Washington Athletic Club v. United States of America, Washington Athletic Club v. United States

The question presented in these cross-appeals is whether certain membership fees and dues paid to the Washington Athletic Club (the club) were exempt from federal income tax as contributions to capital within the meaning of section 118 of the Internal Revenue Code of 1954. The club sued in the United States District Court for the Western District of Washington seeking a refund of approximately $188,000 in federal income taxes paid for its fiscal years ending July 31, 1968, 1969, and 1970. At the pretrial conference defendant attempted to raise an offset to the club’s refund claim, but the district court would not permit it to do so. The district court held that the club was entitled to a refund of the taxes on the ground that the payments in issue were contributions to capital. The decision was based on pretrial proceedings which included stipulated facts and the district court’s adoption of the plaintiff’s contentions on disputed facts. The club’s motion for the recovery of attorneys’ fees was denied. Defendant appealed from the judgment and the denial of its attempted offset, while the club cross-appealed the disallowance of attorneys’ fees. We reverse the judgment of the…