Rev. Rul. 59-315

The Internal Revenue Service has been asked whether the excise tax on life memberships, imposed by section 4241(a)(3) of the Internal Revenue Code of 1954, applies to (1) an amount paid to a transferor of a life membership in a social, athletic, or sporting club or organization and (2) a transfer fee paid to the club by the transferee.

A is a life member of a social club which, under certain conditions, permits the transfer of a life membership. A transferred his life membership to B . As a consideration for this transfer, B paid a certain amount to A and also paid a transfer fee to the club.

Under the provisions of subparagraph (A) of section 4241(a)(3) of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92, effective January 1, 1959, there is imposed, in the case of life memberships, a tax equivalent to the tax upon the amount paid as dues or membership fees by members (other than life members) having privileges most nearly comparable to those of the person holding the life membership. The tax is due and payable at the time of payment of the dues and fees of such other members. If subparagraph (A) applies, no tax is paid on the amount paid for the life membership. However, under the provisions of subparagraph (B) of section 4241(a)(3) of the Code, the person holding the life membership may elect to pay a tax equivalent to 20 percent of any amount paid for the life membership instead of the tax imposed by subparagraph (A). Any election under subparagraph (B) is irrevocable.

Temporary rules relating to payment of the club dues tax by life members are set forth in Treasury Decision 6349, C.B. 1959-1, 792.

It is the position of the Service that transfer fees paid in connection with the transfer of a life membership in a social, athletic, or sporting club or organization constitute amounts paid for life membership within the scope of section 4241(a)(3). See Revenue Ruling 56-481, C.B. 1956-2, 833, which holds that such transfer fees are not subject to the tax on initiation fees imposed by section 4241(a)(2). Thus, if subparagraph (A) of section 4241(a)(3) is applicable, no tax will be paid thereunder with respect to the amount paid to the transferor of the life membership or with respect to the amount of the transfer fee paid to the club.

However, where a life member of a social, athletic, or sporting club or organization elects to pay a one-time tax, under the provisions of subparagraph (B) of section 4241(a)(3) of the Code it is held that the amount paid to the transferor of the life membership and the transfer fee paid to the club are subject to the excise tax on life memberships.

Accordingly, the applicability of the tax in the instant case depends upon whether B has elected to pay the one-time tax on life memberships.