North Ridge Country Club v. Commissioner Internal Revenue Service

OVERVIEW

The Commissioner of Internal Revenue (“the Commissioner”) appeals a tax court decision rejecting its deficiency assessment of North Ridge Country Club’s (“the Club”) taxable income for 1979. A social club such as the Club is taxed on non-member income. I.R.C. §§ 501(c)(7), 512(a)(3). The Club’s income from a non-member activity exceeded the direct costs of conducting the activity, but the Club reported a tax loss after considering indirect costs such as overhead. The tax court concluded that the loss was properly deductible under section 512(a)(3)(A) of the Tax Code, and could offset the gains from other non-member activities. North Ridge Country Club v. C.I.R., 89 T.C. 563 (1987). The Commissioner appeals. We reverse.

FACTS AND PROCEEDINGS

The facts are undisputed.. The Club operates a golf club, a restaurant and bar, and other facilities for the benefit of members and guests. In 1979, the year at issue, the Club obtained revenues from membership dues and fees, but also from three non-member sources. One source of non-member revenue was interest from a savings account. Another source was nonmember golf tournaments, in which the Club charged a variety of user fees and…