Opinion
No. K-349.
February 9, 1931.
Suit by The Cordon against the United States.
Judgment for plaintiff.
The Cordon, plaintiff, sues to recover taxes paid to the Commissioner of Internal Revenue for the period from February 28, 1920, to and including November 30, 1928, on dues and fees of its members.
The question at issue is whether or not plaintiff is a social club within the meaning of the revenue acts.
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 is a corporation organized and existing under the laws of the state of Illinois. It was incorporated on June 10, 1915. The certificate of incorporation sets forth the particular object of The Cordon as follows:
"2. The object for which it is formed is for the purpose of establishing a common meeting ground for the lovers of independence and self-expression whose vocations permit excursions beyond domestic bounds."
2. Plaintiff, during the period from February 28, 1920, to and including November 30, 1928, paid a total of $21,436.98 to the collector of internal revenue at Chicago, Ill., as taxes paid on dues and fees of its members, the Commissioner of Internal Revenue having ruled, under date of July 31, 1929, "that the social features of The Cordon formed a material purpose of the organization during the period in question and that it is a social club within the meaning of the revenue laws imposing the tax in question."
3. On December 28, 1928, plaintiff filed a claim for refund on the proper form of the Bureau of Internal Revenue (Form 843) with the collector of internal revenue at Chicago, Ill., in which plaintiff requested refund of $21,551.78 as taxes on dues of its members and contended that its application for refund should be allowed for the following reasons:
"1. The Cordon is not a social, sporting, or athletic club within the meaning of section 801 of the Revenue Acts of 1918 and 1921 and section 501 of the Revenue Acts of 1924 and 1926 and section 413 of the Revenue Act of 1928, also under article 5 of Regulations 43, part 2.
"2. Year Book of The Cordon containing articles of incorporation, by-laws, and list of officers and members.
"3. A statement by the president of The Cordon as to the character of its activities, the qualifications required for membership and the purposes and practices of The Cordon."
4. The Commissioner of Internal Revenue, on July 31, 1929, rejected the refund claim filed by plaintiff on December 28, 1928, for the recovery of $21,551.78, as taxes on dues of its members. Should the four-year statute of limitations be applied, the following amounts would be within said period:
1924 (month of December) $ 234 50 Paid Jan. 27, 1925. 1925 ....................... 2,696 00 1926 ....................... 2,634 00 1927 ....................... 2,720 50 1928 (to October, inclusive) 1,555 00 _________ Total .................. $9,840 00
5. Article 6 of the by-laws of The Cordon provides for the following character and kinds of membership:
"Section 1. Membership shall be of six classes, resident active, nonresident active, resident lay, nonresident lay, life, and honorary.
"Sec. 2. Active membership. — A woman to be eligible to active membership, either resident or nonresident, must be actively engaged in the practice of one of the arts or professions, or in some form of personal service to the community recognized as creative in character and professional in standard.
"The arts included are: Music, literature, dramatic expression, painting, sculpture, and all forms of graphic and applied art.
"The professions included are: Law, medicine, science, and education.
"Original work in one of the above-mentioned fields shall be a requirement.
"A resident-active member is entitled to all the rights and privileges of membership.
"Sec. 3. Lay membership. — A woman to be eligible to lay membership, either resident or nonresident, must be shown to be actively engaged in the furtherance of the arts or the professions. Such member shall have all the rights and privileges of membership including that of holding office. At no time, however, shall there be more than three lay members on the executive board.
"Sec. 4. Life membership. — Any member in good standing, either active or lay, resident or nonresident, may become a life member by unanimous vote of the executive board and the payment of $500.00. Such payment exempts from further dues.
"Life members shall enjoy all the rights and privileges of the class from which they are elected to life membership.
"Sec. 5. Honorary membership. — Honorary membership may be conferred upon any woman of national or international reputation for creative work, or for distinguished service in the fields of literature, the arts or the professions, or for service to humanity, by unanimous recommendation of the executive board and of the membership committee, ratified by two-thirds vote of those present and voting.
"An honorary member shall have all the rights and privileges of membership except the right to vote or hold office.
"Recommendations for honorary membership may be presented only at the May meeting. A two-thirds vote of those present and voting shall elect.
"Not more than one honorary membership shall be conferred in any club year.
"Sec. 6. Nonresident membership. — A nonresident member, active or lay, must reside for not less than nine months of the year at least one hundred miles from Chicago. Such members shall have all the privileges of membership, except to vote or hold office.
"Sec. 7. (a) Resident members, active or lay, may be transferred to nonresident membership upon recommendation of the membership committee and the executive board. Such transfer, however, shall not exempt a member (active or lay) from paying the full dues for the current year, unless the request for transfer is made before the second Thursday in June.
"(b) A nonresident member may be transferred to resident membership upon the payment of the difference between nonresident and resident dues and initiation fees. Upon taking up permanent residence within the hundred-mile radius, application for transfer must be made at once to the membership committee. Upon notification of transfer and payment of the required sum, such member shall be placed upon the resident list of the class to which she belongs. A nonresident member may not return to active membership unless there is a vacancy in the class to which she belongs."
6. Article 7 of the by-laws also provides a membership committee as follows:
"Section 1. The second vice president shall be chairman of the membership committee. (See Article IV, section 2.) At its first regular meeting following the annual meeting, the executive board shall appoint six additional members, representing as far as practicable, the various arts and professions comprising The Cordon membership.
"Sec. 2. All business pertaining to admission of members shall be in the hands of the membership committee, subject to ratification by the executive board.
"Sec. 3. Vacancies in the membership committee shall be filled by the executive board."
Article 8 of the by-laws sets forth what is required with reference to the proposal of candidates for membership by the proposer and indorsers as follows:
"Section 1. (a) A candidate for admission shall be proposed by one member and endorsed by two other members. The proposers and the endorsers must be members in good standing who have been members of The Cordon for at least one year. It shall be the duty of the proposer to secure the names and addresses of the endorsers and present the application to the chairman of the membership committee on a blank furnished by the committee for the purpose.
"(b) The proposer and each of the endorsers must have at least a year's personal acquaintance with the candidate and must be able to give to the membership committee definite and reliable information regarding the desirability of the candidate as a member.
"(c) The chairman of the membership committee shall send to the proposer a printed form for endorsement and for information concerning the qualifications of the candidate for membership, the profession or art to which she belongs and her achievement therein.
"The proposer shall secure the signatures of the two endorsers in the places reserved for them on the blanks, and return the blanks to the chairman of the membership committee.
"(d) Where applications for membership have not been completed prior to March first in any year, the chairman of the membership committee shall notify the proposer and the endorsers that their endorsements must be filed prior to March fifteenth or become void."
7. The by-laws provide for the appointment of certain committees to carry out the object and purpose of The Cordon, as shown by articles 10 and 11 as follows:
"Article X. Standing Committees"The social, house, ways and means, revisions and finance committees shall each consist of its elected chairman and four members appointed from the organization at large by the executive board at its first meeting following the annual meeting.
"Article XI. Duties of Standing Committees — Finance Committee"(a) The finance committee shall prepare a semi-annual budget, which budget shall be reported to the organization for ratification at the regular business meetings in May and November.
"(b) This committee, each month, shall approve bills (except those for rent, light, and salaries of employees) before the vouchers are countersigned for endorsement by the chairman of the executive board.
"(c) The finance committee shall make a monthly audit of the accounts of the treasurer and of all committees handling club funds, including The Cordon refectory fund, and make its regular monthly report to the executive board and to the organization at its regular meetings.
"(d) Every committee for which an appropriation is made shall report to the finance committee before April 1st, concerning the use of its funds, so that its accounts can be audited.
"(e) The chairman of the finance committee shall order an audit by a certified accountant ten days before the annual meeting.
"(f) The finance committee shall act in an advisory capacity upon questions involving an appropriation of money for the organization expenses.
"(g) The chairman of the finance committee shall countersign all checks drawn on club funds.
"The Social Committee"(a) The social committee shall have charge of the social life of The Cordon and shall promote in every way fellowship among the members. All plans for entertainments in the club rooms shall be submitted to the social committee for its sanction.
"(b) The social committee shall assume as an especial responsibility the matter of coming into contact with distinguished women temporarily in the city, to whom the privileges of the club may properly be offered. The chairman may present to the executive board a request for the appointment of a subcommittee for this particular business.
"The Ways and Means Committee"The duties of the ways and means committee shall be to raise funds for special objects, to suggest plans for the furtherance thereof, should occasion require, and to act in an advisory capacity in all contingencies.
"The House Committee"The house committee shall have general charge of The Cordon rooms and properties, and provide furnishings ordered by the executive board. It shall have entire charge of the catering and shall employ all help needed in the club home, subject to the ratification of the executive board. It shall supply the finance committee with monthly itemized statements of all receipts and disbursements and formulate rules for the general conduct of the club home.
"All gifts, excepting books and small articles which can not interfere with the general scheme of furnishing of the club, must be submitted to the house committee and accepted both by this committee and the executive board."
8. The club quarters comprise 3,942 square feet on the seventh floor of the Fine Arts Building, at 410 South Michigan avenue, Chicago, Ill., and 3,026 square feet on the eighth floor. The major part of the space occupied on the seventh floor is devoted to dining room or refectory, and kitchen. There are also coat rooms, powder and telephone rooms, and a space devoted to an office in which there is a table containing articles, usually artistic, sold for charity.
The eighth floor is connected with the seventh by a stairway; the space on the eighth floor is mostly taken up by a lounge and library. In this room are many chairs, tables, and a grand piano. There is also a small telephone and powder room off the lounge. Additional space is devoted to two small rooms used for the exhibition of art works by clubmembers.
There are no living rooms in the club quarters. The club is not open Sundays or holidays. The service in the dining room is luncheon and dinner only, and the average attendance is about fifty.
9. The Cordon has no card room, pool or billiard room, gymnasium, swimming pool, or bowling alley. Dances have been held in The Cordon, but the last dance, held about two years ago, was a failure, and none are now held. The quarters of The Cordon are closed at least five weeks in the year, closing in the latter part of July and opening in the early part of September of each year, as there is not enough use for them during that period to warrant staying open. The Cordon quarters usually open in the morning at 10 o'clock and close at 8:30 in the evening, unless there is some special occasion to meet some particular, artist, then the quarters are open to a later hour. A deficit is shown almost every month in the running of the refectory.
10. The Cordon holds continually exhibitions of paintings, etchings, designing, and sculpture in its quarters, which exhibitions are the works of art of its members and outsiders. The Cordon has held exhibitions of embroidery, tapestry, and needlework, as well as hand-woven articles, embossed leather goods, artistic jewelry, and Indian blankets.
11. Lectures on the arts and literature are provided by The Cordon each year and cover a range of subjects. Luncheons, dinners, receptions, and entertainments are given by The Cordon to persons distinguished in the arts, literature, and professions for the purpose of bringing its members in touch, association, and communication with such persons, to obtain their stimulating viewpoint on the arts. Plays and musical compositions are written by members and are acted and sung by them.
12. The predominant purpose of the plaintiff is the advancement of its members in science, literature, and the arts, and its main activities are conducted with a view to accomplishing such purpose. The small social features of the club are incidental to its predominant purpose.
13. The plaintiff has at all times borne true allegiance to the government of the United States, and has not in any way voluntarily aided, abetted, or given encouragement in rebellion against the government of the United States. The plaintiff is the sole owner of this claim and has not sought redress in the courts or before Congress prior to this action.
John F. McCarron, of Washington, D.C., and Richard S. Folsom, of Chicago, Ill., for plaintiff.
George H. Foster, of Washington, D.C., and Charles B. Rugg, Asst. Atty. Gen., for the United States.
Before BOOTH, Chief Justice, and GREEN, LITTLETON, WILLIAMS, and WHALEY, Judges.
This action is brought to recover taxes paid on dues of members of a club known as The Cordon, of Chicago, Ill. The sole question is whether The Cordon is a social club within the terms of the Revenue Acts in force during the years for which claim is made and the regulations of the commissioner promulgated under the authority conferred by the acts. These acts and the regulations have been so often set forth in opinions of this court in similar cases it is unnecessary and will serve no special purpose to again set them out in full.
That the tax is proper is assumed from its assessment and payment, and it is incumbent upon the plaintiff to show clearly it falls within the exempted class. Bank of Commerce v. Tennessee, 161 U.S. 134, 16 S. Ct. 456, 40 L. Ed. 645.
While the general rule is taxing acts should be liberally construed in favor of the taxpayer (Gould v. Gould, 245 U.S. 151, 38 S. Ct. 53, 62 L. Ed. 211), exemption provisions are construed strictly in favor of the government. Lewellyn v. Harbison (C.C.A.) 31 F.2d 740; Commercial Health Accident Co. v. Pickering (D.C.) 281 F. 539.
Whether a club falls within the exemptions named must be clearly shown by the facts in each particular case. The purposes gleaned from the objective named in its constitution and by-laws, the activities of its members, and the general conduct of the club by its committees, furnish a true index to the real character of the club. The regulations specify "any organization which maintains quarters or arranges periodical dinners or meetings, for the purpose of affording its members an opportunity of congregating for social intercourse, is a `social * * * club or organization.'" Immediately, however, follows a qualification of great importance. It provides that if the social features are immaterial for the purposes of the organization and are subordinate and merely incidental to the active furtherance of a different and predominant purpose such as religion, the arts, or business, then it is not a social club. The facts are fully set out in the findings and disclose fully and clearly this case falls within the exemptions.
The name Cordon means many strands woven together. This idea is carried out in the composition of its membership by the groups of those women interested in art, music, literature, drama, social work, and the professions representing the separate strands and all the different groups or strands being brought or woven together in a common fellowship for the purpose of feminine culture.
The charter sets forth, "2. The object for which it is formed is for the purpose of establishing a common meeting ground for the lovers of independence and self-expression whose vocations permit excursions beyond the domestic bounds." It was organized by, and its membership is solely composed of, women artistically and professionally inclined and includes women who have rendered some notable service in civic and war work. The object to be attained is somewhat clouded by language which needs elucidation to be clearly comprehended, but by no stretch of the imagination can a clear social feature be deduced from it. On the contrary an analysis of this language shows that these women have a calling besides looking after domestic affairs, and that this club is created as a common meeting place for the purpose of showing their individualism, talents, and achievements to each other and thereby deriving inspiration and encouragement from association with those having similar and diverse talents and individualities.
The club's membership list contains the names of many women who enjoy a world-wide reputation for outstanding accomplishments. The quarters of the club occupy a section of the seventh and eighth floors of the Fine Arts Building in Chicago. The lower floor is devoted to the dining room, kitchen, coat and powder rooms, office and telephone space. The upper floor is connected with the lower floor by a stairway and consists of a lounge and library and two rooms for exhibitions of the works of its members. There are no living rooms and the club is not open on Sundays and holidays. Only luncheons and dinners are served and the average attendance is about fifty. There are no card rooms, pool or billiard rooms, gymnasium, swimming pool, or bowling alley. Dances have been held but having proved a failure have been discontinued. The club opens at 10 o'clock in the morning and closes at 8:30 in the evening and for five weeks in the summer months the club is entirely closed. Exhibitions are held in its rooms of paintings, etchings, designing, sculpture, embroidery, tapestry, needlework, hand-woven articles, embossed leather goods, artistic jewelry, and Indian blankets, the work of its members and outsiders. Lectures on the arts and literature covering a wide range of subjects are provided and plays and musical compositions are written by members and are acted and sung by them.
From what has been stated above, it is quite evident that from the object set out in its charter, the conduct of the club and the activities of its members, the predominating purpose of the club is to foster the arts, and its small social features are immaterial, subordinate, and merely incidental to the active furtherance of a different purpose.
The plaintiff is not a social club within the meaning of section 801 of the Revenue Acts of 1918 and 1921 ( 40 Stat. 1121; 42 Stat. 291), section 501 of the Revenue Acts of 1924 and 1926 ( 26 USCA § 872 note), and section 413(a) of the Revenue Act of 1928 ( 26 USCA § 872). Aldine Club v. United States, 65 Ct. Cl. 315; Chemists' Club v. United States, 64 Ct. Cl. 156; Bankers' Club v. United States, 69 Ct. Cl. 121; Washington Club v. United States, 69 Ct. Cl. 621; Cosmos Club v. United States (Ct.Cl.) 42 F.2d 321, decided June 16, 1930.
The plaintiff is suing for the recovery of $21,551.78. Of this sum $11,711.78 is barred by the statute of limitations. The plaintiff is entitled to a judgment against the defendant for $9,840 with interest thereon as provided by law. It is so ordered.