#### ALLIANCE COUNTRY CLUB v. THE UNITED STATES

[No. C-1312.

Decided November 15, 1926]

*On the Proofs*

*Taxes; initiation fee; stock in social, athletic, or sporting*club.— Money paid by members for certificates of stock in a social, athletic, or sporting club, to be repaid to the purchaser upon certain contingencies, is not an initiation fee within the meaning of section 801 of the revenue acts of 1918 and 1921. See *Charles K. Lukens*v. *Unites. States, post,*p. 598.

*The Reporter's*statement of the case:

*Mr. George M. Wilmeth*for the plaintiff. *Ansell c& Bailey*were on the brief.

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

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 Nebraska.

II. The Alliance Country Club, the plaintiff herein, is a corporation organized under the laws of the State of Nebraska, with its office or principal place of business at Alliance in that State. Its articles of incorporation, adopted March 14, 1921, and in force between the dates of June 24. 1921, and June 23, 1922, contain *inter alia*the following provisions :

“Aetioles *of*Incorporation op Alliance Country Club

*“Know all men hy these presents:*That we, the undersigned, all residents of the County of Box Butte, and State of Nebraska, and citizens of the United States, being desirous of becoming incorporated for social and athletic purposes, and not for pecuniary profit, under and in pursuance of the statutes of the State of Nebraska, relating to incor-porators, do hereby associate ourselves together for the purpose of forming a corporation and do hereby adopt these articles of incorporation.

*580“ARTICLE I

“ *Name.*— The name of this corporation shall be Alliance Country Club.

“article II

“ *Place of business.*— The principal place of business of this corporation shall be in the city of Alliance, Box Butte County, Nebraska.

“article III

“ *Natu/re of business.*— The general nature of the business to be transacted by this corporation shall be to encourage and perpetuate athletic sports, to promote social intercourse among ourselves and associates in said club, to maintain grounds for playing golf, tennis, water sports, and other games, to purchase, construct, maintain, and operate a country club, with all' the buildings, equipments, and appurtenances proper or desirable for the promotion and enjoyment of friendly intercourse and rational amusement and pastimes, and to buy, sell, lease, mortgage, own, and improve real and personal property for such purposes.

“article iv

*“Capital stocle.*— Section 1. The authorized capital stock of this corporation shall be fifteen thousand dollars ($15,-000.00), divided into one hundred shares of the par value of one hundred fifty dollars ($150.00) each, which shall be paid in full when issued, and be nonassessable.

“ Section 2. The stock of any shareholder may be forfeited or cancelled by the board of directors, in accordance with the by-laws which shall provide therefor: *Provided,*That no stockholder’s stock shall be so forfeited without the corporation paying par value therefor, but deducting therefrom any obligations due the club from such stockholder for dues or other debts.

“Section 3. No person shall subscribe for or own more than one share of the capital stock of this corporation, nor shall any person sell or dispose of any shares of stock in this corporation without the consent of its board of directors, except that the corporation itself may purchase the stock of any stockholder upon such terms and conditions as may be provided in the by-laws.”

*581Bcportor’s Statement of the Case

And the by-laws of said Alliance Country Club contain, among others, the following provisions, which were in force and effect between June 24, 1921, and June 23, 1922:

“ ARTICLE VI

“ Board of directors

“ The board shall have action on all suspensions and expulsions.

“ They shall fix and remit penalties.

“They shall give authority for the purchase of any and all supplies.

“ They shall employ and have jurisdiction over all Bmployees.

“ They shall decide the salaries of all employees.

“ They shall have jurisdiction over the club in all its workings.

“ They shall exercise all the powers of the corporation as enumerated in Article VII of the articles of incorporation.

“ They shall have power to appoint delegates to the different associations to which this club desires representation.

“They shall settle all disputes as to the meaning of the rules and their interpretation of the rules shall be final. (Bequests for interpretation of rules shall be made to the secretary, who shall submit them to the board.)

“ ARTICLE VII

“ Membership

“ Any white adult of good repute will be eligible to membership when application has been favorably reported on by the membership committee, and has received a two-thirds vote of the board of directors, provided that such applicant within five (5) days after having been elected to membership becomes the owner of one (1) share of stock in said corporation and pays his annual dues in accordance with these by-laws.

“The names of applicants for admission to membership in the club shall first be submitted to the membership committee and on its approval shall be posted on the bulletin board at the club house, and balloted for in the manner provided.

“ Every candidate for admission must be proposed by one and seconded by one other member, over their own signatures. The proposer and seconder shall also write letters to *582the membership committee or the board of directors stating fully their knowledge of the candidate and his or her qualifications for membership if either or both of these committees desire further Information.

“ The name of the candidate and the names of the members proposing and seconding him or her shall be posted on the bulletin board at least ten (10) days immediately preceding the ballot for such candidate. It shall also be the right and duty of every member of the club who may know of any objections to any candidate, to address a letter to the board of directors, stating such objections and such communications shall be privileged and confidential. The board of directors shall ballot on such application at the expiration of said ten-day period, as provided in these by-laws.

“ Should any one make application to become a member of the club, when the membership of said club is full, and shall be balloted upon favorably by the board, as herein provided, the secretary shall place the name of such person on the ‘ waiting list,’ and when a vacancy in the membership occurs, the persons on said ‘ waiting list ’ will be given an opportunity to become members of the club in the same order their names appear on said ‘ waiting list.’ Persons elected to membership under such circumstances will not be obligated to purchase the share of stock, as required herein to be purchased, until within five (5) days after notification in writing that such vacancy exists.

“article viii

“ Reapplication for membership

“If any applicant is rejected, he will have the right to apply for membership again in two (2) months. If rejected two (2) successive times he will not be permitted to apply again.

“ ARTICLE IX

“ Family members

“Family of members will be considered as having the rights of the club. No male member of a family over 21 years of age, or a male who supports himself or a married female will come under this article. Children under sixteen years of age will be admitted only when accompanied by one of their parents or a governess.

“ Children must vnot be permitted to play about the building or premises without proper supervision and control *583and shall at all times be kept a safe distance from the golf course.

ARTICLE X

“ Dues

“ The dues of this club shall be $25.00 and war tax, per year, per member, payable semiannually in advance on or before the 1st day of July, and J anuary 1st of each year, and upon payment of said dues a card shall be issued to the member which entitles him or her to all the privileges of the club for the period paid for. Dues under this section to commence with the payment of July 1, 1921.

“ When any member shall fail to pay his or her dues or other indebtedness due the club for sixty (60) days after the same becomes clue and a written request has been mailed to him at his last known address, the board of directors shall have the power to suspend such member or cancel his membership.

* * *t'fi*H* ❖

“ ARTICLE XII

“ Visitors

“ None but members, those members of their families provided by Article IX hereof, holders of visitors’ cards, employees of the club, and regularly appointed caddies shall be admitted to the clubhouse or grounds.

“ The secretary may, upon request of a member in good standing, issue to any nonresident of Box Butte County, Nebraska, a visitor’s card, entitling him or her to the privileges of the club for a period not to exceed two weeks, and such privilege shall not be repeated during the calendar year except by action of the board.

“ Lady guests, resident of Box Butte County, when accompanied by a male member only, shall have entrance to the clubhouse and grounds at all seasonable and reasonable times. The privilege of inviting lady guests to the clubhouse and grounds as provided in this section does not extend to members or families of members or any other person.

“A member, of the club shall be responsible for the conduct of any member of his family or person introduced or vouched for by the member.

“ Cards from other accredited clubs shall be recognized at all times under the rules of the Golf Association of the State of Nebraska.

*584Reporter’s Statement of tlio Case

“ No person except as above provided shall be admitted to the clubhouse or grounds.

“ ARTICLE XIII

“ Conduct

“ When any member, or member, of his family, or person introduced by him, shall be charged with conduct unbecoming a gentleman (or lady) or with persistent violation of the rules or conduct injurious to the good order, welfare, and peace of the club, the board shall thereupon inform such member in writing; and if, upon inquiry, they shall be satisfied of the truth of the charges, and the same demands such action, they shall ask such member to resign; and if he declines to do so, upon notice to him after proper and immediate hearing of the case and giving such member an opportunity to be heard, expel him, if in their judgment such action is necessary, and such expelled member’s stock shall be forfeited upon the corporation paying par value therefor, payment to be made as soon as the stock can be disposed of, but deducting therefrom any obligations due the club from such stockholder for dues or other debts. That a vote of three-fourths of the members of the board of directors will be necessary to expel or suspend a member.

“ The expulsion of a member terminates all privileges of the club and grounds of said member and his family.

“A member shall be denied the privileges of the clubhouse and grounds until charges against such member are disposed of as aforesaid.

“ The board of directors may, in lieu of expulsion of a member, place such member on probation for a period of not to exceed two (2) months, and said probation period may be extended an additional month, but no longer., and he shall not have the privileges of the club during said period. An expelled member has the right to reapply for membership after the expiration of twelve months from such expulsion,

❖ ❖ # s¡t #

“article XV

“ Forfeiture of stock — Transfer of stock

“ Section 1. Expulsion of a member will cause the automatic surrender of his share of stock; any person owning stock in said corporation who ceases to be a resident of Box Butte County, Nebraska, may surrender his stock to said corporation; in case of the death of a member his legal repre-*585.tentative may surrender his stock to said corporation; in all of the above cases the corporation is required to take said stock when offered and to pay therefor as provided in section 3 of this article.

“ Section 2. No member of the club shall be permitted to own more than one share of stock in the corporation at one time, nor shall any person sell or dispose of any shares of stock in this corporation without the consent of its board of directors, except that the corporation itself may purchase the stock of any stockholder upon such terms and conditions as may be provided in these by-laws; in case any member wishes to sell his stock he shall first offer it to the board of directors, but it shall be optional with the board whether to take it or not.

*fl*Section 3. In any of the above cases the corporation is to pay the par value therefor, payment to be made as soon as the stock can be disposed of, but deducting therefrom any obligations due the club from such stockholder for dues or other debts.

# sj: H:

“ ARTICLE XX

}|« ^ ❖ #

“ The membership committee shall consist of three members, whose duty it is to pass upon applications for membership before such applications are passed on by the board, as herein provided. If the applicant receives two favorable votes out of the said three of the membership committee, then such application will be referred to the board for action. If the applicant receives two unfavorable votes in said membership committee, he is considered ineligible for membership and his application rejected, unless all members of said membership committee vote to refer it to the board notwithstanding such unfavorable action on the part of the membership committee.”

# Hí H* H* H*

III. The Commissioner of Internal Revenue assessed a tax of 10 per cent under the provisions of section 801 of the revenue acts of 1918 and 1921 upon the amounts paid for membership under the provisions of Article VII of the by-laws of the Alliance Country Club; and also penalties and interest as provided in section 3176, Revised Statutes, as amended by section 1317 of the revenue act of 1918, and reenacted in section 1311 of the revenue act of 1921, and sections 802 and 502 of the revenue acts of 1918 and 1921.

*586IV. Pursuant to the assessment of the Commissioner of Internal Revenue there was paid to the collector of internal revenue for the district of Nebraska between the dates of June 27, 1921, and August 22, 1922, taxes, penalty, and interest in the total sum of $1,756.

V. Of the sum of $1,756 so paid the sum of $1,500, representing taxes, was paid to the club by persons acquiring membership under the provisions of Article VII of the by-laws of the Alliance Country Club, and whose names appear on the claim for refund filed with the Commissioner of Internal Revenue, and was returned and paid to the Government under the provisions of sections 802 of the revenue acts of 1918. and 1921; the sum of $240.75 represented penalties, and the balance of $15.25 represented interest imposed upon and paid by the club pursuant to the provisions of sections 1317, 802, and 502 of the revenue act of 1918 and sections 1311, 802, and 502 (d) of the revenue act of 1921.

VI. On or about November 22,1922, the Alliance Country Club, through W. B. Minor, its secretary, filed a claim for the refund of the sum of $1,756, and under date of April 25, 1923, the Alliance Country Club was advised of the rejection in full of the claim for refund.

VII. No part of the sum of $1,756 claimed by the Alliance Country Club in this suit and in the claim for refund has been paid and no claim for the 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 $1,756, with interest from June 21, 1922, to November 15, 1926, amounting to $463.48, in all $2,227.48.

Hat, *Judge,*

delivered the opinion of the court:

The plaintiff, Alliance Country Club, was incorporated under the laws of the State of Nebraska March 14, 1921. The act of November 23, 1921, 42 Stat. 227, 289, reads as follows:

“ Sec. 801. That from and after January 1, 1922, there shall be levied, assessed, collected, and paid, in lieu of the taxes imposed by section 801 of the revenue act of 1918, a tax equivalent to 10 per centum of any amount paid on or *587after 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; * * *

> *“*Sec. 802. That every person receiving any payments for such admission, dues, or fees, shall collect the amount of the tax imposed by section 800 or 801 from the person making such payments. * * * In all the above cases returns and payments of the amount so collected shall be made at the same time and in the same manner and subject to the same penalties and interest as provided in section 502.”

> “ Sec. 502. (a) That each person receiving any payments referred to in section 500 shall collect the amount of the tax, if any, imposed by such section from the person making such payments, and shall make monthly returns under oath, in duplicate, and pay the taxes so collected to the collector of the district in which the principal office or place of business is located.

> * * * * *

> “ (c) The returns required under this section shall contain such information, and be made at such times and in such manner, as the commissioner, with the approval of the Secretary, may by regulation prescribe.

> “ Sec. .1303. That the commissioner, with the approval of the Secretary, is hereby authorized to make all needful rules and regulations for the enforcement of the provisions of this act. * * * ”

The revenue act of 1918, section 801, is in the same language as is the act of November 28, 1921. Under the provisions of this act the plaintiff paid under protest to the collector of internal revenue the sum of $1,756. The plaintiff applied to the Commissioner of Internal Revenue for a refund of the above amount; this application was denied; and the plaintiff brought its suit in this court.

The defendant contends that the plaintiff is not the proper party to bring suit, and that its petition must therefore be dismissed. But section 802 of the act provides for the collection of the amount of the tax by the person receiving *588any payment for initiation fees, and further provides that payments of the amounts so collected shall be made at the same time and in the same manner and subject to the same penalties and interest as provided in section 502; and section 502(a) reads as follows:

> “ That each person receiving any payments referred to-in section 500 shall collect the amount of the tax, if any, imposed by such section from the person making- such payments, and shall make monthly returns under oath, in duplicate, and pay the taxes so collected to the collector of' the district in which the principal office or place of business, is located.”

The Commissioner of Internal Revenue issued on March 28, 1919, the following regulation:

> *“Refund of overpayment.*— Any club, organization, corporation, partnership, or individual that has paid to the collector of internal revenue, as a tax under section 801 of the revenue act of 1918, any amount erroneously or illegally assessed, or any amount in excess of the amount of the tax actually imposed by that section for the month covered by that payment, or any amount as a penalty for the collection of which there was no authority, may secure a refund of the amount so overpaid by filing with the collector to whom such payment was made a properly prepared claim on Form 46 (revised). When a club or organization seeks to secure a refund to it of an amount collected by it from its members and then paid over by it to the collector of internal revenue, the claim on Form 46 (revised) must be accompanied by a list of the members who paid such amount and by a sworn statement of a club officer that no-claim for. refund of any such amount has been filed with, the collector or commissioner on behalf of any of such members.”

And this regulation has not been changed and was in force- and effect when the plaintiff paid the tax in controversy and. when it applied for a refund and when this suit was brought. So it seems that the Treasury Department recognizes and treats the club as the taxpayer, both as the proper party to pay the tax and also as entitled to recover the tax if the same has been illegally or erroneously paid. We are of the same opinion, and therefore think there is nothing in the *589contention of tlie Government that the plaintiff is not the proper party to bring this action.

It is contended by the Government that the payments of $150 each made by members of the Alliance Country Club to the club for one share of stock, the ownership of which said share of stock was a prerequisite to membership, were payments of initiation fees and as such were subject to the tax imposed by the statute. The words “initiation fees” used in the statute must in the construction of the act be given their plain and ordinary meaning. The court in construing the meaning of a statute, and especially one imposing a tax, will not enlarge the meaning of the words used so as to include within its scope what has been omitted by the legislature. *Iselin*v. *United States,*270 U. S. 245. Only those things can be taxed which are within the plain import of the language used. The words “ initiation fees ” as used in the statute mean the payment of an amount for the purpose of becoming a member of a club and the parting absolutely with the amount so paid. These words can not be construed to mean an investment in stock purchased from the club, which may be repaid to the purchaser upon certain contingencies.

In the case at bar, if the owner of the stock resigned or was expelled, the club was to repay the value of the stock to the member, or in case of death to his personal representative. So that the purchase of the stock was not in the ordinary meaning of the words an initiation fee; and if it was not an initiation fee, then it was not subject to be taxed as such, and the plaintiff is entitled to recover. If there is any doubt about the question, it must be resolved in favor of the taxpayer. This principle is too well established to need elaboration and has been repeatedly announced to be the law by the Supreme Court of the United States.

Judgment will be entered against the Government in favor of the plaintiff for the amount erroneously paid, with interest.

Moss, *Judge;*Graham, *Judge;*Booth, *Judge;*and Campbell, *OMef*Justice, concur.