Gould v. United States

• Decision Date: 28 September 1960
• Docket Number: Civ. No. 6131,6491.
• Citation: 187 F. Supp. 337
• Parties: Albert J. GOULD, Plaintiff, v. UNITED STATES of America, Defendant. Frank H. RICKETSON, Jr., et al., Plaintiffs, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — District of Colorado

187 F. Supp. 337

Albert J. GOULD, Plaintiff, v. UNITED STATES of America, Defendant.

Frank H. RICKETSON, Jr., et al., Plaintiffs, v. UNITED STATES of America, Defendant.

Civ. Nos. 6131, 6491.

United States District Court D. Colorado.

September 28, 1960.

COPYRIGHT MATERIAL OMITTED

Dayton Denious, Denver, Colo., for plaintiffs.

Richard P. Matsch, Tax Atty., Dept. of Justice, and Robert S. Wham, Asst. U. S. Atty., Denver, Colo., for defendant.

KERR, District Judge (assigned).

In these consolidated actions plaintiffs seek to recover from the United States the amounts paid as federal excise taxes allegedly erroneously and illegally assessed and collected from them under Sections 4241 and 4242 of the Internal Revenue Code of 1954, 26 U.S.C. §§ 4241, 4242, Sections 1710 and 1712 of the Internal Revenue Code of 1939, 26 U.S.C. §§ 1710, 1712.

The mixed questions of law and fact are, first, whether the organization known as the "Round-up Riders of the Rockies" is a "social, athletic, or sporting club or organization" as those terms are used in Section 4241(a) (1) of the Internal Revenue Code of 1954, and as they are defined in Sections 101.25 and 101.26, Treasury Regulations 43 (1941 Edition as amended); and, secondly, whether the amounts paid to the "Roundup Riders of the Rockies" constitute "dues" and "initiation fees" under the provisions of Section 4242 of the Internal Revenue Code of 1954 (Section 1712 of the Internal Revenue Code of 1939). The Round-up Riders of the Rockies will hereinafter be referred to as "3 R".

Section 4241 of the Internal Revenue Code of 1954 imposes a tax on the amount paid as dues to a social, athletic, or sporting club. In Section 4242 of the Code the term "dues" is defined as assessments, irrespective of purpose, and charges for social or sporting privileges or facilities. Congress has not defined the term "social club". The statute has been necessarily extended by Treasury Regulations 43, Sections 101.25 and 101.26, which contain definitions of the clubs covered by the Code. A social club is defined as one which maintains quarters or arranges periodical dinners or meetings so that the members may congregate for social intercourse. A club is not a social club within the regulations if its social features are not a material purpose, but are subordinate and merely incidental to the active furtherance of a different or predominant purpose. Organizations composed of individuals for the practice or promotion of athletics or sports come within the definition of Athletic or Sporting Clubs.

Jurisdiction of this court is conferred by 28 U.S.C. 1346(a) (1), as amended July 30, 1954, Ch. 648, Section 1, 68 Stat. 589. Prior to the commencement of these actions Plaintiffs satisfied the procedural requirements of filing their claims for tax refunds, which claims were rejected.

The disputed tax was imposed in 1957 in the amount of 20% of the sums paid by plaintiffs to the 3 R in the years 1953-1956, inclusive. The refunds claimed are as follows: Frank H. Ricketson, Jr., $226; Frank J. Johns, $174; William Schweigert, $256; Paul V. Pattridge, $63; Jack R. Munroe, $256; Vergyl H. Reynolds, $244; W. O. Kester, $226; and Albert J. Gould, $226, plus interest in the amount of $4.23.

The 3 R is a corporation organized in 1948 under the laws of Colorado as a non-profit corporation. In its articles of incorporation the declared business and object of the 3 R read as follows:

"(1) To organize, manage and direct horseback rides throughout the Rocky Mountains, to be participated in by members of this corporation and their guests, who shall be selected and invited in accordance with the by-laws of this corporation;"

Plaintiffs contend that it is not a social, athletic, or sporting club and it does not impose dues taxable under the internal revenue laws. They contend that the purpose of the 3 R is to promote interests in the western mountain country which makes Colorado attractive as a vacation land and as a place in which to live. When they organized the essential purpose of the 3 R was to exploit the trails in the Colorado mountains and to advertise the attractive features and resources of Colorado. It is the plaintiffs' contention that their activities are organized and conducted in accordance with their original plan.

Defendant's theory is that the determination of whether a club comes within the taxing statutes and regulations must be made on the basis of what the organization does, and not on what it professes to do. Defendant urges that if any one of the material purposes of the 3 R is social, athletic or sporting, the tax is properly imposed and collected.

There is no dispute but that the inspiration fathering the 3 R was to conduct one spectacular event a year, participated in by a group of civic minded and outstanding citizens of Colorado and of other states. The so-called "Big Ride" consists of a horseback trek between resort towns, along forest trails, with overnight camping. All, ostensibly, to promote tourist trade in the summer resort towns and in the trails and forests in Colorado. The controversy lies in the entertaining features and social aspects of the 3 R during the main ride and the various other rides and other social activities during the year. It is for this court to determine whether the activities of the 3 R are predominantly for the avowed benefit of the state of Colorado or for the interest, entertainment and amusement of the members.

The record sustains my deduction and supports my conclusion that the activities of the 3 R are materially and predominantly social, that they are more than incidental components to the development and maintenance of the organization, and that the declared civic or commercial purpose of the 3 R is merely a consequence of such social functions. See Lake of the Forest Club v. United States, 10 Cir., 1943, 137 F.2d 843. I do not agree, however, with the finding by the Commissioner that all the money paid by the plaintiffs is taxable as dues or assessments under the Code.

The denominator common to the decisions construing these statutes and regulations is that each case is sui generis. Downtown Club of Dallas v. United States, 5 Cir., 1957, 240 F.2d 159; Tidwell v. Anderson, D.C.S.D.N.Y.1933 4 F.Supp. 789, 791; Rockefeller Center Luncheon Club v. Johnson, D.C.S.D.N.Y. 1955, 131 F.Supp. 703. Nearly every club has some social aspects. Army and Navy Club of America v. United States, Ct.Cl.1931, 53 F.2d 277, certiorari denied 285 U.S. 548, 52 S.Ct. 405, 76 L.Ed. 939. When the Court is required to determine whether or not the social features of a club are dominant or whether they are subordinate and incidental, it must scrutinize the record, weigh the facts and circumstances, and then apply the principles of law.

At the outset it is imperative to reiterate the well established rule that neither the recitations in the corporate charter or the by-laws, nor applications for tax exemptions as non-profit organizations, are conclusive as to the character of the organization. Such instruments are merely segments of the evidentiary matter which the court has to consider in addition to the other pertinent evidence. Fleming v. Reinecke, 7 Cir., 1931, 52 F.2d 449; Arkwright Club of City of New York, Inc. v. United States, 1954, 117 F.Supp. 411, 127 Ct.Cl. 247.

The idea of the 3 R was conceived by Frank H. Ricketson, Jr., to acquaint the residents and friends of Colorado and the tourists with the wonders and beauty of the trails and true western atmosphere of the state of Colorado. Though only about half of the incorporators were horseback riders, the majority of the present members now own their own horses. Riding is a prerequisite to active participation in the club. Membership is select, the general qualifications being that the members be men of public stature, of prestige, horse-lovers, sporting and outdoor enthusiasts, and in sufficient good health to endure the rigors of the annual week-long riding trek in the Colorado mountains.

The record is replete with testimony of the hardships of the ride, of the numerous committees devoting countless hours planning and preparing the trip to make it safe, successful, pleasant and in some respects luxurious. There are convenient accommodations and prearranged entertainment for the ride, purportedly to take the sting out of it. Big name stars perform, the group puts on shows and contests and parades are staged in almost every town. Prizes and trophies are awarded for various and sundry stunts. Despite the inherent hardships of the trails and the mode of locomotion it is apparent to me that the "Big Ride" provides a relaxing vacation for a hand-picked group of businessmen, executives, professional men and ranchers. It is admitted that in the interim before and after the annual trip the social activities are planned to stimulate interest in the organization and to put vitality into it. These interim events include (1) Participation in the Stock Show Ball, attended by the members and their wives. On the Sunday following this dinner dance the 3 R has a party to which they invite their wives, special guests and those who have been helpful to the 3 R; (2) The Easter Parade, composed of from 600 to 1,000 horsemen and women, including members of the 3 R and their wives, after which one of the members serves a brunch for the 3 R and their guests; (3) The Spring Shake-Down or Roundup on which the members ride on the trails and then have lunch with their wives at a ranch to which some of the members have sort of club privileges; (4) The Fall Aspen Ride (sometimes preceded by a Saturday evening party), which is timed so that the members may enjoy the beautiful colors of the Aspen in the fall; (5) The "Hunter's Dinner" or "Winter Roundup" held in January for the members and their wives to partake of the fruits of the hunting season and to see the motion pictures of the ride of the preceding year; and (6) The dinner at the...