Court Opinion

ID: 9448730
Source: CourtListenerOpinion
Date Created: 2023-08-03 23:43:56.077703+00
Date Added: 2024-06-11T17:31:32.474213
License: Public Domain

RIVES, Circuit Judge
(dissenting).
Section 4241(a) (2) of the Internal Revenue Code of 1954 imposes “a tax equivalent to 20 percent of any amount paid as initiation fees * * *.” Section 4241(b) directs that, “the taxes imposed' by this section shall be paid by the person paying such dues or fees, or holding such life membership.” Section 4242: (b) provides:
“(b) Initiation fees. — As used in this part the term ‘initiation fees” *567includes any payment, contribution, ■or loan, required as a condition precedent to membership, whether or not any such payment, contribution, ■or loan is evidenced by a certificate ■of interest or indebtedness or share of stock, and irrespective of the person or organization to whom paid, contributed, or loaned.” (Emphasis supplied.) 26 U.S.C.A. § 4242(b).
The case turns on the words just emphasized, “required as a condition precedent to membership.” In a sense, neither payment of the $400.00 (or $50.-■00 in the case of a non-resident) as a nonreturnable initiation fee, nor the loan of the $1,000.00 was a condition precedent to membership in the club, for the prospective member might choose to follow the other alternative. However, •one who chose to follow the course of obtaining membership in the club by means of loaning the club $1,000.00 could not acquire such membership without making such loan. As to one choosing that alternative, the loan was required as a condition precedent to membership .and was an initiation fee within the purview of Section 4242(b).
The tax is “equivalent to 20 percent of any amount paid as initiation fees -x- * *» Section 4241(a) (2). (Emphasis supplied.) That “includes any payment, contribution, or loan required as a condition precedent to membership -x- * * ” Section 4242(b). The reason for the enactment of the latter provision •was explained in S.Rep.No. 960, 70th ■Cong., 1st sess., p. 34, as follows:
“The House bill amends the existing law to take care of a situation which has arisen from the prevalent use of the device of lowering the amount of club dues and collecting the required money by assessments instead as a means of evading the club-dues tax. There is a similar situation with respect to the tax on initiations which is being ■avoided by requiring the purchase of a share of stock or a bond instead of the direct payment of an initiation fee.”
The tax on the privilege of joining the club, voluntarily exercised, is measured by the amount of the “loans” actually made by the prospect to become eligible for membership. The fact that the prospect could have chosen to pay a smaller nonreturnable fee is immaterial. If the result seems unfair, any unfairness is the result of a voluntary choice and not of the Government’s making. The foregoing view's find support in Vitter v. United States, 5 Cir., 1960, 279 F.2d 445; Munn v. Bowers, 2 Cir., 1931, 47 F.2d 204; Knollwood Club v. United States, Ct. of Claims, 1931, 48 F.2d 971; Wild Wing Lodge v. Blacklidge, 7 Cir., 1932, 59 F.2d 421; Sugden v. Shaffer, 2 Cir., 1938, 100 F.2d 457; and Edgewood Country Club v. United States, S.D.W.Va., 1962, 204 F.Supp. 508. I agree with Judge Watkins’ opinion in the last cited case, that that decision cannot be soundly distinguished from the present case, and that the ruling of the referee and of the district court in this case are erroneous. (See 204 F.Supp. 516, 517.) I would reverse and therefore respectfully dissent.