Polish American Club, Inc. v. Commissioner
| Decision Date | 06 August 1974 |
| Docket Number | Docket No. 423-71. |
| Citation | 1974 TC Memo 207,33 TCM (CCH) 925 |
| Parties | Polish American Club, Inc. v. Commissioner. |
| Court | U.S. Tax Court |
Stanley J. Mosio, for the petitioner. R. Burns Mossman, for the respondent.
Memorandum Findings of Fact and Opinion
The Commissioner determined the following deficiencies in petitioner's Federal income tax:
Year Amount
1966 .................. $ 778.43
1967 .................. 983.80
1968 .................. 2,052.41
_________
Total ................. $3,814.64
The primary issue for decision is whether petitioner was exempt from income tax under the provisions of section 501(c)(7)1 for the taxable years 1966, 1967 and 1968. In the alternative petitioner claims exemption under section 501(c)(4). Should we decide that petitioner does not qualify for exempt status under either section 501(c)(7) or section 501(c)(4), the following issues must be decided:
(1) Whether the amounts received for dues and "special calls" from club members in 1966, 1967 and 1968 constitute taxable income to petitioner under section 61(a);
(2) Whether respondent properly determined petitioner's deductions for depreciation; and
(3) Whether petitioner is entitled to deductions in 1966, 1967 and 1968 for charitable contributions for gifts of miscellaneous club property.
Some of the facts have been stipulated. The stipulation of facts and exhibits are incorporated by this reference.
The petitioner, Polish American Club, Inc., is a corporation organized under the laws of Minnesota. Its principal office and club facilities are located at St. Paul, Minnesota.
The Internal Revenue Service on July 27, 1945, granted the club an exemption from Federal income tax under the provisions of section 101(9), Internal Revenue Code of 1939 (predecessor of section 501(c)(7)).
The club filed a Federal Return of Organizations Exempt From Income Tax (Form 990) for each of the taxable years 1966, 1967 and 1968.
The club was organized in 1928 and incorporated in 1929. Its constitution sets forth its general purposes as follows:
(1) To provide for the comfort, education, recreation and general welfare of its members;
(2) To secure for its members proper recognition and consideration in the matter of municipal improvements and governmental affairs;
(3) To promote a proper regard for the principles of American citizenship; and
(4) To foster the language, traditions and culture of Poland.
The club's facilities consist of a clubhouse constructed in 1928 and located at 1003 Arcade Street, St. Paul, Minnesota. It is located in the Polish-American section of St. Paul and there were 8,000 to 10,000 people of Polish descent in the neighborhood of the club during the years in issue.
The building owned by the club consists of two floors. The first floor contains a large meeting hall and two small rooms used by the club officers. The basement level contains two meeting halls, a kitchen, a large barroom and rest rooms. The club is open to members seven days a week. Its bar serves beer and soft drinks during the hours the club is open.
During 1966 through 1968, the club membership was divided into three classes: active or regular members; social members; and honorary members. Regular membership was open to male persons of Polish descent who had attained the age of 18 years whose application was approved by the membership committee and the club membership.
Social membership was designed to permit persons not of Polish descent to join the club, and any male whose application was approved could become a social member. Social members had no vote in matters pertaining to the management of the club, no right to attend regular meetings of the club, no right to hold an elective office in the club and had only such privileges as the club by vote of its active members determined. Honorary membership was granted for distinguished service in areas of interest fostered by the club.
During the years 1966, 1967 and 1968 the annual dues were as follows:
Regular Member .......... $10.00
Social Member ........... 10.00
Honorary Member ......... -0-
During the same years the initiation fee for a new regular member was $12. The club had a membership roll of approximately 120 regular members, 30 social members and 30 honorary members.
As an auxiliary to the club, wives and daughters of men of Polish descent established the Polish American Club Ladies' Auxiliary, which in 1966, 1967 and 1968 had approximately 110 members. Wives and daughters of men of Polish descent were regular members of the auxiliary. All other members of the auxiliary were classified as social members. The constitution of the auxiliary provides that its goals are:
Fraternal, patriotic, historical and educational; to provide for the comfort, recreation and general welfare of its members and the people of Polish Decent sic; to maintain true allegiance to the Government of the United States of America, and fidelity to its laws; to foster true patriotism; to maintain and extend the institutions of American Freedom; to aid and assist, as an auxiliary, the Officers and Members of the Polish American Club.
In 1966 the board of directors of the club recommended that the club facilities be remodeled because the building was rundown to the point where it was necessary to either remodel or go out of business. The improvements to the club facilities were financed by loans and mortgages from a St. Paul bank.
During the period 1965 through 1968 the improvements to the building were as follows:
Improvements Date Cost
Men's Rooms ........ 5/1/65 $ 701.73
Basement ........... 8/1/67 12,361.95
Air Conditioning ... 9/1/67 771.00
General ............ 10/1/68 19,036.46
_________
Total ....................... 32,871.14
During the period 1965 through 1968, the club acquired equipment and furniture as follows:
Equipment Date Cost
Tables ............. 5/1/65 $ 960.00
Carpeting .......... 7/1/67 1,751.00
Ice Cuber .......... 12/1/67 450.00
Adding Machine ..... 12/1/67 78.18
Color Television ... 12/1/68 514.68
Chairs ............. 12/1/68 355.00
_________
Total ..................... $4,108.86
In 1966, 1967 and 1968, the club purchased a 1-inch business card advertisement in the "yellow pages" of the St. Paul, Minnesota telephone directory. The listing was under the heading "Halls and Auditoriums" and indicated that the club's facilities were available for private parties, private dances, receptions and meetings. The listing also indicated there was a bar and kitchen, the capacity was 25 to 300 persons and a telephone number was given to call for reservations. The monthly expense for purchasing such space was $12 in 1966 and $12.75 in 1967 and 1968.
In addition, the club purchased a listing under "Halls and Auditoriums" and under "Clubs" in the Minneapolis, Minnesota telephone directory "yellow pages" during 1966, 1967 and 1968. The cost for the Minneapolis listing was $3 per month. There was no statement in that listing as to any restrictions on the use or rental of club facilities.
At the bottom of the stationery used by the club during 1966, 1967 and 1968, there was printed "Hall For Rent For All Occasions." No restrictions as to use or rental of the club's facilities appeared on the stationery.
The only restriction on rental to nonmember individuals or groups was that the club facilities be available. During each of the years 1966, 1967 and 1968, the club rented its facilities and furnished accommodations to individuals and organizations for weddings, stag parties, showers, other social parties, meetings of American Legion posts, labor unions and business organizations.
The gross receipts from members and nonmembers of the club, not including proceeds from loans and contributions to capital, for the years 1966, 1967 and 1968 were as follows:2
_____________________________________________________________________________________________
1966 1967 1968
_____________________________________________________________________________________________
Cash Register (Cash Bar Sales) ............. $ 3,996.40 $ 7,290.30 $ 5,478.50
Rentals, Accommodations and Commissions .... 7,251.11 9,151.79 13,076.30
Dues ....................................... 1,168.00 1,529.00 1,414.00
Special Calls .............................. 251.96 236.75 169.60
Bar #3 ..................................... 736.20 600.00 653.74
Interest ................................... 99.80 47.70 124.61
Special Events and Miscellaneous ........... 6,208.11 8,388.91 7,277.76
__________ __________ __________
$19,711.58 $27,244.45 $28,194.51
_____________________________________________________________________________________________
In 1966, 1967 and 1968, there were receipts from nonmembers and nonguests in the amounts of $5,253, $5,649.18 and $9,184.15, respectively. Such amounts represented approximately 27 percent, 21 percent and 33 percent, respectively, of the club's gross receipts for such years.
A comparison of the use of the club facilities for scheduled nonmember functions and scheduled member functions is as follows:
Taxable Year Nonmember Member
1966 ............ 154 46
1967 ............ 117 63
1968 ............ 150 51
The club made payments of $5 from the general operating funds of the club to members who were reported sick....
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