#### CHARLES K. LUKENS v. THE UNITED STATES

[No. E-486.

Decided November 15, 1926]

*On the Proofs*

*Taxes; initiation fee; proprietary certificate in social, athletic, or sporting club.*— Money paid by members for proprietary certificates in a social, athletic, or sporting clnb, which are subject *599to repurchase by the club upon certain contingencies, is not an initiation fee within the meaning of section 501 of the revenue act of 1924. See *Alliance Country Club*v. *United States, ante,*p. 579.

*The Reporter's*statement of the case:

*Mr. M. G. Elliott*for the plaintiff. *Mr. Henry P. Erd-mcm*was on the briefs.

*Mr. Alexander H.*MeGormich, with whom was *Mr. Assistant Attorney General Herman J.*Galloway, for the defendant.

By leave of court a brief as *amicus curias*was filed in the case by *Mr. Fayette B.*Dow, on behalf of- the Westchester County Golf Association.

The court made special findings of fact, as follows:

■ I. The plaintiff is a citizen of the United States and a resident of the State of Pennsylvania.

II. On or about July 24,1925, plaintiff purchased from the Manufacturers’ Country Club, a corporation created and organized under the laws of the State of Pennsylvania, for the sum of $500.00, a proprietary certificate evidencing the interest thus acquired in the assets of the corporation and defining the rights of the holder thereof.

III. Said $500 proprietary certificate was issued by the said Manufacturers’ Country Club to certify the interest of the holder in the property of the club, pursuant to the charter and by-laws of the said club and the resolutions of its board of directors.

IV. The Manufacturers’ Country Club was incorporated October 8, 1923, and pursuant to the powers granted in its charter of incorporation adopted by-laws on or about October 22, 1923, which by-laws were in force from that date to the time of the issuing of said proprietary certificate to plaintiff on or about July 24, 1925. The following are pertinent extracts from said charter and by-laws:

“ ChaRter. — Be it known that the subscribers, all of whom are citizens of the State of Pennsylvania, have associated themselves together for the purposes of maintaining a club for social enjoyments and recreation and for purchasing, leasing, holding such real estate and other property as may be necessary for such purposes, and being desirous of becoming incorporated agreeably to the provisions of the act of General Assembly of the Commonwealth of Pennsylvania, *600entitled ‘An act to provide for the incorporation.and regulation of certain corporations,’ approved the 29th day of April, A. D. 1874, and the supplements thereto, do hereby declare that the following are the purposes and conditions for and upon which they desire to be incorporated:

“ *Seventh.*The corporation will issue no capital stock. The funds of said corporation are to be supplied by certificates, fees, assessments, memberships, and dues, or by temporary loans for which the assets of the club may be pledged. The memberships shall consist of proprietary members, who shall be adult male persons, duly elected to membership, and who shall alone have voting rights, and of such special members as may be elected and given limited membership privileges, but who shall have no vote or ownership of *property in the*club. The duties and rights of the members of said corporation, the powers and functions of the officers thereof, the mode of supplying vacancies in office, the time of meeting of the said corporation or its officers, the number which shall constitute a quorum thereof, respectively, at any such meetings; the mode of electing or admitting members, the terms of their admission and of maintenance of their membership, and the causes which justify their expulsion or suspension, and the manner of effecting same shall be regulated by the by-laws of said corporation, which they are empowered to make and alter m the manner which may be therein mentioned; provided that the said by-laws shall not be repugnant to or inconsistent with the Constitution and laws of the United States or of this Commonwealth.

“ *Eighth.*The yearly income of the club from sources other than real estate shall not exceed the sum of $200,000.

“ *Ninth.*Upon dissolution of said corporation all the property of said corporation, real and personal, after the payment of all debts, shall become the property of the holders of proprietary certificates.

* * * *

“ BY-LAWS OF THE MANUFACTURERS’ COUNTRY CLUB

$ ‡ $ “Article II

“ OEEICERS

* * * “ One of whom shall be elected by the board of directors as president, and one or more others of whom shall be elected by the club as vice president or vice presidents.

*601Reporter’s Statement of the Case

The board of directors shall also elect from among their own members or other proprietary members a secretary and a treasurer. The board of directors shall also have the right to appoint an assistant secretary, who need not be a member of the club, but may be employed on salary.

“Article III

“ MEETINGS

$ ‡ $

“ Sec. 5. * * * Only proprietary members shall have any right to vote, but special members shall have the right to attend all meetings and elections of the club and be heard at such meetings.

***** “Article YIII

“ MEMBERSHIP

“ Section 1. The membership of the club shall consist of proprietary members and special members.

“ Sec. 2. Proprietary members shall consist of adult male persons, duly elected to membership, who shall be registered holders of a proprietary certificate. Only proprietary members shall have a right to vote at any club election and to hold any elective office. Assignment or transfer of proprietary certificates shall immediately terminate membership as a proprietary member, and members shall automatically be transferred to special membership.

“ Proprietary members shall consist of two classes:

*“(a)*Proprietary members, who shall have all the privileges of the club, including golf privileges.

“(&) Nonresident proprietary members, who shall have all the privileges of the club, including golf privileges, but who shall be limited to such persons as do not have a place of .residence or business within fifty miles of the clubhouse and whose business relations do not afford them a regular business address within fifty miles of said clubhouse.

“ Sec. 3. Special members shall consist of persons who shall not be holders of proprietary certificates but who shall have certain limited privileges as hereinafter provided. Any proprietary member who shall assign or transfer his proprietary certificate shall automatically become a special member, and any special member who shall acquire a proprietary certificate shall automatically become a proprietary member. Special members shall not have the right to vote at any election nor to hold any elective office, but shall have the *602right to attend all meetings and elections of the club and to be heard at such meetings as well as to hold any appointive office.

“Special members shall be classed as follows:

*“(a)*Senior members, who shall be adult male persons and have all the privileges of the club except the golf privileges. *# $ **# *

“ Sec. 5. Every member, except honorary members, shall pay to the treasurer for the use of the club such entrance fees and annual dues as shall be fixed by the board of directors from time to time.

“ Sec. 6. The board of directors shall have the right to limit the membership in each class of membership from time to time, except they shall not increase the number of proprietary members in excess of the limit provided for in the proprietary certificates.

“Article IX

“ ADMISSION OE MEMBERS

jtj }]; ^ “ Sec. 4. Every newly elected member shall, within thirty days, pay to the treasurer the entrance fee, together with the annual dues for the current year, as provided in section 5, Article VIII, and shall thereupon and not otherwise be admitted to the rights and privileges of the club, as provided for in the particular class of membership. * $ $ $ *

“ Sec. 8. Whenever any nonresident proprietary or senior member shall become a resident or acquire a place of business within fifty miles of the club house, he shall thenceforth be classed as a proprietary or senior member, as the case may be, and shall be entitled to all the rights and privileges of such class, and shall be liable for dues of such a member and for payment of an entrance fee as set forth in section 5 of Article VIII. It shall be the duty of any nonresident member who shall become a resident or acquire a place of business within fifty miles of the club house, or whenever his business relations shall afford him a regular business address within fifty miles of the club house, to promptly notify the secretary of the club of such fact, and he shall be liable for the dues and fees as hereinbefore stated from the time when he became a resident or acquired a place of business or a regular business address within fifty miles of the club house as aforesaid..

“ Sec. 9. A proprietary or senior member may become a. nonresident member at any time by notifying the treasurer of his right to and desire for such membership and upon his *603application being approved by the board of directors; but he shall not be entitled to any return or rebate of his entrance fee or of his annual dues for the current year, and he shall thereafter be entitled only to the rights and privileges of a nonresident member.

“ The assignment or transfer of a proprietary certificate by a proprietary member shall automatically terminate membership as a proprietary member, and such member shall automatically be transferred to the corresponding class of special membership, and any adult male member who shall acquire proprietary certificate shall automatically become a proprietary member. A proprietary member becoming a special member shall not be entitled to any return of any fees or dues paid. A special member becoming a proprietary member shall pay the fees of a proprietary member less such fees and current dues as he may have paid as a special member.

“ARTICLE X

“ PROPRIETARY CERTIFICATES

“ SectioN 1. Proprietary certificates shall be in the sum of five hundred dollars ($500) each, the proceeds of which shall be used in the purchase of real estate by the club and the improving of same with buildings and other improvements, and upon the dissolution or abandonment of said club all the property, real and personal, of the club, after the payment of all debts, shall pass to the holders of said proprietary certificates. During the continuation of said club the holder of a proprietary certificate shall, if a member of said club in good standing, be entitled to vote at all corporate elections and to have golf privileges. The issuance of proprietary certificates shall be limited to 200 certificates for each 9 holes of golf course laid out by the club. The right to vote at corporate elections of the club and full golf privileges shall be limited to proprietary members of the club. Proprietary certificates shall be subject to the lien of the club for any indebtedness of any member in whose name it is registered, to the right of the club to purchase and to limitations on the right to transfer, the terms relating to which shall be stated in the certificates which shall be in the following form:

“ No. Proprietary certificate $500.00

“ manufacturers’ country club

“ This certifies that is the holder of one proprietary certificate, representing the payment of five hundred dollars ($500) to the Manufacturers’ Country Club, a *604corporation created and existing under the laws of the State of Pennsylvania, and it is agreed between the said club and holder hereof, his heirs, executors, administrators, and assigns, that upon the dissolution or abandonment of said club all property, real, personal, and mixed, of said club, after the payment of all debts, shall pass to the holder hereof, his heirs, executors, administrators and assigns, together with all other holders of proprietary certificates; that the holder hereof during the continued existence of said club, if a member of said club in good standing, shall have the right to vote at all corporate elections, and that only holders of proprietary certificates, who are members in good standing, shall be entitled to vote at such elections, and shall have the privileges of the golf course, and that only holders of proprietary certificates, who are members, shall be entitled to the full privileges of the golf courses, that the number of proprietary certificates shall be limited to two hundred certificates for each nine holes of golf course laid out by said club; that upon the dissolution and abandonment of said club the holder hereof shall be entitled to vote, irrespective of membership in said club, at all meetings held for the purpose of winding up the club, or the sale or liquidation of the property of the club.

“ This proprietary certificate shall at all times be subject to the following:

“ 1. A lien for all indebtedness to this club of any member in whose name it is registered, including all indebtedness incurred by any woman golf member, woman club member or junior member, whose membership existed by virtue of the rights of said member.

“2. To the right of the club to purchase this certificate from the holder hereof or his heirs, executors, administrators, or assigns, if the holder hereof, his heirs, executors, administrators, or assigns, is not a member of the club. If the price to be paid for this proprietary certificate can not be agreed upon, the club shall have the right to sell this proprietary certificate at public sale and after discharging all indebtedness due the club, as hereinbefore provided, shall pay over the net price received. In the event of this proprietary certificate not being thereupon surrendered to the club, the club may declare this proprietary certificate canceled and issue a new certificate in its place and stead to the purchaser thereof.

*“*3. To the right of the club to purchase this certificate in the event of the holder hereof desiring to sell and transfer the same to any person not an adult male member of this club. If the holder hereof shall desire to sell and transfer *605this certificate, he shall submit to the club in writing the name of the proposed transferee and the bona fide offer for the purchase of said certificate, and the club shall have the right to purchase this certificate for said price for a period of thirty days.

“ Subject to the above this certificate shall be transferable on the books of the club in person or by attorney upon surrender of this certificate properly endorsed.

“In witness whereof the club has hereunto caused its corporate seal, duly attested, to be affixed this day of 19 .

*President.*

*Treasurer.*

which certificate shall have endorsed on the back thereof the following transfer blank:

“ For value received .hereby sell, assign, and transfer unto the within proprietary certificate of the

Manufacturers’ Country Club and do hereby irrevocably constitute and appoint attorney to transfer said

certificate on the books of the club with full power of substitution in the premises.

“ Dated 19 .

“ Witness:

- '[SEAL.] 5?

Y. The board of directors of said Manufacturers’ Country Club, pursuant to the powers of said by-laws, at a meeting held on October 22, 1923, passed the following resolution:

“ Resolved, That the following be fixed as the dues and entrance fees for the various classes of membership:

“For proprietary members entrance fee be fixed at one hundred dollars ($100.00), dues one hundred dollars ($100.00) per annum, provided no entrance fee for proprietary members should be charged to the original subscribers to proprietary certificates, who subscribed and are duly elected to membership prior to January 1st, 1924.

“For nonresident proprietary members entrance fee be fixed at fifty dollars ($50.00), dues fifty dollars ($50.00) per annum, provided no entrance fee for nonresident proprietary members should be charged to the original subscribers to nonresident proprietary certificates, who subscribed and are duly elected to membership prior to January 1st, 1924.

*606“ For senior members entrance fee be fixed at fifty dollars ($50.00), dues fifty dollars ($50.00) per annum; provided, however, that a senior member elected before January 1st, 1924, shall be entitled to a credit on account of said entrance fee of fifty dollars ($50.00) of 5% of the amount of bonds subscribed to and paid for by said senior member at the time of becoming a member.

“ For women golf members no entrance fee, and dues of twenty-five dollars ($25.00) a year.

“For women club members no entrance fee, and dues of fifteen dollars ($15.00) a year.

“ For junior members no entrance fee and dues for junior members under *17*years of age ten dollars ($10.00) per annum, and over *17*years fifty dollars ($50.00) per annum.

“ For nonresident senior members an entrance fee of fifty dollars ($50.00) and dues of fifty dollars ($50.00) per an-num, provided that nonresident members shall be given the same credit on account of entrance fee prior to January 1st, 1924, as provided for senior members.

“ For Army, Navy, clerical, and consular members an entrance fee of fifty dollars ($50.00) and dues of fifty dollars; ($50.00) per annum, provided that Army, Navy, clerical, and consular members shall be given the same credit on account of entrance fee prior to January 1st, 1924, as provided for senior members.

“ Entrance fees shall be payable within thirty days of election, as provided by section 4 of Article IX of the bylaws, but no dues shall be payable until January 1st, 1924, when the first fiscal year of the club will commence.

“Members may elect to pay annual dues in half-yearly installments on January 1st and July 1st, except the dues; of women golf members, women club members, and junior members, whose dues shall be payable on January 1st of each year for the entire-year.

“Members joining subsequent to July 1st in any year-shall only be required to pay one-half of the annual dues for the year in which they join, except women golf members, women club members, or junior members, who shall pay dues for the entire year irrespective of the date of joining. Resignations from the club after January 1st shall not relieve the member resigning from the payment of annual dues for the entire year if not paid, nor shall they entitle such members to any refund if paid.”

YI. Plaintiff, having purchased a proprietary certificate of said Manufacturers’ Country Club, was elected a proprietary-member of said club and on or about July 24, 1925, paid *607to said club, under the above resolution of October 22, 1923, $100 entrance fee and $10 Federal tax thereon; and $100 dues for the year 1925 and $10 Federal tax thereon.

VII. Demand was made on plaintiff at the direction of the collector of internal revenue for the first district of Pennsylvania that plaintiff pay a further Federal tax of $50 as a tax of 10% on the amount of $500 paid by him for said proprietary certificate of said Manufacturers’ Country Club, under section 501 of the act of 1924, on the ground that the purchase of said proprietary certificate was a payment of an initiation fee within the meaning of said section and said act.

VIII. On or about August 19, 1925, plaintiff paid said tax of $50, pursuant to said demand, to said Manufacturers’ Country Club under protest that the collection of said tax was illegal and that he paid said tax in order to avoid fines, attachments, and penalties.

IX. Said tax of $50 paid by plaintiff to said Manufacturers’ Country Club on August 19, 1925, under protest, was paid by said Manufacturers’ Country Club to the collector of internal revenue for the first district of Pennsylvania, at Philadelphia, Pennsylvania, on or about August 20, 1925.

X. On or about August 20,1925, plaintiff filed a claim for refund of the sum of $50, representing the said payment of said tax, and under date of September 17, 1925, plaintiff was advised of the rejection in full of said claim for refund by the Commissioner of Internal Revenue.

XI. No part of said' sum of $50 claimed by plaintiff in this suit and in said claim for refund has been paid, and no claim for refund of the same amount, or any part thereof, has been filed with the Commissioner of Internal Revenue by any other person.

The court decided that plaintiff was entitled to recover the sum of $50, with interest from August 19, 1925, amounting to $3.72, in all $53.72.

Hat, Judge,

delivered the opinion of the court:

This is a suit to recover the sum of $50, representing a tax of ten per cent on the sum of $500, paid by the plaintiff *608for his proprietary certificate of stock purchased from, the Manufacturers’ Country Club. The plaintiff by purchasing this share of stock became eligible to membership in said club, but in order to enjoy the privileges of the club was required by its by-laws to pay an entrance or initiation fee of $100, in addition to the $500, paid by him for a share of the stock. The stock aforesaid was sold for the purpose of acquiring the necessary real estate upon which to build the club house and to construct a golf course. The certificates were known as proprietary certificates, and had a par value of $500. The owners of these certificates were in fact the owners of the property of the club. These certificates can be sold and transferred without regard to membership, and the property rights of the holders continue after membership may have ceased by resignation, expulsion, or death. The owner of one of these certificates in order to become a member of the club must be elected and must pay to the club an initiation fee of $100 and dues of $100 per year. A person who is not the owner of one of these shares of stock may be elected to membership in the club and may enjoy its privileges by paying the initiation fee and annual dues fixed by the directors of the club.

Proprietary members — that is, members who own shares of stock and are the owners of the club property — have all voting rights. Those members who do not own shares of stock have only the privileges of the club.

The plaintiff paid his tax of 10 per. cent on $100, his initiation fee, and 10 per cent on $100, his annual dues.

The Government contends that he is liable to pay and has collected from him 10 per cent on $500 paid for his proprietary certificate, upon the theory that the said $500 is a part of the initiation fee, and this it claims under the provisions of the revenue act of 1924 (43 Stat. 253), which reads as follows:

> “ Sec. 501. On and after the date this title takes effect there shall be levied, assessed, collected, and paid,- in lieu of the taxes imposed by section 801 of the revenue act of 1921, a tax equivalent to 10 per centum of any amount paid *609on or after, such date, for any period after such date, (a) as dues or membership fees (where the dues or fees of an active resident annual member are in excess of $10 per year) to any social, athletic, or sporting club or organization; or (b) 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; such taxes to be paid by the person paying such dues or fees: * * * »

The proviso in this section has no bearing on the instant case.

It is the contention of the Government that any money or property of value paid by a prospective member of a club as a prerequisite to membership therein is an initiation fee, and that in this case the plaintiff, besides paying the tax on his $100 initiation fee, is liable to be taxed on his pi’oprietary stock, the theory being that his stock is a part of his initiation fee. From the facts in this case it is evident that the plaintiff is one of the owners of the property and franchises of the club and that his proprietary share of stock makes him so. He, together with the other owners of the club, elected a board of directors, which proceeded to enact by-laws for the government of the club. Among these bylaws was one fixing the initiation fee of the proprietary members of the club, which fee was fixed at the sum of $100. It is not perceived how the purchase and ownership of the stock can be construed, into being an initiation fee; it has none of the earmarks of such a fee. There is no definition in the statute, nor any words therein, which lend themselves to such a construction. The words “ Initiation fees ” used in the statute must be given their common and ordinary meaning, which is the payment of a sum of money that will enable the person paying it to enjoy the privileges of the club, and which once paid will never be returned to the person paying it. In this case the share of stock or its value can be in certain contingencies repaid to the party paying, or to his estate. We can not so construe the statute to enlarge its meaning and to impose a tax not therein contemplated nor intended. The meaning of the words of the *610act can not be enlarged to include what has been omitted by the Congress. *Iselin*v. *United-States,*270 U. S. 245.

A judgment will be entered in favor of the plaintiff for the sum claimed .with interest.

Moss, *Judge;*Gbaham, *Judge;*Booth, *Judge;*and Campbell, *Chief Justice\*concur.