Pittsburgh Press Club v. United States, Civ. A. No. 73-1051.

• Decision Date: 13 February 1975
• Docket Number: Civ. A. No. 73-1051.
• Citation: 388 F. Supp. 1269
• Parties: PITTSBURGH PRESS CLUB, Plaintiff, v. UNITED STATES of America, Defendant.
• Court: U.S. District Court — Eastern District of Pennsylvania

388 F. Supp. 1269

PITTSBURGH PRESS CLUB, Plaintiff, v. UNITED STATES of America, Defendant.

Civ. A. No. 73-1051.

United States District Court, W. D. Pennsylvania.

February 13, 1975.

COPYRIGHT MATERIAL OMITTED

Leonard M. Mendelson, Hollinshead & Mendelson, Pittsburgh, Pa., for plaintiff.

Thomas R. Jones, Tax Div., Dept. of Justice, Washington, D. C., Richard L. Thornburgh, U. S. Atty., for defendant.

OPINION

DUMBAULD, District Judge.

In this case the Court is invited by the Government to follow the footsteps of

"one who treads alone Some banquet hall deserted Whose lights are fled Whose garlands dead And all but he departed."¹

We are to inquire what meals have been eaten and drinks drunk, and by whom, at the Pittsburgh Press Club in order to determine whether the club is entitled to maintain its status as a tax-exempt organization under 26 U.S.C. 501 (c)(7) as a club "organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder."

Concluding that the Press Club was not exempt, the Government on February 2, 1972, revoked plaintiff's tax-exempt status retroactively to June 1, 1966, and assessed and collected deficiencies amounting to $228,483.00. Plaintiff paid that sum, and sues for refund. Defendant has filed a counter-claim seeking $55,988.18 in interest. Fiscal years ending May 31, 1967 through 1971 are involved. These years are open, appropriate waivers having been signed. Exemption had been recognized on October 17, 1959. Trial was held November 25-27, 1974, followed by oral argument and comprehensive briefs.

In support of its position the Government relies on various interpretative publications issued by the Internal Revenue. Plaintiff contests the legal validity of these amplifications of the statute. The Court warmly endorses the familiar language of the illustrious Learned Hand:

In my own case the words of such an act as the Income Tax, for example, merely dance before my eyes in a meaningless procession: cross-reference to cross-reference, exception upon exception — couched in abstract terms that offer no handle to seize hold of — leave in my mind only a confused sense of some vitally important, but successfully concealed, purport, which it is my duty to extract, but which is within my power, if at all, only after the most inordinate expenditure of time. I know that these monsters are the result of fabulous industry and ingenuity, plugging up this hole and casting out that net, against all possible evasion; yet at times I cannot help recalling a saying of William James about certain passages of Hegel: that they were no doubt written with a passion of rationality; but that one cannot help wondering whether to the reader they have any significance save that the words are strung together with syntactical correctness. Much of the law is now as difficult to fathom, and more and more of it is likely to be so; for there is little doubt that we are entering a period of increasingly detailed regulation, and it will be the duty of judges to thread the path — for path there is — through these fantastic labyrinths.²

These reflections apply a fortiori to Regulations, Procedures, Rulings, and other Treasury glosses on the tax statute itself. Regarding these emanations we echo the wish of the late esteemed Judge Goodrich in Keystone Automobile Club v. Comm'r., 181 F.2d 402, 406 (C. A. 3, 1950): "The order of rank among administrative agencies making tax rulings is one we should like to avoid assigning if we can."

Succinctly stated, the Government relies on two contentions to justify revocation of the Club's exemption. The first contention is that the dues structure results in "net earnings" inuring to the benefit of regular members, who are the only voting members, but pay lower dues than other categories of members.

The second contention is that the volume of meals and drinks consumed by non-members on the club premises is so great that the club is engaged in a lucrative restaurant business, open to the general public, and thus is no longer being "operated exclusively for . . . nonprofitable purposes."

The record shows that the club was organized on March 18, 1885, as a Pennsylvania non-profit corporation. After various vicissitudes, it was reactivated about 1955. It was located in the old Sherwin hotel, then in 1961 purchased the former Kramer restaurant property and then in July, 1966, obtained a long lease on its present attractive headquarters in a penthouse at 300 Sixth Avenue (atop a building formerly McCreery's store).

An active member is "One who is regularly and directly concerned with gathering or preparing editorial material, and who is employed by a . . . newspaper published in Allegheny County, a press wire service or magazine of general circulation that maintains a full-time office in Allegheny County, or a radio or television station located in Allegheny County; or one who resides in Allegheny County and derives his principal source of income from creative writing produced directly for the general public."³

"News associate" members are, for the most part, persons connected with media, but not in positions involving editorial judgment.

"Associate" members, for the most part, are persons engaged in advertising and public relations work, who have occasion for frequent contacts with the active press.

"Affiliate" members are persons regarded as important sources of news, or otherwise deemed to have "a community of interest with the other categories of membership."⁴

The dues structure provides equality between active and "news associate" members. Dues of "associate" members are twice as high. Dues of "affiliate" members are one and a half times those of "associate" members.

Only active members may vote or serve as officers or directors of the club (except that the Treasurer may be from any category of membership).⁵

The distribution of members, as shown by a news letter issued in May, 1970, was 275 active; 123 news associate, 618 associates, and 736 affiliates.⁶

A witness engaged in conducting a radio news program⁷ testified that he found it professionally useful to have contact at the club not only with fellow journalists but with the associate and affiliate members. The affiliate members from other professions furnish a reliable and convenient source of background information. As an example, the witness had helpful discussions with medical doctors at the club in connection with controversies in the news on the subject of abortion.

We do not find the Government's argument against the differential dues structure convincing or persuasive. The arrangement seems natural and appropriate. A similar system of classification is said to prevail among other press clubs throughout the nation.⁸

The dues structure simply reflects, in a rough way, ability to pay. While Walter Cronkite has admitted on the air that he receives a salary in six figures, many journalists are less affluent, and their dues may justifiably be less than those paid by a public relations man for Alcoa or a steel company. Affiliate members who are doctors, lawyers, stock brokers, and the like apparently find club membership attractive and not burdensome. At least no complaints have been registered. Plaintiff operates as a normal social club centered about a particular profession. The basic nucleus being persons connected with news media, it is natural that sources of news be admitted to membership, for the mutual benefit of all parties concerned.

It can no more be said that "earnings" inure to the members in the low-dues categories than that a college student living at home has "earnings" because he gets free meals in the parental household. It is merely an advantageous relationship which diminishes out of pocket expenses.

The argument that members whose dues are less than they otherwise might be are being "subsidized" by "earnings" is similar to the contention that exemption of church property from tax is a governmental subsidy amounting to establishment of religion. This reasoning was rejected by the Supreme Court in Walz v. Tax Comm., 397 U.S. 664, 675, 90 S.Ct. 1409, 1415, 25 L.Ed.2d 697 (1970), where Chief Justice Burger explained that in such a situation "the government does not transfer part of its revenue to churches but simply abstains from demanding that the church support the state."

In the dues structure of the Press Club it is equally true that the members with lower dues receive no income or earnings, but that the members willing to pay higher dues are simply abstaining from demanding that the members with lower dues support the club activities to a greater extent than they now do under the present arrangements.

The Government's second contention deserves more attentive consideration. Do so many non-members use the club's restaurant facilities that the club can no longer be regarded as "operated exclusively for . . . nonprofitable purposes"?

The precise number of meals and beverages consumed by non-members is uncertain, but is undoubtedly substantial. The club insists, however, that it does not serve the general public; that no non-member is permitted to use club facilities except as part of a group sponsored by a member. Apparently the sponsoring member would be liable to the club if the guests failed to make full reimbursement for the services furnished.

Many of the large events where many visitors are entertained (such as wedding or bar mitzvah receptions) are conceded by the Government to be genuine guest relationships.

The contest rages over occasions where a club member sponsors a meeting on club premises of an organization with which he is connected but to which nonmembers of the Press Club belong.

Of course it is clear that solicitation of the general public to ultilize club facilities would disqualify for the exemption. Keystone Automobile Club v. Comm'r., 181 F.2d...