Amongst my ultra-sophisticated readers there are no doubt not a few who can answer the nine (count ’em, nine) conundrums posed by Judge David Gustafson to IRS and Consolidated Sportsmen of Lycoming County, Docket No. 18549-23X, filed 5/22/25 (Happy Palindrome Day!), without batting a cliché.

I, unhappily, am a stranger to Section 501(c)(7), never having encountered in the wild a social club “’substantially all of the activities of [a social club] are for [‘pleasure, recreation, and other nonprofitable’ purposes.” Order, at p. 2. The Sports were incorporated in 1931 and got a 501(c)(7) exemption letter in 1981.

But sometime before 2011, the Sports struck oil, and more than 35% of their gross receipts came from nonmember royalties. So IRS retroactively bounces the 501(c)(7) exemption (for which years is not clear; see infra, as my expensive colleagues would say). That 35% number is part of the conundrum barrage, as same appears neither in statute nor regulation but in some kind of legislative history; son of the infamous Primoli memorandum? Judge Gustafson suggests giving this the Loper Bright treatment.

So what about activities? Does that mean members’ activities, or the entity’s? Is inurement to individuals’ benefit an issue? If so, was there any?

The Sports’ 501(c)(7) letter said “If your purposes, character or method of operation change, please let us know so we can consider the effect of the change on your exempt status.” Order, at pp. 3-4. The Sports did put the oil money they got on their 990s each year. Is that “letting us know?” Does the fact that IRS got the 990s and gave the Sports a pass each year have any effect on retroactivity?

More about retroactivity. See Order, at pp. 3-5. Judge Gustafson is on a tear again. He must have been the best cross-examiner the Palmetto State produced since John Calhoun, because his attack on IRS’ somewhat casual process and pleading will have IRS scrambling in its own end. Briefly, if the 990s told the story, what is IRS’ basis for retroactivity? Did they explicate their reasons for bouncing retroactively per Rev. Proc. 2024-5, sec. 12.03, whether in NOD or pretrial brief? If not, is the retroactivity new matter, giving IRS BoP? Note this is a Rule 122 stiped facts, so it’s all gotta be in the supplemental briefs Judge Gustafson orders.

And if what the Sports did wasn’t letting IRS know, let IRS tell Judge Gustafson what would be.

Finally, let both sides throw in anything else on point.

Remember, guys “(T)his order states the facts as they appear, upon first reading of the parties’ papers, to a judge who has much to learn about this case and about the applicable law. This order makes no findings or holdings, and we invite the parties’ corrections of any factual or legal errors, whether explicit or implicit, that they perceive.” Order, at p. 1.

He’s “jest a country lawyer.” Yeah, right, roger that.