Attorney-at-Law

WELCOME TO THE CLUB

In Uncategorized on 08/14/2017 at 16:20

But Don’t Get Grossed Out

That is, welcome to the club of US taxpayers. Judge Foley delivers the greeting to Losantiville Country Club, 2017 T. C. Memo. 158, filed 8/14/17.

The Losantis’ members pay dues, assessments, food minimums, all of which are tax-exempt income to the Club. But the Losantis also allow the unaffiliated to engage in tennis, golf, swimming, and wine-and-dine, for a surcharge. The Losantis account and report for the unaffiliated on the gross-to-gross method.

Judge Foley explains:  ”Pursuant to the gross-to-gross allocation method, petitioner used the ratio of nonmember sales to total sales to determine what portion of indirect expenses was attributable to nonmember sales.” 2017 T. C. Memo. 158, at p. 3.

The Losantis lost money on the unaffiliateds every one of the years at issue (three, count ‘em, three). But the Losantis had investment and dividend income.

This kind of income draws tax like a moth to a flame, so the Losanti’s accountants amend their 990-Ts for the three years to offset the interest and dividends against the unaffiliateds’ expenses.

Now my thoroughly-experienced and battle-hardened readers know that 501(c)(7) R&Rs can’t offset interest and dividends against anything but profitable unaffiliated expenses…in other words, there has to be at least an intent to profit from the unaffiliateds after deducting interest and dividends from the net unaffiliated cash after gross-to-grossing out the operating expenses. And gross-to-gross is not how to show it. The Losantis can’t.

So, unrelated business income, and that gets taxed. See Section 512.

The Losantis’ accountants admit they’ve heard of Portland Golf Club; and not because they have a reciprocal membership agreement, if they in fact do, but because the Supremes blew off the offset dodge back in 1990 in that case.

So the Losantis are grossed out.

OK, I suppose you’re waiting for the obvious pun. I won’t disappoint my fans. Instead of Portland Golf Club, Judge Foley should have invoked the Losanti clause, Except there’s no such thing as a Lo Santi Claus.

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