Ridder v. Comm'r of Internal Revenue

Decision Date01 June 1981
Docket NumberDocket No. 12954-78.
CourtU.S. Tax Court


1. Held, petitioner may not deduct those portions of his union dues allocated to the union's building fund and to the construction of recreational facilities. Briggs v. Commissioner, 75 T.C. 465 (1980), appeal filed (9th Cir., Feb. 11, 1981), followed.

2. Petitioner was a truck driver. In 1975, petitioner purchased a tractor-truck which qualified as “new section 38 property” under sec. 48(a) and (b), I.R.C. 1954. Petitioner leased the truck to his employer, on whose behalf petitioner drove the truck, for an indefinite lease term which either party could cancel upon 30 days' written notice after the first month. Held, under sec. 46(e)(3)(B), petitioner is not allowed an investment credit for the truck because petitioner, a “noncorporate lessor,” did not show that “the term of the lease * * * is less than 50 percent of the useful life of the property.” Ronald E. Cummings, for the petitioners.

Jeannette A. Cyphers, for the respondent.


FAY , Judge:

Respondent determined a deficiency of $2,731 in petitioners' Federal income tax for 1975. After concessions, the issues presented are (1) whether petitioners may deduct under section 162(a)1 the entire amount of union dues paid during the year where portions of such dues were allocated by the union to a building fund and to a fund for the construction of recreational facilities for the members, and (2) whether petitioners are entitled to an investment credit for new equipment purchased and then leased to petitioner-husband's employer.

All of the facts were stipulated and are found accordingly.

Petitioners Kenneth M. Ridder and Maria L. Ridder, husband and wife, resided in Anchorage, Alaska, when they filed their petition in this case.

During 1975, Kenneth M. Ridder (hereinafter petitioner) was employed as a truck driver by Sea-Land Service, Inc. (Sea-Land), in Anchorage, Alaska. As a condition of his employment, he was required to be a member of Local 959 of the International Brotherhood of Teamsters, Chauffeurs, Warehousemen, and Helpers of America (Local 959 or the union). To maintain good standing with Local 959, members were required to pay fixed monthly dues as well as additional dues for each hour they worked. The monthly dues were paid personally by the members, while the hourly dues were deducted from the members' paychecks by their employers and transmitted directly to the union.

On December 17, 1963, Local 959 adopted a plan whereby 3 cents of the hourly dues of each member was specially allocated to a union building fund. It was agreed that for each $50 collected from a member for the building fund, the member would receive a “Building Fund Owners Certificate” which certified “that Fifty Dollars ($50.00) of the Union dues paid by the holder hereof has been deposited to * * * Local 959 Building Fund.” By their terms, the certificates were redeemable with interest2 at the completion of the building program. They were also redeemable without interest when the holder died or, if he was eligible for an honorable withdrawal card from the union, when he retired or left the jurisdiction of Local 959. The certificates stated that they were not transferable and that they did not constitute an interest in the assets of Local 959.

With its building fund, Local 959 constructed or purchased buildings in Anchorage, Kenai, Juneau, and Valdez, Alaska, which were used principally for union offices. At the time the stipulated record in this case was submitted, the union was seeking to organize other industries in Alaska, and, if successful, it will need more office space. Also, the building in Juneau will probably have to be replaced in the near future. The union has not yet declared its building program completed.

In July 1974, Local 959 began seeking an increase of 15 cents in the hourly dues deducted by employers when it renegotiated collective bargaining contracts. The union planned to spend the increase to construct recreation centers in Anchorage and Fairbanks for its members. In 1974, planning for the centers was begun, and in that year the employees of Sea-Land approved a new collective bargaining contract in which the increase in hourly dues was included. Local 959 collected $2,939,474.60 in 1975 from the increase in dues.

The recreation centers in Anchorage and Fairbanks were built during 1976 and 1977. On May 22, 1977, the centers opened. Each had tennis courts, handball courts, locker rooms, exercise rooms, saunas, steamrooms, a jogging track, swimming pool, child care center, pro shop, gymnasium, and other facilities. When the record herein was submitted, the cost of the recreation centers totaled $15,153,217, of which $5,203,218 had been paid by the union and the balance had been borrowed.

A union member received and maintained eligibility to use the recreation centers by accumulating “recreation hours,” that is, hours of work for which the 15-cent recreation dues were subtracted from pay. A member received his first month of eligibility by accumulating 300 recreation hours, and he received 1 additional month for every additional 80 hours accumulated. After the first month, a member could also pay $30 to obtain 1 month of eligibility if he did not have sufficient recreation hours. Such eligibility rules were formulated by the union in 1977; prior to that time petitioner had no vested rights in the recreation centers.

In 1975, petitioner paid $1,380.44 as dues to Local 959. Of this amount, $144 was monthly dues, and $1,236.44 was payroll deductions. The payroll deductions were allocated on the accounting records of Local 959 as follows:

                ¦Strike fund        ¦$463.66¦
                ¦Recreation centers ¦463.66 ¦
                ¦Credit union       ¦216.35 ¦
                ¦Building fund      ¦92.77  ¦

On his income tax return for 1975, petitioner deducted union dues of $1,237.29.

l On May 28, 1975, petitioner acquired a new White tractor-truck (the truck or the White truck). Petitioner's basis in the truck was $33,033.51; the truck's useful life was 6 years. Under a lease dated June 3, 1975, petitioner leased the truck to his employer, Sea-Land, for whom he drove the truck. Petitioner was required to maintain the truck “in good working condition.” Otherwise, however, Sea-Land had full responsibility for and control over the truck's operation, and furnished fuel. As consideration, Sea-Land paid petitioner a royalty of 30 cents per mile.

l The lease's duration was indefinite. The lease provided only that it would end “Upon thirty (30) days written notice by either party, or upon mutual consent of both parties on or after July 3, 1975.” In 1976, the lease was suspended for a time while maintenance was performed on the truck. During that period, petitioner rented another truck which he subleased to Sea-Land on terms similar to the White truck's lease. Later in 1976, the White truck was demolished in an accident.3

l In his notice of deficiency, respondent determined that those portions of petitioner's hourly dues allocated to the recreation centers, the credit union, and the building fund were not deductible. Respondent also disallowed the investment credit claimed by petitioner for 1975 based upon his purchase of the White truck.

l Petitioner has conceded that the portion of his dues allocated to the credit union was not deductible. Thus, the issues to be decided are whether petitioner's dues allocated to the building fund and to the recreation centers were deductible under section 162(a) and whether petitioner was entitled to an investment credit for the White truck.

1. Union Dues

As the parties have recognized on brief, the facts and issues presented with respect to union dues are virtually identical to those in Briggs v. Commissioner, 75 T.C. 465 (1980), appeal filed (9th Cir., Feb. 11, 1981), involving two other members of Teamsters Local 959. We adhere to our position in Briggs for the reasons stated therein, which we incorporate by this reference. Accordingly, we decide petitioner may not deduct those portions of his dues allocated to the building fund and to the recreation centers.

2. Investment Credit

The remaining question concerns the investment credit petitioner claimed for the new White tractor-truck which he leased to and drove for Sea-Land. Section 38 allows a tax credit for investment in certain depreciable property. Respondent does not dispute that the White truck was “new section 38 property” as defined in section 48(a) and (b). At issue are the limitations in section 46(e)(3) imposed on noncorporate lessors.

Section 46(e)(3) provides:


(3) NONCORPORATE LESSORS. —-A credit shall be allowed by section 38 to a person which is not a corporation with respect to property of which such person is the lessor only if—-

(A) the property subject to the lease has been manufactured or produced by the lessor, or

(B) the term of the lease (taking into account options to renew) is less than 50 percent of the useful life of the property, and for the period consisting of the first 12 months after the date on which the property is transferred to the lessee the sum of the deductions with respect to such property which are allowable to the lessor solely by reason of section 162 (other than rents and reimbursed amounts with respect to such property) exceeds 15 percent of the rental income produced by such property.

Section 46(e)(3)(B) applies herein because petitioner is an individual, not a corporation; because petitioner leased the White truck to Sea-Land; and because petitioner did not manufacture the truck, he bought it. Thus, petitioner will be allowed an investment credit only if, first, the term of the...

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