Source: http://openjurist.org/980/f2d/1409
Timestamp: 2014-07-23 06:35:32
Document Index: 753830372

Matched Legal Cases: ['§ 512', '§ 512', '§ 501', '§ 512', '§ 512', '§ 512']

980 F2d 1409 Atlanta Athletic Club v. Commissioner of Internal Revenue | OpenJurist
980 F. 2d 1409 - Atlanta Athletic Club v. Commissioner of Internal Revenue	Home980 f2d 1409 atlanta athletic club v. commissioner of internal revenue
980 F2d 1409 Atlanta Athletic Club v. Commissioner of Internal Revenue 980 F.2d 1409
71 A.F.T.R.2d 93-588, 61 USLW 2445,93-1 USTC P 50,051
ATLANTA ATHLETIC CLUB, Petitioner-Appellant,v.COMMISSIONER OF INTERNAL REVENUE SERVICE, Respondent-Appellee.
No. 91-9047.
Terence J. Greene, Timothy J. Peaden, Sidney O. Smith, Jr., Frazer Durrett, Jr., Alston & Bird, Atlanta, Ga., for petitioner-appellant.
Gary R. Allen, Chief, Steven W. Parks, Brian C. Griffin, Robert S. Pomerance, Appellate Section, Tax Div., U.S. Dept. of Justice, Washington, D.C., for respondent-appellee.
Atlanta Athletic Club (the "Club") appeals a United States Tax Court ruling that the Club must recognize and report as unrelated business taxable income a $2.3 million gain from the sale of land. The Club argues that the gain qualifies for nonrecognition under I.R.C. § 512(a)(3)(D) (West Supp.1992) because the Club used the property for its members' recreation and reinvested the sale proceeds in recreational facilities. The Tax Court found that the Club did not directly use the property for recreation within the meaning of § 512(a)(3)(D). Atlanta Athletic Club v. Commissioner, 61 T.C.M. (CCH) 2011, 2019 (1991). Thus, according to the Tax Court, nonrecognition was unavailable under the statute. We find that the Club directly used the property for recreation, and we reverse the Tax Court's ruling.
The Club is a private social organization that owns and operates recreational facilities for members and their guests. It is exempt from federal income tax as a social club under I.R.C. § 501(c)(7) (West Supp.1992).
In 1964 the Club bought 617.1 acres of land at its present location in northern Fulton County, Georgia. A highway divided the property into a 425.6-acre eastern tract (the "Eastside Property") and a 191.5-acre western tract (the "Westside Property"). The Club held all of the land for two decades before selling 108 acres of the Westside Property in 1984.
From the start, the Eastside Property was the hub of the Club's activities. It is there that the Club built its golf courses, clubhouse, swimming pool and tennis courts. On the other hand, the Club did little to develop the Westside Property across the highway. The Club constructed a slag road on the Westside Property in 1976 to accommodate public and member parking for a professional golf tournament. After the tournament, Club members began jogging on the slag road. The Club also built a jogging track with a pine bark surface on the Westside Property, but drainage problems quickly forced members to abandon the track. The Club once stocked a lake on the Westside Property with fish. Other than mowing grass in the open areas, the Club made no other effort to improve the Westside Property for recreational uses.
When it decided to sell part of the Westside Property, the Club for the first time divided the parcel into three tracts: A, B and C. The 1984 sale of the 108 acres in tracts A and B brought the Club a $2.3 million gain. The Club retained tract C.
The parties have stipulated that the Club spent its $2.3 million gain to construct a new tennis center and renovate the clubhouse on the Eastside Property. The money was reinvested within the time limits specified by § 512(a)(3)(D).1
The Club deferred payment of income tax on the gain for its taxable year that ended March 31, 1985, in the belief that § 512(a)(3)(D) allowed nonrecognition of the full amount. The Commissioner of Internal Revenue (the "Commissioner") disagreed. The Commissioner determined that the nonrecognition provision did not apply because the Club did not directly use tracts A and B for the Club's exempt function (i.e., the pleasure and recreation of Club members). Treating the $2.3 million gain as unrelated business taxable income, the Commissioner assessed a $658,063 deficiency against the Club.2 The Club petitioned the Tax Court to redetermine the deficiency.
Club members and employees testified before the Tax Court that the Westside Property was the site of a number of activities through the years. Among the events were "pasture parties," Easter egg hunts, fishing tournaments, kite-flying contests, hot-air balloon rides and organized foot races.3 Many members jogged on the property, and some members used the area for archery practice and to fly model airplanes.
To counter this testimony, the Commissioner relied largely on the Club's monthly newsletters and other documents from the 1970s and 1980s. The Commissioner argued that some of the organized events described by the Club's witnesses were held either on the Eastside Property or on the portion of the Westside Property retained by the Club, not on tracts A and B.4
The Tax Court ruled in favor of the Commissioner, stating that it was "not convinced" by the testimony of the Club's witnesses. Atlanta Athletic Club, 61 T.C.M. (CCH) at 2019.5 The Tax Court determined that, at most, individual members merely jogged across tracts A and B on their own initiative. Id. Jogging "was not an activity directly sponsored by the Club as part of its exempt function." Id. Therefore, "[s]uch activity [was] not sufficient to establish that the Club directly used Tracts A and B for exempt functions." Id.
The issue before this court is whether the Tax Court erred in finding that tracts A and B of the Westside Property were not "used directly" by the Club, within the meaning of I.R.C. § 512(a)(3)(D), to provide pleasure and recreation for Club members.