Opinion · United States Court of Claims
Chicago Engineers' Club v. United States
Chi. Engineers' Club v. United States, 9 F. Supp. 680 (Ct. Cl. 1935)
- Type
- Opinion
- Court
- United States Court of Claims
- Jurisdiction
- Federal
- Date
- 1935-02-04
- Topic
- bankruptcy
*683 WILLIAMS, Judge. The plaintiff seeks to recover the sum of $14,437.33, with interest thereon; the principal sum being the amount of taxes paid on dues and initiation fees paid by plaintiff under section 501 of the Revenue Act of 1926 (26 USCA § 872 note), and section 413 of the Revenue Act of 1928 (26 USCA § 872 and note). The period involved is from May 15, 1926, to April 25, 1930. The plaintiff duly filed its claim for refund on the amount of the tax so paid, giving as a ground therefor that it was not a “social, sporting, or athletic club or organization” within the meaning of the statutes before mentioned. The claim for re-; fund was disallowed by the Commissioner of Internal Revenue.
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CHICAGO ENGINEERS' CLUB v. UNITED STATES, (1935)
9 F. Supp. 680
CHICAGO ENGINEERS' CLUB v. UNITED STATES.
No. 42044.
United States Court of Federal Claims.
February 4, 1935.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the report of a commissioner and the evidence, makes the following special findings of fact:
1. Plaintiff's articles of incorporation set forth the object for which it was organized as follows: "The object for which it is formed is to promote the interests of the engineering profession in all its branches, to secure and disseminate engineering knowledge, and to promote sociability and acquaintance among the members of the engineering profession."
2. Plaintiff paid the sum of $14,437.33 as tax on membership admission fees and dues during the period from May 15, 1926, to April 25, 1930, both dates inclusive. On May 7, 1930, plaintiff filed its claim for the refund of the sum of $14,437.33.
The claim for refund was rejected by the Commissioner of Internal Revenue on September 22, 1930.West Page 681
Subsequently, and on or about August 27, 1931, plaintiff filed with the Commissioner of Internal Revenue a request for reconsideration, and supplemented and amended its claim to show more in detail the activities and purposes of the club. This amended claim appears as Plaintiff's Exhibit No. 5. Thereafter, and on September 17, 1931, and again on April 1, 1932, the claim was rejected.
3. The Chicago Engineers' Club is a corporation which was organized December 24, 1906. Prior to its organization it was a luncheon club which, beginning in 1903, met at a Chicago hotel. During the next three years it held its luncheons at various hotels and restaurants. Since 1906 it has maintained its own quarters.
Throughout the period in question its membership was about 400. Prior to April, 1927, its membership consisted of three classes, honorary members, resident members, and nonresident members. In April, 1927, two additional classes of membership were added, military members and junior associate members under the age of 30 years. Later a class was added known as "educational members," being those engaged in educational work of an engineering nature. The principal qualifications for membership were engineering knowledge, technical ability, and professional reputation among engineers.
The initiation fee for resident members was $75, with annual dues of $60, and for nonresident members was $37.50, with annual dues of $20. Junior members paid no initiation fees, but paid annual dues of $30. For a part of the time in question, military members paid the same fees and dues as nonresident members.
4. Since 1911 the club has been located at 314 South Federal street, in the business district of Chicago. It owns the seven-story building, which is worth $78,000 and holds a 99-year lease on the land. It occupies five stories of the building (third to seventh, both inclusive) and about one-third of the basement; the remainder of the building being rented.
Since 1928 plaintiff has used the premises as follows: Space in the rear of the seventh floor is used for card tables; there being two card tables and one mah jong table where the members play during mealtimes. The front part of the seventh floor is used for meeting of the board of directors, which also holds its luncheons there. This floor also has a small room which is used as a dining room for small groups. The remainder of the space on the seventh floor is devoted to general purposes, such as washrooms, elevator space, common passageways, and stairs. The entire seventh floor is, at times, used for the luncheon meetings of the Illinois section of the American Society of Civil Engineers.
The major portion of the sixth floor is used for billiards and pool; there being two billiard tables and two pool tables. Offices of the club are on the sixth floor. There is a storeroom on the sixth floor for the grill supplies.
The fifth floor is devoted to private dining room space, which is used primarily for outside organizations as well as for large committee meetings of the club. The fifth floor also contains the club offices.
The fourth floor is occupied chiefly by a lounge. It has two fireplaces and is furnished with club davenports and lounging chairs, capable of seating about twenty-five persons, is carpeted, and has wall decorations by way of pictures and stuffed heads of animals, the latter being loaned to the club by one of its members. There are two writing desks and some books, a portion of these having been donated by a member. There are several magazines and periodicals in the lounge, some of which are technical engineering publications, and some of which are not. The lounge has reading lamps and a radio. Over one of the fireplaces in the lounge there is a motto which reads: "Men our brothers, men the builders, come you from afar or near, welcome to our home and fireside, welcome brother engineer." The fourth floor also has toilet facilities, washroom, and coatroom.
The third floor is given over in its entirety to the kitchen and grill where all meals are prepared. The dining room is the main dining room in which the members generally eat their luncheons.
The arrangement of the clubrooms prior to June 1, 1928, differed in the following respects: The seventh floor was devoted entirely to sleeping rooms, consisting of seven rooms which were used principally by members, although ordinarily only three or four rooms were occupied. The locker room for the male employees of the grill was then in the front end of the sixth floor. Card tables were in a room at the rear of the fifth floor, in which room meals were also served. There were also two private dining rooms on this floor, with toilet facilities.West Page 682At that time the club offices were in the front end of the fourth floor.
5. The club was open to members from 8 a.m. to 8 or 9 p.m. The club was frequently used in the evenings by outside organizations such as college alumni associations, college fraternities, and the American Legion. The principal activities centered around the luncheons, which had an average attendance of about 100. The grill was an important source of revenue. The luncheons constituted about 80 per cent. of all meals served. Many of the evening meals were served to outside organizations, some of which were not engineering societies. Such organizations paid for the use of the club. The annual dinners were accompanied by music, decorations, and paid entertainers, and helped increase the attendance. Thanksgiving and Christmas luncheons were more elaborate. Special luncheons were frequently held at which addresses were given and moving pictures shown. Such entertainment generally covered matters of special interest to engineers, though some were on nonengineering subjects, and were both instructive and entertaining. The club endeavored to have a fixed day in each week for such special luncheons.
The club was interested in keeping the facilities which were calculated to attract more members to its luncheons. Pool, billiards, cards, mah jong, backgammon, and checkers were played. Cigars, cards, pool, and billiards resulted in net profits to the club. Tournaments among its members were had during the winters. The club advanced money for printing and other incidental expenses in connection with golf tournaments which it held with other clubs. Women did not have the privileges of the club, but members were entitled to bring their wives to their luncheons, and on two occasions the club had affairs to which ladies were invited. The club had twenty-two employees prior to its abandonment of sleeping rooms, and dropped two of these employees when the sleeping rooms were abandoned. About fifteen of them were employed in the dining room, and all employees had some connection with the grill.
6. The club had several committees. Its activities were governed by the provisions of its by-laws and the management of its board of directors. The entertainment committee arranged for speakers, moving pictures, and other forms of entertainment for the luncheons and special dinners. The billiards committee had charge of billiards and pool. A cards committee had charge of all card games and tournaments. The publications committee prepared its year book, and issued a monthly bulletin called "Chicago Engineers' Notes," which was mailed monthly to all resident and nonresident members. The May, 1927, issue contained the following: "Twenty-four years ago the Chicago Engineers' Club was organized for the purpose of promoting good fellowship among the brother engineers. This purpose has been the guiding star in successive administrations from that time to the present. We can assure the present members of the club that our aim during the coming year will be to build up an even greater camaraderie than has existed in years past. Our committees have been selected with the greatest care with that particular object in view. There are many clubs in the city that have better facilities than we have in the way of club quarters and equipment, but for good fellowship we are foremost of them all."
Other copies of this bulletin contained articles regarding the redecoration of the pool and billiard room, the arrangement of the ladies' reception room, a description of five golf tournaments played during one season, and a report on the bridge tournament.
These various activities, both in connection with its luncheons and its various other activities, such as pool, billiards, cards, golf, mah jong, checkers, backgammon, tournaments, weekly and annual dinners, are in line with the declared object of promoting the interest of the engineering profession, securing and disseminating engineering knowledge, and promoting sociability and acquaintance among its members.
The social activities of this club were not merely incidental to its other purposes, but were substantial and necessary features, and were so essentially a part of its activities as to constitute them a moving force in its maintenance.
Fred K. Dyar, of Washington, D.C., and Frank J. Wideman, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.West Page 683
The plaintiff duly filed its claim for refund on the amount of the tax so paid, giving as a ground therefor that it was not a "social, sporting, or athletic club or organization" within the meaning of the statutes before mentioned. The claim for refund was disallowed by the Commissioner of Internal Revenue. The suit has been timely brought, and the sole issue is whether the plaintiff club falls within the definition of a "social, sporting, or athletic club or organization."
The applicable statutes (section 501 of the 1926 act, and section 413 of the 1928 act) and Treasury Regulations 43, articles 35 and 36, have been considered by this and other courts in many cases. While there is an apparent conflict in the earlier decisions as to what constitutes a social club within the meaning of the statutes that cannot be reconciled, the rule seems now well settled that, if the predominant purpose of an organization is not social and its social activities are merely incidental to the furtherance of its different and predominating purpose, the organization is not a social club within the meaning of the taxing acts. If, on the contrary, the social features of an organization are a material part of its activities and necessary to its existence, and are not merely incidental to its predominant nonsocial purpose, it is regarded as a social club within the meaning of the revenue laws. Army Navy Club of America v. United States,53 F.2d 277, 72 Ct. Cl. 684.
Accepting the rule announced in the Army Navy Club of America Case, supra, and in numerous other decisions, not necessary to cite here, as the correct interpretation of the applicable statutes and regulations, the issue presented becomes essentially one of fact. Conceding that the predominant purpose of the plaintiff was "to promote the interests of the engineering profession in all its branches; to secure and disseminate engineering knowledge, and to promote sociability and acquaintance among the members of the engineering profession," as set forth in its articles of incorporation, and that its principal activity during the period involved was the serving of daily luncheons to its members as claimed, the fact remains that its numerous social features formed a material part of its activities, and were undoubtedly necessary to its existence as a club. The activities of the club along strictly social lines covered a wide field — pool, billiards, cards, mah jong, backgammon, checkers, and special weekly luncheons at which instructive and interesting addresses were made, and moving pictures shown, some of which were on nonengineering subjects. These numerous and varied social features constituted an important and material part of the club activities. They tended to make membership in the club more desirable, and no doubt greatly assisted the club in maintaining its membership by holding old members and securing new ones.
Under the facts disclosed in the findings, the plaintiff is a social club within the meaning of the applicable statutes. Its claim for a refund of the taxes involved was rightly disallowed by the Commissioner of Internal Revenue, and the petition is therefore dismissed. It is so ordered.West Page 699