Pendennis Club v. United States, 1920.

• Decision Date: 01 October 1937
• Docket Number: No. 1920.,1920.
• Citation: 20 F. Supp. 758
• Parties: PENDENNIS CLUB v. UNITED STATES.
• Court: U.S. District Court — Western District of Kentucky

20 F. Supp. 758

PENDENNIS CLUB v. UNITED STATES.

No. 1920.

District Court, W. D. Kentucky.

October 1, 1937.

Gordon, Laurent, Ogden & Galphin, of Louisville, Ky., for plaintiff.

James W. Morris, Asst. Atty. Gen., Andrew D. Sharpe and Donald J. Marran, Sp. Assts. to Atty. Gen., and Bunk Gardner, U. S. Atty., and Eli H. Brown, III, Asst. U. S. Atty., both of Louisville, Ky.

HAMILTON, District Judge.

This is an action instituted by the plaintiff, Pendennis Club, against the defendant, United States of America, seeking to recover from it $5,063.94, taxes claimed to have been overpaid, with interest thereon, on, assessed against the plaintiff under the provisions of section 413(a), Revenue Act 1928, c. 852, 45 Stat. 791, 864, 26 U.S. C.A. § 950 (amending section 501, Revenue Act 1926, c. 27, 44 Stat. 92).

The plaintiff is a nonprofit corporation without capital stock, organized under the laws of the commonwealth of Kentucky, pursuant to the provisions of sections 879 and 883 Carroll's Kentucky Statutes, 1930 Edition, and engaged in the business of operating a social club.

Under its articles of incorporation, the board of directors, elected by the members of the club, was its governing body, with power to classify the members as to initiation fees and dues, and to prescribe bylaws, to make and enforce necessary rules and regulations, including the right to fix and enforce fines, penalties, forfeitures, suspension and expulsion of members, provided, however, as to expulsion and suspension, the affected member had the right to an appeal from the decision of the board of directors to the club membership.

The articles of incorporation were amended in 1927, conferring additional powers on the board of directors.

The by-laws provided for initiation fees as follows:

"C. Initiation Fees — 1. Schedule — Until changed by the Board of Directors, the following schedule shall prevail:

                a. Resident
                     i.  Senior Active .........  $200.00
                    ii.  Junior Active .........   100.00
                   iii.  Associate
                              Widows ...........   None
                              Others ...........   100.00
                    iv.  Military-Clerical .....   None
                b. Non-Resident ................    50.00"
                

The by-laws provided for dues, as follows:

"D. Dues — 1. Schedule — Until changed by the Board of Directors, the following schedule of Dues shall prevail:

                a.  Resident
                     i. Senior Active ......... $150.00
                    ii. Junior Active .........   75.00
                   iii. Associate
                             Widows ...........   75.00
                             Others ...........   75.00
                    iv. Military ..............  150.00
                        Clerical ..............   75.00
                b.  Non-Resident ..............   25.00"
                

In November, 1930, the club was heavily indebted for the cost of a new building and its furnishings, and at a meeting of the board of directors on November 12, 1930, the following resolution was adopted: "It is resolved by the Board of Directors of Pendennis Club, that, in view of the general conditions existing and the financial condition and necessities of the Club, it is wise that each Certificate of Interest be assessed the sum of $150.00 to be paid in 12 quarterly installments over a period of three years. Payments of only such installments as may be necessary will be called for. This resolution is to be submitted as a recommendation."

On November 24, 1930, at a called meeting of the club, the action of the board of directors in levying the assessment was approved. Shortly after this meeting, a letter was mailed by the club to the holders of certificates of interest, advising them of the assessment and requesting the payment of at least $12.50, as a first installment, January 1, 1931, but leaving it to the discretion of the member as to whether more than $12.50 should be paid at that time.

During January, 1931, 13 members paid the assessment in full, with $15 added for federal taxes, 611 members paid less than the full assessment, and 66 members paid no part of it. On January 31, 1933, the further collection of the assessment was abandoned, and the members who had paid in full were credited with $50.42, which represented a refund of the assessment of $45.84 and $4.58 estimated tax thereon. None of the 66 nonpaying members were required to pay the assessment or were expelled or penalized by the club.

The club collected from its members $50,857.30, which was included in its return, and voluntarily paid the tax thereon within the time provided under the law, and now seeks to recover it on the ground that the sums paid were voluntary contributions and cannot be classified as either assessments or dues.

The statute levying the tax measures it by dues or membership fees, and defines "dues" to include any assessment irrespective of the purpose for which made, and "initiation fees" to include 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.

In order for any transaction to be taxable, it must fall within the letter of the statute, and when this occurs the tax is its sequence without the benefit of equitable consideration. The spirit of the statute will not support a tax unless the transaction is one clearly and certainly within its provisions.

Clubs are associations of peculiar nature, their members perpetually...