Mason's Island Yacht Club, Inc. v. United States
| Citation | 279 F. Supp. 587 |
| Decision Date | 08 December 1967 |
| Docket Number | Civ. No. 10740. |
| Parties | MASON'S ISLAND YACHT CLUB, INC. v. UNITED STATES of America. |
| Court | U.S. District Court — District of Connecticut |
Ralph P. Dupont, New London, Conn., for plaintiff.
John F. Mulcahy, Asst. U. S. Atty., Hartford, Conn., Edward J. Snyder, Department of Justice, Washington, D. C., for defendant.
RULING ON MOTION FOR SUMMARY JUDGMENT
This is a suit for refund of excise taxes assessed by the Commissioner of Internal Revenue at the rate of 20% on the first $25001 of the prices paid by each of 13 members of the Mason's Island Yacht Club (hereinafter the "club") for parcels of real property on Mason's Island individually acquired by them. These properties were acquired between 1958 and 1962 at prices ranging from $2500 to $45,000. The ground for imposition of the tax in dispute is that such payments were paid as initiation fees to the club. The applicable statute is:
Both parties have stipulated to the facts, all of which are incorporated here by reference but need not be stated at length. Both parties have moved for summary judgment.
The club was incorporated under Connecticut law in 1928 as a non-profit corporation, without capital stock. It is situated on Mason's Island, Mystic, Connecticut. The club is a "social, athletic, or sporting club or organization" within the meaning of § 4241(a) (1) of the Internal Revenue Code of 1954, as amended.
Initiation fees for all members were $150 until September 1961 when they were raised to $200. Annual dues were $52 for Active members and $65 for Associate members.
The club is located on a peninsula at the southeast corner of Mason's Island. The parcels of land owned by the taxpayers are all within a certain area comprising about two-thirds of the southern part of the island, described in the club's bylaws (Sec. 4(a)) as laying "south of an approximate east-west line from the gate-way at the north end of the Mason's Island Company's main road. * * *"
The club's laws provide only for family memberships. Memberships in the club are divided into two classes — Active and Associate. To be eligible for Active membership "at least one member of each new Active member family shall be the owner of real property * * *" within the 4(a) Section. Owners of property outside of the Sec. 4(a) area are eligible only for Associate membership. Associate members are limited to 45.
There were at all times pertinent to this action approximately 74 families living south of the gate-way and holding Active memberships. One Active member lives on Mason's Island outside the Sec. 4(a) area. This family has held its membership since 1941, which was before the club's laws were changed to limit Active memberships to the area south of the gate-way. Forty-five families hold Associate memberships. They all live north of the gate-way.
The property on Mason's Island owned by the Active member families (or owned by some member or members of the Active member families) was once owned and sold by the Mason's Island Company, an independent corporation, with 10 to 12 exceptions.
The island had been owned by the Mason family. The Mason's Island Company bought most of the land from the Mason family or from others who had acquired it from the Mason family. The last member of the Mason family died in 1917. Before he died, he sold 10 to 12 lots to people who had leased the lots from him. Thus, of the families living within the Sec. 4(a) area, possibly as many as 12 own property which was not once owned by the company. Some, and possibly all, of these families hold Active memberships in the club.
There have been 12 Active member families who bought their property from families who were not members of the club. There probably have been Active member families who sold their property to families who did not subsequently become members of the club.
The club itself has never owned any property on the island now owned by the member or non-member families.
The Mason's Island Company still owns land on the island both within and without the Sec. 4(a) area, and has at all times offered these properties for sale.
So far as appears, persons purchasing property anywhere on Mason's Island do so independently of the club. Such transactions are strictly between the seller and buyer, and the club is neither directly nor indirectly a party to any such conveyance. Membership in the club is not involved in such conveyances. Finally, the club apparently owns no property on Mason's Island other than the area occupied by it and conveyed to it by Mason's Island Company between 1928 and 1961. The club does not require prospective members to purchase or acquire any interest in the club's real estate.
The ownership of property south of the gate-way is never tantamount to Active membership in the club. In point of fact, on the dates in issue here, there were approximately 38 families living within the area south of the gate-way on Mason's Island, the so-called Sec. 4(a) area, who were not members of the club.
The question to be decided is whether part of the payment for residential property in the 4(a) Section was subject to the tax on initiation fees.
The taxpayers contend that unless the payment was made "as initiation fees to such club or organization" it does not fall within the ambit of § 4241(a) (2) and is not subject to the tax.
Section 4242(b) defines initiation fees:
(26 U.S.C., 1964 ed).3
The purpose behind the definitional portion of the act, they argue, was to frustrate attempts to evade the tax by casting a payment of initiation fees in the disguise of a stock purchase, a loan, or some other imaginative transaction. The Report of the House Committee on Ways and Means, H.R.Rep.No. 2, 70th Cong., 1st Sess., 26 (1939-1 Cum.Bull. Part 2, 384, 401) states the problem which § 4242 (b) was enacted to overcome:
The government on the other side rests on a claimed literal reading of the definitional statute to support its position that any payment required as a condition precedent to membership without regard whatsoever to the purpose for which paid is taxable. The net of the language is cast over a multiplicity of conditions precedent to membership, but Courts have repeatedly been warned: "There is no surer way to misread any document than to read it literally," Gemsco, Inc. v. Walling, 324 U.S. 244, 65 S.Ct. 605, 89 L.Ed. 921 (1945); see also Federal Maritime Comm. v. DeSmedt, 366 F.2d 464, 469, 470 (2d Cir.) cert. denied, 385 U.S. 974, 87 S.Ct. 513, 17 L.Ed.2d 437 (1966). That admonition fits here.
Nor is it inapplicable because of the rule in § 7701(b) of Title 26:
"The term `includes' * * * when used in a definition contained in this title shall not be deemed to exclude other things otherwise within the meaning of the term defined."
The statutory purpose must still be determined.
It is obvious that any eligibility qualification for membership is, as well, a condition precedent to membership. And the list of possible categories of qualifications which can be obtained only at considerable cost staggers the imagination. For example, ownership of a sports car as a prerequisite to joining a racing club, possession of a post-graduate degree to join a professional club, or ownership of residential property in a certain geographic area to join a golf or swimming club, all would entail considerable expense to meet the usual qualifications for membership. And the categories are open-ended. Judge Learned Hand, dissenting in Munn v. Bowers, 47 F.2d 204, 205-206 (2d Cir. 1931), cert. denied, 283 U.S. 845, 51 S.Ct. 492, 75 L.Ed. 1454 (1932), thought there was a difference between the concept of a qualification for admission and the initiation fee paid to be admitted. His view was that although ownership of shares in a club satisfied eligibility requirements, the purchase of such shares from a retiring member of the club was not an initiation fee, "which goes to the common coffer."4
This case calls for further development of that...
To continue reading
Request your trial
-
Yameta Co. v. Capitol Records, Inc.
... ... No. 68 Civ. 220 ... United States District Court S. D. New York ... ...