Rev. Rul. 56-481

Advice has been requested whether a transfer fee required by a social, athletic, or sporting club or organization, in connection with the transfer of a life membership in such a club, is subject to the tax on initiation fees. The bylaws of an athletic club provide that a life membership may be transferred where the person holding the membership moves out of the locality of the club. A transfer fee must be paid by the incoming life member at the time the life membership is transferred.

Pursuant to the provisions of section 4241(a)(3) of the Internal Revenue Code of 1954 the tax imposed by section 4241(a)(2) on any amount paid as initiation fees to any social, athletic, or sporting club or organization, does not apply to the amount paid for life membership in such a club.

It is held that, since the tax on initiation fees does not apply to the amount paid for life membership, a transfer fee paid in connection with the transfer of a life membership is likewise not subject to the tax.

Revenue Ruling 54-37, C.B. 1954-1, 240, holds that where a club requires a new member to pay the transfer fee, the amount paid is subject to the tax on initiation fees. That conclusion does not apply to a transfer fee paid in connection with the transfer of a life membership, and it is modified accordingly.