Turks Head Club v. Broderick

• Decision Date: 15 March 1948
• Docket Number: No. 4290.,4290.
• Parties: TURKS HEAD CLUB v. BRODERICK.
• Court: U.S. Court of Appeals — First Circuit

166 F.2d 877 (1948)

TURKS HEAD CLUB v. BRODERICK.

No. 4290.

Circuit Court of Appeals, First Circuit.

March 15, 1948.

Edward W. Day, of Providence, R. I. (Percy M. Gardner and Gardner, Day & Sawyer, all of Providence, R. I., on the brief), for appellant.

Abbott M. Sellers, Sp. Asst. to Atty. Gen. (Theron L. Caudle, Asst. Atty. Gen., Helen R. Carloss, George A. Stinson, and A. Barr Comstock, Sp. Assts. to Atty. Gen., and George F. Troy, U. S. Atty., and Edward M. McEntee, Asst. U. S. Atty., both of Providence, R. I., on the brief), for appellee.

Before MAGRUDER and WOODBURY, Circuit Judges, and HEALEY, District Judge.

MAGRUDER, Circuit Judge.

This is an appeal by the Turks Head Club from a judgment for the defendant entered by the United States District Court for the District of Rhode Island in a suit for refund of taxes paid by appellant's members on their dues, membership fees and initiation fees for the months of May, June, July and August, 1944, in the total amount of $3,161.09. The taxes were enacted under the provisions of § 1710 of the Internal Revenue Code, which, as amended by § 543(a) of the Revenue Act of 1941, 55 Stat. 711, 26 U.S.C.A. Int.Rev.Code, § 1710, and by § 302(a) of the Revenue Act of 1943, 58 Stat. 61, now incorporated in I.R.C. § 1650, 26 U.S.C.A. Int.Rev. Code, § 1650, imposes a tax of 20 per centum "of any amount paid as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $10 per year," and the same per centum of "any amount paid as initiation fees to such a club or organization, if such fees amount to more than $10, or if the dues or membership fees, not including initiation fees, of an active resident annual member are in excess of $10 per year." The action was brought originally against Joseph V. Broderick, who was Collector of Internal Revenue for the District of Rhode Island when the taxes involved herein were assessed and collected; upon his death, Anna C. Broderick, administratrix of his estate, was substituted as defendant. The opinion of the District Court is reported in, 1947, 71 F.Supp. 272.

There is no dispute over the facts. Most of them are stipulated by the parties, in substance as follows:

The club was organized in 1912 as a non-business corporation under the provisions of § 11, c. 212, Class III, of the Rhode Island General Laws of 1909, which provide in part: "All * * * corporations formed for religious, charitable, literary, scientific, artistic, social, musical, agricultural or sporting purposes, not organized for business purposes, and all other corporations of like nature not hereinbefore otherwise provided for, shall be created in the following manner * * *." The purposes of the club as expressed in its charter are the "maintenance of club rooms for the use of its members, the promotion of the business interests of its members, the advancement of the mercantile and industrial life of the City of Providence and vicinity, and the encouragement of social intercourse."

Except for local personal property taxes, and those now in litigation, the club has never paid taxes of any kind. It applied for, and was granted, exemption from the federal corporation income tax¹ and has not been subjected to the Rhode Island corporation tax.

During the tax period in question, the club occupied, under lease, the sixteenth floor of the Turks Head Building in the City of Providence. Its rooms consisted of one large and one smaller dining room for men only, normally seating approximately 175 and 30 respectively; one dining room, normally seating about 45, for ladies, with or without male escorts; kitchen and pantry; washroom for men; washroom and powder room for ladies; foyer containing a counter for the sale of cigars and other tobacco products; and a lounge room for men, containing the Providence Journal and seven out-of-town newspapers. All of these rooms were light and airy, adequately and attractively furnished and properly serviced and maintained. The men's dining rooms afforded a wide and attractive view over the water, the city and the surrounding country.

The club rooms were open only on Mondays through Fridays, with the exception of holidays, between the hours of 11:30 A.M. and 3:00 P.M., during which period meals, with or without wine or beer, table d'hote or a la carte, were served in the dining rooms. The number of persons served meals or food averaged in the neighborhood of 250 daily. Meals were charged to the members who ordered them. The club gave no dances, receptions, banquets, teas, musicals, lectures or card parties. It had no facilities for swimming, golf, tennis, squash or other forms of athletics, and no radio, victrola, piano, card rooms, pool or billiard rooms or tables, and no game rooms. At meals there were no speeches or incidental music, and the club conducted no other form of amusement and no entertainment or social functions for its members. It had no reciprocal arrangements with other clubs.

During the year 1944 the club's membership was composed of approximately 600 resident members, 30 non-resident members, and 19 life members. The breakdown with respect to occupations was roughly as follows: Business 375 (finance 65, manufacturing 220, others 90); Professional 225 (lawyers 110, doctors 15, others 100).

The financial statement of the club for the fiscal year ending August 29, 1944, reveals that the club during that period received income from sources and in amounts as follows:

                  Dues,                     $28,627.10
                  Initiation fees,              962.50
                  Ladies' privilege cards,    1,440.85
                  Special assessments,        1,368.80
                  Cigars, tobacco, etc.,      2,913.09
                  Liquor,                       475.72
                

The restaurant operated at a loss of $5,670.17. Thus gross operating gain was $30,320.99. Administrative expenses totaled $24,949.17, leaving a net operating gain of $5,371.82. The club's balance sheet as of August 29, 1944, shows assets of $43,013.44, including cash of $29,940.66, and furniture and fixtures of $10,525.13 before depreciation.

Other facts not stipulated, but uncontradicted, were testified to at the trial or appear in exhibits. The small dining room is frequently reserved for luncheon conferences by directors or other business groups. The club is managed by a board of 16 governors elected by the membership. Under the by-laws membership in the club is limited to "gentlemen of good standing" 21 years of age or over, and to such number, not less than 675 nor more than 700, as the board of governors shall from time to time determine. Candidates for membership must be proposed and seconded by two resident members who are not members of the board of governors, and these members must write letters of recommendation to the governors stating the candidate's qualifications. All candidates must be personally known to at least two governors. Names of all candidates are posted on the bulletin board for at least 14 days prior to action by the governors, and they are elected by the governors, three negative votes preventing election. All election proceedings of the governors are "secret and confidential" and not to be divulged outside of the board on pain of expulsion from the club.

The annual dues of resident members are $50 for those 35 years of age or over, and $25 for those under 35. Annual dues for non-residents are $25. Initiation fees are in such amounts as the board of governors from time to time determines.

The Rules of the House Committee permit any person eligible for resident membership to be admitted to the club rooms as a guest of a member once in 30 days, and a person not so eligible to be admitted as a guest for a term not exceeding five consecutive days at any one time and not exceeding a maximum of 30 days a year. Ladies and children of a member's household may lunch at any time with a member in the ladies' restaurant. Private dining rooms may be engaged by private parties of four or more upon application to the superintendent, for use between the hours of noon and 3:00 P.M.

The Rules provide that ladies' privilege cards may be issued by the secretary to ladies of the immediate household of a member, over 18 years of age, for a fee of $6, and to widows and unmarried daughters of deceased members, over 18 years of age, for a fee of $10. These cards entitle their holders to the same privileges and use of the ladies' portion of the club as those to which members are entitled in the other rooms. In practice, ladies are given the additional privilege of having guests, male or female, lunch with them and partake of club facilities for a period not to exceed five days. If a privilege-card holder desires to bring more than three or four guests to lunch at any one time, she is expected to request in advance permission of the steward or waitress in charge, but there are no limitations in the rules as to the number of her guests. An average of 30 to 35 ladies lunch at the club daily. There were 214 ladies' privilege cards outstanding in May, 217 in June, 222 in July, and 224 in August, the months here in question.

On January 25, 1930, the Commissioner of Internal Revenue ruled that during the period from April 20, 1925, to March 26, 1929, the club was not a social club within the meaning of § 413 of the Revenue Act of 1928, 26 U.S.C.A. Int.Rev. Acts, page 441 (the statute then imposing the tax on club dues and fees), and of the applicable Treasury Regulations, and that the dues and fees paid by its members were not subject to the taxes imposed thereunder. He therefore granted the club's claim for a refund of taxes collected for that period. It is not suggested, however, that this ruling in any way estopped or precluded the government from asserting that the club dues of a later period were taxable. The administrative ruling could have no such binding effect. See Schafer v. Helvering, 1936, 65 App.D.C. 292, 83 F.2d...