that on occasions there has been limited competition and that on one occasion the Lincoln Swim Club held a swimming meet for children of ten and under. The only diving board is a low board. The pool is not suitable for diving competition. The pool was planned in a fan shape to provide a wide shallow end. The evidence establishes that it was not one of the purposes to prepare children or adults for such competition, nor to hold such competitions. However, the Court does not regard this as controlling. The primary purpose, the Court finds, was the laudatory one of providing the children of Eastridge an adequate, sanitary and regulated place to wade and swim or learn to swim. There are people in Eastridge with children who do not belong to the Association. The present eligible membership is 463.
The Court believes, however, that it was within the thinking of the incorporators that the Association could be something more than the operator of a swimming pool. Both the articles and by-laws, as above mentioned, authorize other recreational facilities. The program committee is allowed to prepare entertainments. The facilities are available for a fee fixed by the by-laws and are used by members for entertainment of their friends on certain nights to the exclusion of the other members, unless the member who has first reserved the pool for a party, through contacting the lifeguard, consents to other parties also using it.
Exhibit F, being the minutes of the Board of Directors' meeting of August 3, 1955, contains the following:
According to Exhibit 3 these pool rentals were 2% of the Association's income in 1957, and 3% in 1955 and 1956. Guest charges each year approximated 11% of the total income. Dues thus provide 86% or 87% of the Association's income and guests and parties 13% or 14%.
Defendant has cited the opinion of March 27, 1958 of the United States Court of Appeals for the Fourth Circuit in the case of United States v. McIntyre, 253 F.2d 728. Plaintiff's counsel, who in the trial brief furnished the Court, had placed great reliance upon the opinion of the District Court in this case, 151 F. Supp. 388, saying it was "identical in all material particulars to the present case" now take the position that the opinion, which is written by Judge Haynsworth "lacks logical direction". Counsel associated with plaintiff's counsel say it "establishes no new principles of law". Both counsel ably present what they regard as errors in the Court's reasoning. Both suggest that the Court not follow the opinion. The Court is not in agreement with their position. The McIntyre opinion is a decision of the United States Court of Appeals for the Fourth Circuit, in a case which as to certain aspects is identical with this case. The Court is therefore persuaded that it should follow the McIntyre case.
Applying the reasoning of the McIntyre case to the testimony introduced...
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