Opinion
No. 48209.
May 2, 1949.
Joseph R. Shaughnessy, of New York City (Allin, Riggs Shaughnessy and William Klemm Stewart, all of New York City, on the brief), for plaintiff.
Joseph H. Sheppard, of Washington, D.C. and Theron Lamar Caudle, Asst. Atty. Gen. (Andrew D. Sharpe and A.F. Prescott, both of Washington, D.C. on the brief), for defendant.
Before JONES, Chief Judge, and MADDEN, WHITAKER, HOWELL and LITTLETON, Judges.
Action by the Uptown Club of Manhattan, Incorporated, against the United States for refund of taxes paid on dues or membership fees.
Petition dismissed.
This case having been heard by the Court of Claims, the court, upon the evidence and the report of a commissioner, makes the following
Special Findings of Fact
1. Plaintiff, hereinafter sometimes referred to as the "Club", is a New York corporation which was organized in 1918.
2. For the period May 1, 1924, to April 30, 1928, plaintiff paid taxes with respect to its members' initiation fees and dues under Section 501 of the Revenue Acts of 1924 and 1926, a provision similar to Section 1710 of the Internal Revenue Code, 26 U.S.C.A. § 1710, which taxes dues of social, athletic, or sporting clubs. In 1928, plaintiff filed a claim for refund of those taxes on the ground it was not a social, athletic, or sporting club within the meaning of the statute, which claim was allowed by the Commissioner of Internal Revenue and the taxes refunded on or about January 11, 1929. From that time until January 1943, the Commissioner did not require plaintiff to pay taxes with respect to its dues and initiation fees.
3. On April 13, 1942, the United States Circuit Court of Appeals for the Third Circuit decided the case of Duquesne Club v. Bell, 127 F.2d 363, in which it held that the club there involved was a social club within the meaning of Section 1710 of the Internal Revenue Code. As a result of that decision, the Commissioner reversed his prior decision and held that plaintiff was subject to tax under Section 1710, supra, advice of his action being furnished to plaintiff in a letter dated February 9, 1943, which read in part as follows:
"On April 13, 1942, the United States Circuit Court of Appeals for the Third Circuit, in the case of Duquesne Club v. [Bell] Collector, reversing the decision of the District Court of the United States for the Western District of Pennsylvania [ 42 F. Supp. 123], held that the club, which is organized and operated for the purpose of furnishing the members a place to lunch, qualifies as a social club within the meaning of section 413 of the Revenue Act of 1928, now section 1710 of the Internal Revenue Code. Petition for a writ of certiorari was denied in this case. The circuit court in rendering its decision stated that any organization which provides an opportunity for its members to meet each other at mealtimes and partake together of food and drink with conversation on whatever subject pleases them is a social organization.
"It is held that the Uptown Club of Manhattan, Incorporated, qualifies as a social club or organization within the meaning of section 1710 of the Internal Revenue Code, as amended, and that the dues and initiation fees paid by the members are subject to tax.
"The club should, therefore, proceed to collect and pay over the tax on dues and initiation fees paid by its members in the future.
"Since the club relied on the ruling issued by the Bureau on December 17, 1928, that it did not qualify as a social club or organization, no assessment of the tax will be made against the club or members for the period prior to the time it was notified by the field officers of the Bureau of the liability for the tax."
4. After the receipt of the Commissioner's letter of February 9, 1943, plaintiff duly filed monthly returns of excise taxes on initiation fees and dues collected from the members of the Club during the period February 1943 to and including September 30, 1946, and paid the amounts so collected to the Collector of Internal Revenue on the dates and in the amounts shown in Exhibit "A" attached to its petition which were in the total amount of $43,799.21.
5. On December 11, 1946, plaintiff filed a claim for refund in the amount of $38,573.89 on account of the taxes paid as shown in the preceding finding. As a ground for such claim, plaintiff alleged that it was not a social club within the meaning of Section 1710 of the Internal Revenue Code and that therefore the dues and initiation fees collected from its members were not subject to tax. In support of its claim, plaintiff filed a copy of its constitution and by-laws together with a list of its members and the amount of tax paid with respect to each. Attached to the claim for refund was a power of attorney executed by each person in whose behalf the claim was filed, authorizing the plaintiff to act as his agent. The difference ($5,225.32) between the amount paid ($43,799.21) and the amount shown in the claim for refund ($38,573.89) represents taxes paid by members who did not submit powers of attorney, and plaintiff concedes that it is not entitled to a refund of the amount of $5,225.32. No action had been taken by the Commissioner on the foregoing claim at the time a hearing was held in this proceeding on April 23, 1948.
There was no material change in the purpose or character of plaintiff's activities from 1924 to 1946, inclusive.
6. The certificate of incorporation of the Club which was filed in connection with its organization in 1918 states — "The particular objects for which the corporation is founded are, to establish, maintain and operate a club, with a reading room and other accommodations for the use and convenience of its members; * * *."
7. In 1917 there was in existence an organization known as the Fifth Avenue Association and composed of merchants along Fifth Avenue. At that time the leaders of that organization conceived the idea of having a place where the members thereof could have lunch together and discuss matters of common interest, and, as a result, plaintiff was formed. In the beginning the members were from the Fifth Avenue Association, but later the membership was extended to others and now includes members from various classes or groups of business interests as will be shown in finding 22.
8. After two prior locations, in 1930 the Club moved to its present location in the Lincoln Building, 60 East 42nd Street, New York City. When that building was being constructed shortly prior to 1930, the owners of the building felt it would be desirable to have a luncheon club in that building as an inducement to prospective tenants, and, as a result, arrangements were made with the Club to occupy its present quarters. The rental charged the Club under the original lease, $80,000 per year, was less than that charged other tenants for comparable space. Later, during the depression period, when there was a substantial decrease in the membership and the Club was no longer able to pay the prescribed rental, a plan was agreed upon between the operators of the building and the Club under which the Club paid to the operators only the net cash profits from the operations of the Club and the balance of the rental was waived. The amount so paid under this latter arrangement was substantially less than the prescribed rental under the lease, amounting in one month to only $8.40. The present rental paid by the Club is $60,000 per year which is likewise less than the rental paid by other tenants for comparable space.
9. The property and affairs of the Club are managed by 24 directors who are known as governors and are elected from its membership. The governors elect a president, one or more vice presidents, a secretary and a treasurer, and such other officers as they may deem necessary for the proper management of the Club. The governors also elect five from their group who with the officers of the Club constitute an executive committee which directs and manages the affairs of the Club, subject to the direction of the governors as a whole.
10. Any male person of 21 years of age or over may be elected a member of the Club, subject to the provisions of the bylaws. The number of members is determined from time to time by the governors but shall not exceed 1,000 for each of the two classes of membership, that is, resident and non-resident. A resident member is a member who has either a residence or a place of business located in the City of New York or within 50 miles thereof; and a non-resident member is a member who does not have either a residence or a place of business located in the City of New York or within 50 miles thereof. The constitution and by-laws of the Club contain the following provisions with respect to the election of candidates to membership:
"Sec. 5. Candidates for election to membership must be proposed and seconded in writing by two members not Governors The proposer and seconder of a candidate are required to send to the Governors a statement giving the name, place of residence, profession or occupation of the candidate, and such information as to his qualifications as the proposer and seconder may deem proper. No candidate for resident membership shall be voted for unless personally known to at least two members of the Governors, nor shall any candidate for non-resident membership be voted for unless the proposer and seconder of such candidate have communicated in writing to the Governors such information respecting the candidate as will enable the Governors to act upon his nomination. Two adverse votes of the Governors shall reject a candidate; a rejected candidate shall not again be proposed within one year.
* * * * * *
"Sec. 7. The proceedings of the Governors on nominations of candidates or elections of members shall be secret and confidential."
11. The constitution and by-laws prescribe an entrance (initiation) fee for resident members of $200 and for non-resident members of $50, and annual dues of $125 for resident members and $25 for non-resident members. However, the Board of Governors is empowered to prescribe from time to time initiation fees and dues in amounts different from those prescribed by the constitution and by-laws. The initiation fee was waived for several years but during 1945 it was reinstated in the amount of $100 for a resident member and $50 for a non-resident member, which are the amounts at the present time. Members may invite guests to the Club.
12. The Lincoln Building where the Club is located is in the heart of the Grand Central zone of New York City, an area roughly bounded by Fifth Avenue on the west, Third Avenue on the east, Forty-Sixth Street on the north, and Thirty-Fourth Street on the south. It is located across the street from the Grand Central Station, the terminal of the New York Central and New Haven Railroads and adjoins the airlines terminal. It is convenient to subway and bus lines.
13. The Club's quarters are on the 26th and 27th floors of the Lincoln Building. The furnishings for such quarters were supplied by the Club. When it moved to these quarters it spent approximately $125,000 in furnishing the premises and it subsequently expended other amounts for like or similar purposes. The total cost to the Club of its furniture, fixtures, and equipment for all years to November 30, 1946, was $178,672. However, depreciation in the amount of $167,349 has been written off of these assets over the years with the result that the undepreciated cost at November 30, 1946, was $11,323. During the ten months' period ended March 31, 1948, the Club expended $10,273.28 in redecorating the premises and for extraordinary expenses in replacing silverware, glassware, linen, etc.
14. The quarters of the Club on the 26th floor of the building consist principally of the main dining room and the kitchen. The main dining room is divided into three parts with connecting alcoves which are shown on the architect's plans as the north dining room, south dining room, and smaller connecting dining room. The total seating capacity of these connecting rooms is 363. The kitchen occupies approximately three-fifths of the space on this floor and consists of complete equipment and accommodations for a modern facility of that character, including, in addition to kitchen equipment, pantries, refrigerating units, linen rooms, lockers and toilets.
15. The quarters of the Club on the 27th floor of the building consist of seven private dining rooms, lounge, reception hall, lobby, bar and grill, ladies' dining room, reception room and powder room, administrative offices, and accessory accommodations such as toilets, coat room and elevator entrances. The lounge, lobby, and reception hall are furnished with leather upholstered chairs and davenports with adjacent tables for ashtrays and suitable lamps and lighting for reading purposes. There are a news ticker and stock quotation ticker in the lobby and two stands where cigars, cigarettes, etc., are sold. There is a large table in the lounge on which are placed newspapers and periodicals for the use of the members and their guests. The newspapers and periodicals subscribed to by the Club are Time, Life, Saturday Evening Post, Newsweek, Business Week, the New Yorker, Collier's, New York Times, New York Herald Tribune, Wall Street Journal, New York Sun, and the New York World Telegram. The bar is adjacent to the grill. Both rooms are furnished with leather upholstered chairs, wall seats, and suitable tables. The eight elevators which serve the facilities of the Club (26th and 27th floors) are the regular elevators which likewise serve other tenants in the building. A stairway which is a section of an entire stairway for the building leads from the 26th to the 27th floor.
16. Prior to January 1946, the Club operated on a six-day basis, Monday through Saturday, but during that year because of the demands of the union to which the employees of the Club belong it was necessary to change the hours of employment and operate it on the basis of a 40-hour week. When the change was first made, the employees worked staggered hours in order to meet the 40-hour week requirement, but beginning June 1, 1946, the Club has operated on the basis of a five-day week, eight hours per day, Monday through Friday, and has not been open on Saturdays. The Club is open from 7 a. m., when the kitchen employees arrive, until 6:30 p. m. The employees with the exception of bar and office employees leave at 3 p. m. The office employees, except for an individual to close the Club at 6:30, leave at 5 p. m., one bar employee at 3:30 p. m. and the other at 6 p. m. While the kitchen and dining room facilities are open in the morning for serving breakfast, only one waiter is on duty at that time, and on an average only about five breakfasts are served daily. Except for the waiter on duty at the breakfast period, the waiters are on duty only during the luncheon period. No meals other than breakfast and luncheon are served at the Club. No meals have ever been served at the Club on Sundays, holidays, or during evenings.
17. The principal activity at the Club is during the luncheon period from about noon (12 o'clock) to about 2:30 p. m. The average number of luncheons served per day during 1946 was 400 and the average check amounted to approximately $2.15. Members and their guests may have drinks served at the luncheon table, at the tables in the bar or grill, or at the bar itself. The two bartenders come on duty about 8:45 a. m. and alternate leaving every other day, one leaving at 3:30 p. m. and the other at 6 p. m. However, the principal activity at the bar is during the period from noon to 3 p. m. when luncheon is being served. The patronage of the bar after about 3 p. m. is small but usually about the close of the business day a few members come by — often with business associates — for drinks.
The reception hall, lobby, and lounge are used by the members and their guests as a waiting place when they come to the Club for luncheon and at other times, and after they have had their luncheons. In order to encourage members to leave the tables in the dining rooms promptly after luncheons are served and thereby release the tables for the use of others, the practice was initiated and now prevails of serving coffee without charge in the lounge during the luncheon period.
18. As shown in finding 15, the Club has a ladies' dining room with attendant facilities, including reception room, powder room and toilet facilities. The reception room is furnished with comfortable chairs, davenport, tables, table lamps and desk. One of the eight elevator entrances on that floor opens into the reception room. Wives and female members of a member's family over 18 years of age are permitted to use these facilities unaccompanied by the member and may have guests, in which event they are required to sign the member's name to checks for any charges incurred. When a member is accompanied by his wife, female member of his family, or lady guest, business or otherwise, for luncheon, the member is required to dine with her or them in the ladies' dining room. Ladies are not permitted beyond the area of the ladies' dining room and its attendant rooms and facilities and the areas of ingress and egress thereto, except in those situations where lady guests or lady members of organizations attend luncheon meetings of such organizations in the private dining rooms. In these latter situations, the lady or ladies are escorted from the elevators directly to such private dining rooms. The average number of ladies served daily in the ladies dining room during 1946 was approximately 25. In addition, an average of two or three ladies are served each month in the private dining rooms. Charges incurred by guests (male and female) are borne by the member whose guests they are at the Club.
19. The Club has a reciprocal arrangement with two other clubs, one located in downtown New York and the other in Philadelphia, under which the members of each club have the privilege of using facilities of the other club or clubs. The Club issues appropriate indentification cards for that purpose to members who desire to avail themselves of these privileges. Expenditures incurred in this manner are charged back to the Club of which the user is a member.
20. There have never been any games or game playing on the Club premises. There are no radio reception facilities, no musical instruments, no billiards or other recreational facilities, no game rooms, no card rooms, no barber shop, and no gymnasium. The Club has no dances, lectures, concerts, or open-house. There are no sleeping quarters at the Club.
21. The total receipts from the dining rooms, bar and humidors for the period June 1 to November 30, 1946, inclusive, were in the respective amounts of $101,834.42, $22,496.90, and $11,196.18. During the same period, the entrance fees and annual dues were in the respective amounts of $2,850 and $44,217.08.
The manager of the Club died in October 1946, at which time he was receiving an annual salary of $6,200. The chairman of the house committee has served since that time without compensation as manager of the Club. In 1946 the employees of the Club were divided into the following groups: chef's department, 16; steward's department, 17; and 1 head waiter, 6 captains, 39 waiters, and 13 bus boys. In 1946 salaries or wages were being paid by the Club to the heads of departments as follows:
Per Month Chef ............................................. $375.00 Steward .......................................... 250.00 Head waiter ...................................... 225.00 Waiter captains .................................. 105.08
The waiters are employed at the Club three hours per day. In general, they are also employed in a similar manner at restaurants or hotels during the evening or night. No tipping is allowed at the Club, but, in lieu thereof, the members contribute each year to a so-called Christmas Fund for the employees. Each employee participates in the Fund proportionately to his length of service. The amount received by each employee is approximately seven percent of his annual salary. The aggregate amount contributed by the members to this fund in 1947 was approximately $7,000.
22. During the year 1946 the Club had 500 resident members and 100 non-resident members, which was the full membership permitted at that time. That membership included the following business and professional groups:
Chemical Industry .................................... 130 Petroleum Industry ................................... 31 Copper, Cement and Steel Industries .................. 30 Advertising Profession ............................... 37 Merchandising ........................................ 89 Engineers ............................................ 42 Pulp and Paper Industry .............................. 31 Bankers .............................................. 22 Locomotive Industry .................................. 19 Real Estate Accountants .............................. 13 Lawyers .............................................. 35 Engineering and Insurance Consultants ................ 11 Brokers .............................................. 18 Builders and Contractors ............................. 9 Pharmaceutical Industry .............................. 6 Textile Industry ..................................... 5 Beverage Industry .................................... 5 Lock Industry ........................................ 3 Sugar Industry ....................................... 3
In addition the Club had four junior members during the year 1946, which was a class membership created during the war period under which sons of members might become members and thereby build up a nucleus for the future growth of the Club.
Of the total resident membership during the calendar year 1946, 199 of such members had their offices in the Lincoln Building and all except 16 had their business addresses in the Grand Central zone. The 16 members located outside the Grand Central zone represent members whose business was formerly in the Grand Central zone and whose offices have been moved to another New York area. Many of the larger business organizations have several officers and employees who are members, ranging in number from one or two up to as high as 47 in one instance, and in some instances the business organizations pay the dues of such officers and employees. The general experience of the Club is that members resign when their business connections leave the area where the Club is located.
23. The Club serves as a convenient and comfortable place for its members to secure luncheon under less crowded conditions and more expeditiously than in many of the other better eating places in that area and as a place where members may discuss matters of a business nature during the luncheon period. The cost of a meal at the Club is comparable to the cost of a meal at the better eating places in that area. Some corporations and business groups have regularly reserved tables at the Club daily where executives, department heads, and similar officials and employees of a given business organization have luncheon together and discuss problems connected with or related to that business organization. Other business groups have regularly scheduled luncheon meetings at other times, for example, monthly, where matters of a business nature are considered, such as directors' meetings. The private dining rooms are much in demand for meetings by business groups and are often reserved weeks in advance.
There is no limitation at the Club or among the members on what members shall discuss when they have luncheon together or meet at the Club, that is, whether business or otherwise, and in addition to business topics and matters of common business interest, the usual topics of the day are discussed, such as politics, baseball, international relations, etc.
The issue is whether the plaintiff is a social club or organization within the meaning of Section 1710 of the Internal Revenue Code, as amended, 26 U.S.C.A. § 1710.
"Sec. 1710. Tax.
"(a) [As amended by Section 543(a) of the Revenue Act of 1941, c. 412, 55 Stat. 687] Rate. There shall be levied, assessed, collected, and paid —
"(1) Dues or membership fees. A tax equivalent to 11 percentum of any amount paid as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $10 per year.
"(2) Initiation fees. A tax equivalent to 11 per centum of any amount paid 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. * * *
"(b) By whom paid. — The taxes imposed by subdivision (a) shall be paid by the person paying such dues or fees, or holding such life membership." 26 U.S.C.A. § 1710.
"Sec. 1712. Definitions.
"As used in this subchapter —
"(a) [As amended by Section 543(b) of the Revenue Act of 1941, supra] Dues. The term `dues' includes any assessment, irrespective of the purpose for which made, and any charges for social privileges or facilities, or for golf, tennis, polo, swimming, or other athletic or sporting privileges or facilities, for any period of more than six days; * * *". 26 U.S.C.A. § 1712.
[Effective April 1, 1944, the rate of tax was increased to 20 per centum, 26 U.S.C.A. § 1650.]
Pursuant to a ruling of the Collector of Internal Revenue that the plaintiff is a social club, taxes were collected from the members on dues and initiation fees paid by the members to the club from February 1943 to September 30, 1947. These taxes were then paid by the club to the defendant. On behalf of the members who signed powers of attorney this suit for a refund has been filed.
The facts are set out in the findings.
The regulations of the Treasury Department, Treasury Regulations 43, secs. 101.24 and 101.25, are to the effect that if the social features are a material purpose of the organization it is a social club, subject to the tax, but if such features are subordinate and incidental to the furtherance of a different and predominant purpose such as religion, the arts or business, etc., it is not subject to the tax.
The courts have uniformly followed this test. There have been a great many decisions practically all of which apply the same test. The law itself appears to be well settled.
But when it comes to determining the classification in which a club falls, there has been considerable difference of opinion. The differences are in the main factual. No two clubs are exactly the same. They differ widely in their purposes and practices. Each must be decided on its own facts.
Some of the cases in which clubs have been held taxable by this and other courts are shown in the footnote, also a partial list of clubs held not taxable.
Army and Navy Club of America v. United States, 53 F. Supp. 277, 72 Ct.Cl. 684; Chicago Engineers' Club v. United States, 9 F. Supp. 680, 80 Ct.Cl. 615; University Club v. United States, 79 Ct.Cl. 780; Engineers' Club of Philadelphia v. United States, 42 F. Supp. 182, 95 Ct.Cl. 42; Duquesne Club v. United States, 23 F. Supp. 781, 87 Ct.Cl. 483; Duquesne Club v. Bell, 3 Cir., 127 F.2d 363, 143 A.L.R. 1377; Turks Head Club v. Broderick, D.C., 71 F. Supp. 272, affirmed 1 Cir., 166 F.2d 877.
Chemists' Club v. United States, 64 Ct.Cl. 156; Houston Club v. United States, 58 F.2d 487, 74 Ct.Cl. 640; Bankers Club v. United States, 58 F.2d 503, 69 Ct.Cl. 121; Whitehall Lunch Club v. United States, 9 F. Supp. 132, 80 Ct.Cl. 350; Builders' Club v. United States, 58 F.2d 503, 74 Ct.Cl. 595; Seattle Mantle Club v. United States, 47 F. Supp. 806, 98 Ct.Cl. 562; Merchants Club v. United States, 66 F. Supp. 126, 106 Ct.Cl. 562; Squantum Ass'n v. Page, D.C., 7 F. Supp. 815, affirmed 1 Cir., 77 F.2d 918; Town Club of St. Louis v. United States, D.C., 60 F.2d 628; Union Club of Pittsburgh v. Heiner, 3 Cir., 99 F.2d 259.
The district and circuit courts, as well as this court, while recognizing the same principle of law, have held on the facts presented certain clubs subject to the tax and others not subject to the tax, dependent upon whether the social features were found to have been a material part of the club's purposes.
The plaintiff cites our opinion in the case of Merchants Club v. United States, 66 F. Supp. 126, 106 Ct.Cl. 562, in which we held that eating as such is not a social activity. We adhere to that viewpoint. But neither is it a business activity. People eat whether at work or at play.
We must look beyond this to determine the predominant purpose of a club. The setting and circumstances of the meal and other features may have a bearing on the nature of a club's activities.
Aside from the question of the breakfast and lunch we can find no predominant business purpose in the Uptown Club in connection with which its social activities could be classed as incidental. On the other hand most of its activities that could be classified at all were more of a social nature than otherwise.
The facts of the instant case are clearly distinguishable from the facts in the Merchants Club case, supra. We quote from the latter case, 66 F. Supp. at page 128, 106 Ct.Cl. at page 576: "* * * the Merchants Club is lacking in many social features found in many luncheon clubs. It is a luncheon club primarily for cotton textile merchants. It provides a place to eat lunch in a district containing no satisfactory public restaurants and it serves as semiofficial headquarters for the selling end of the cotton textile industry. There being no exchange for the marketing of cotton textiles the club is a sort of clearinghouse of information for that industry. It is open only in the daytime. It is closed on all holidays, Saturdays, and Sundays. Many official meetings and conferences are held there and office and technical problems discussed. Since its organization in 1871, over a period of nearly seventy-five years, no games have ever been allowed, nor any dancing or other forms of entertainment usual in clubs that have such activities as a material purpose."
The Merchants Club original resolution mentioned first the recognized need of a place where the members, more than 80 percent of whom were cotton textile merchants, could meet for the exchange of business views. One of the stated purposes of the amended charter was to establish and maintain quarters where members, their associates, clients, and business friends might obtain meals and have available private rooms suitable for business conferences. Many business conferences were held and business transacted after lunch had been served.
The Uptown Club has as its stated objective to establish, maintain, and operate a club, with a reading room and other accommodations for the use and convenience of its members. No business purpose was mentioned in the certificate. The club was not limited to nor largely made up of any one business or profession.
Substantial rentals are paid for two floors in the Lincoln Building in the heart of the Grand Central zone of New York City. There were 600 members, representing 20 different business and professional groups.
There are dining rooms, kitchen, refrigerating units, linen rooms, lounge, reception hall, lobby, bar, grill, ladies' dining room, reception room, powder room, etc.
There were rather elaborate furnishings. The grill and bar were furnished with leather upholstered chairs, wall seats, and tables.
Breakfasts and luncheons are served. Only a few had breakfast at the club. There are two bartenders who come on duty at 8:45 a. m., one of them leaving at 3:30 and the other at 6:00 p. m.
Luncheon is the main meal. An average of about 400 men are served lunches daily and an average of about 25 women.
No games are played on the premises. No dances are given. The club has no sleeping quarters.
We are unable to find in the record any predominant business purpose. It is true that people in the same business or profession naturally fall into conversations about their business. The lawyer will talk about the case he won, the doctor about a successful operation, the banker about an important loan and the broker about a sale he has made. It is frequently difficult to separate business from recreation. Businessmen will talk business even at a baseball game, but it would manifestly be incidental. On the other hand, those attending a board of directors' meeting might momentarily relax and have a drink or have sandwiches brought in, or engage in banter, but these diversions would also be incidental. Between these two extremes are all kinds of mingled facts flowing together, overlapping and criss-crossing, thus causing the Collector of Internal Revenue and sometimes the courts to have continuing problems. Naturally business groups had luncheon meetings where business was discussed.
But viewing the record as a whole we cannot escape the conclusion that this was a club where carefully chosen people could relax, eat, drink, visit and talk about a variety of subjects in a leisurely way under comfortable conditions, and that the social features, under the circumstances, were not only a material, but perhaps a major purpose of the club. At one of the reserved tables the representatives of one of the companies, thinking it a good idea to get away from business, fined anyone 25 cents who mentioned business, but at the end of six months they gave it up as that was about all they had to talk about.
In addition the club had reciprocal privileges with two other clubs, one in downtown New York and one in Philadelphia. Any member of the Uptown Club by presenting his card would be extended the privileges of the other two clubs, and vice versa. The evidence does not disclose what facilities the other clubs had.
The defendant discusses the decision in the case of Duquesne Club v. Bell, 3 Cir., 127 F.2d 363, 143 A.L.R. 1377. However, the facts in that case are not analogous to the case at bar. The Duquesne Club was clearly a social club and this court so held in the case Duquesne Club v. United States, 23 F. Supp. 781, 87 Ct.Cl. 483. The facts in this case are more similar to the facts in the case of Turks Head Club v. Broderick, D.C., 71 F. Supp. 272, affirmed 1 Cir., 166 F.2d 877, than to the facts in either the Duquesne or Merchant Club cases, supra.
We find that the Uptown Club had no predominant business purpose; that its social features were not incidental, but were a material part of the club's activities, and that during the period in question it was a social club within the meaning of Section 1710 of the Revenue Code.
The petition is dismissed.
MADDEN and WHITAKER, Judges, concur.
HOWELL and LITTLETON, Judges, dissent.