Garden City Golf Club v. Corwin, 92.

• Decision Date: 19 December 1932
• Docket Number: No. 92.,92.
• Citation: 62 F.2d 246
• Parties: GARDEN CITY GOLF CLUB v. CORWIN.
• Court: U.S. Court of Appeals — Second Circuit

62 F.2d 246 (1932)

GARDEN CITY GOLF CLUB v. CORWIN.

No. 92.

Circuit Court of Appeals, Second Circuit.

December 19, 1932.

Greene & Hurd, of New York City (Chase Mellen, George L. Hubbell, Jr., and James L. Dohr, all of New York City, of counsel), for appellant.

Howard W. Ameli, U. S. Atty., Herbert H. Kellogg, and Albert D. Smith, Asst. U. S. Attys., all of Brooklyn, N. Y. (C. M. Charest, Gen. Counsel, Bureau of Internal Revenue, Dale H. Flagg, Atty., Bureau of Internal Revenue, both of Washington, D. C., of counsel), for appellee.

Before MANTON, L. HAND, and SWAN, Circuit Judges.

MANTON, Circuit Judge.

The appellant is a membership corporation, organized under the New York Membership Corporations Law (Consol. Laws, c. 35), and maintains a golf club. At the times herein mentioned, the membership exceeded 350 persons, some of whom were life members. There were other membership classifications. The control and management of the club's property is in a board of governors, who make and amend the by-laws and rules of the club consistent with its constitution, regulate the use of the clubhouse, grounds, and appurtenances, and also transact the business of the club. The treasurer collected all sums due to the club and kept control of its funds, making distribution only under the direction of the board of governors. After due consideration, the board of governors decided upon improvements to the clubhouse and grounds involving an expenditure of $52,500. To cover the expense of these improvements, it was determined to invite members to submit to an assessment of $150 each. The board invited the co-operation of the members to pay this sum by a letter sent to each member. The official action of the board of governors adopted a recommendation of the president "that a permissive assessment on the membership be requested, at the rate of $150 for each member, or a general meeting be called to increase the dues to meet this past and prospective necessary expenditure." Under date of March 20, 1930, the president addressed a letter to the members explaining the situation and inclosing a blank for a subscription to the assessment which stated in part: "As a * * * member of the Garden City Golf Club, I accept the assessment of $150 for the purposes stated in the President's letter of March 20, 1930." Thereafter all but 15 regular members and the honorary members signed and returned the blank form; the great majority agreeing to pay $150 each. However, some paid $100 and others $50 each; several did not return the blanks nor did they pay.

On April 3, 1930, sixteen new members were elected and were required to pay $150 each as a qualification for membership. On January 27, 1931, the board resolved to reinstate a former member on payment of all arrears of dues, other charges, and the $150 assessment. The member paid these sums, and was reinstated.

The members, exclusive of the newly elected sixteen who paid $2,400 and the one member who paid $150 on reinstatement, paid in all $52,750. The total sum of $55,300 was kept in a special account and devoted to the special purposes for which it was collected. The constitution and by-laws do not provide for an assessment of the members. No disciplinary action has been taken against any member for nonpayment of the assessment. On this sum of $55,300 the club paid, under protest, the 10 per cent. tax set forth in section 413 of the Revenue Act of 1928. The court below held that $52,750 was properly taxed as an assessment and that $2,550 was properly taxed as initiation fees.

Section 501 (d) of the Revenue Act of 1926, as amended by section 413 (a), of the Revenue Act of 1928 (26 USCA § 872 (d), provides that "As used in this section, the term `dues' includes any assessment irrespective of the purpose for which made; and the term `initiation fees', includes any payment, contribution, or loan required as a condition precedent to membership. * * *"

We think that the court below properly held that, as to the sixteen newly elected members and the reinstated member, the $150 imposed was an initiation fee and subject to the tax. This sum was required as a payment or condition precedent to membership.

In taxation, the...