Miller v. United States

• Decision Date: 06 September 1968
• Docket Number: No. 17921-17929.,17921-17929.
• Parties: Murphy G. MILLER, Jr., Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Defendant-Appellee and Cross-Appellant. W. S. SOSNA, Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Defendant Appellee and Cross-Appellant. David M. GARRISON, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Jack COMER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. T. L. GANN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. David G. BROWN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee. Ruby KENNER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

399 F.2d 881 (1968)

Murphy G. MILLER, Jr., Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Defendant-Appellee and Cross-Appellant.

W. S. SOSNA, Plaintiff-Appellant and Cross-Appellee, v. UNITED STATES of America, Defendant Appellee and Cross-Appellant.

David M. GARRISON, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

Jack COMER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

T. L. GANN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

David G. BROWN, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

Ruby KENNER, Plaintiff-Appellant, v. UNITED STATES of America, Defendant-Appellee.

Nos. 17921-17929.

United States Court of Appeals Sixth Circuit.

September 6, 1968.

William E. Badgett, Knoxville, Tenn., for appellants.

Marco S. Sonnenschein, Atty., Tax Division, Dept. of Justice, Washington, D. C., for the United States; Mitchell Rogovin, Asst. Atty. Gen., Lee A. Jackson, Attys., Dept. of Justice, Washington, D. C., John H. Reddy, U. S. Atty., Knoxville, Tenn., on brief.

Before McCREE and COMBS, Circuit Judges, and McALLISTER, Senior Circuit Judge.

McCREE, Circuit Judge.

Taxpayers brought suit in the District Court seeking refunds of excise taxes which they allege were unlawfully assessed upon certain club membership fees. The Government counterclaimed for additional excise taxes, contending such taxes were due under sections 4241 and 4242 of the Internal Revenue Code of 1954¹ because of the alleged payment by taxpayers of club initiation fees. It was conceded that the original assessment was incompatible with the counterclaims, and that the theory of assessment contained in the counterclaims was the applicable one. The suits were consolidated, and the District Court ruled in the Government's favor in the cases of taxpayers, Garrison, Comer, Gann, Brown and Kenner. In the cases of taxpayers Miller and Sosna, the court held that the Government was entitled to a lesser amount than that sought in the counterclaims. All taxpayers appealed and the Government also appealed in the cases of Miller and Sosna.

Taxpayers are members of the Deane Hill Country Club in Knoxville, Tennessee. A resolution of the corporation provided that a person owning five or more shares of stock in the club would be exempt from the initiation fee paid by a golfing member, and there was testimony to show that such stockholders were also relieved of the obligation of paying dues. Taxpayers Garrison, Comer, Brown, and Kenner each purchased at least five shares of stock (at $100 per share) and did not pay dues after the purchase. Taxpayers Miller, Sosna, and Gann each acquired at least one $1000 bond of the corporation in 1955. These bonds provided that the bondholder would be exempt from the payment of dues until the bonds were redeemed. In 1959, it was decided that a purchase of $3000 in bonds would thenceforth be necessary if the bondholder were to enjoy club privileges without the payment of dues. Upon the redemption of their $1000 bonds in 1960, Miller and Sosna each purchased $3000 in bonds.

The Government contended in its counterclaims that the $500 paid by each of the taxpayers, Garrison, Comer, Brown, and Kenner, the $1000 paid by each of the taxpayers, Gann, Miller and Sosna, and the additional $3000 paid by each of the taxpayers, Miller and Sosna, constituted initiation fees under section 4242(b) of the Code:

(b) Initiation Fees. — As used in this part the term "initiation fees" includes any payment, contribution, or loan, required as a condition precedent to membership, whether or not any such payment, contribution or loan is evidenced by a certificate of interest or indebtedness or share of stock, and irrespective of the person or organization to whom paid, contributed or loaned.

It was the contention of the Government that the quoted provision referred not merely to payments made for the purpose of general membership in a club, but also to payments made for the purpose of entering a particular class of membership. While agreeing substantially with the Government's contentions, the District Court was of the opinion that the additional $3000 paid by Miller and Sosna was not required as a condition precedent to joining a particular membership class, but had instead been paid so that the named taxpayers could remain in the membership class which they had already entered by purchasing $1000 bonds in previous years. Hence, the court approved the levying of the 20% excise tax imposed by section 4241(a) on all amounts other than the additional bond purchases by Miller and Sosna.

Taxpayers contend that the payments upon which the tax was levied were not initiation fees because they were not conditions precedent to membership in the country club, and that, even if these payments were initiation fees, the tax could only be assessed upon the amount of $100 (the regular club initiation fee) rather than upon the actual amounts paid for the stock and bonds. Furthermore, taxpayers contend that since the taxes sought by the Government came due more than three years prior to the filing of the Government's counterclaims in 1966, the Government's claims...