Rev. Rul. 59-127

Advice has been requested whether the period of limitation upon assessment provided by section 6501 of the Internal Revenue Code of 1954 prohibits the direct assessment of the excise taxes on dues or membership fees and on initiation fees under the circumstances described below.

Certain members of a social, athletic, or sporting club paid their dues and initiation fees but failed or refused to pay the tax due thereon. The club has filed timely returns for the same periods covering the dues or membership fees tax and the initiation fees tax collected from other members of the club, but it did not report that it was unable to collect the taxes from some of its members.

Section 4241(a)(1) of the Code imposes a tax on any amount paid as dues or membership fees to any social, athletic, or sporting club or organization, if the dues or fees of an active resident annual member are in excess of $10 per year. Section 4241(a)(2) of the Code imposes a tax on any amount paid as initiation fees to any social, athletic, or sporting club or organization, if such fees amount to more than $10, or if the dues or membership fees, not including initiation fees, of an active resident annual member are in excess of $10 per year. Section 4291 of the Code provides, in part, that every person receiving any payment for facilities or services on which a tax is imposed upon the payor thereof shall collect the amount of the tax from the person making such payment.

Insofar as it is applicable here, section 6501(a) of the Code, as amended by the Excise Tax Technical Changes Act of 1958, Public Law 85-859, C.B. 1958-3, 92 provides the general rule that the amount of any tax imposed by the Internal Revenue Code of 1954 shall be assessed within three years after the return was filed (whether or not such return was filed on or after the date prescribed) and no proceeding in court without assessment for the collection of such tax shall be begun after the expiration of such period. However, section 6501(c)(3) of the Code provides that in the case of a failure to file a return, the tax may be assessed, or a proceeding in court for the collection of such tax may be begun without assessment, at any time.

Under the provisions of section 101.37(a) of Regulations 43, made applicable to the 1954 Code by Treasury Decision 6091, C.B. 1954-2, 47, every social, athletic, or sporting club or organization must collect the tax on taxable payments of dues and initiation fees, such tax to be collected at the time the dues or fees are paid. The tax so collected shall be paid to the District Director of Internal Revenue on or before the last day of the month succeeding the quarter in which collected, except where otherwise prescribed. Section 101.37(d) of the regulations provides that in the event a member refuses to pay the tax, or if for any reason the tax cannot be collected from such member, the club shall report to the District Director of Internal Revenue the name and address of the member, the amount and date of the payment on which the tax is due, and the circumstances surrounding the transaction.

Initiation fees and dues or membership fees are separate and distinct, and section 4241 of the Code imposes a separate tax, to be paid by the club member, in respect of each. Under the provisions of section 4291 of the Code and section 101.37(a) of the regulations, the club is required to collect any such taxes due, make returns, and pay over the amounts thereof to the Government. Thus, there is an obligation on the part of each member as well as the club to see that the Government receives the amounts of tax due. Technically, a single separate return could be required to be filed in respect of each member's payment of tax on dues or membership fees and a single separate return could likewise be required to be filed in respect of each member's payment of tax on initiation fees. However, as a matter of practicality and convenience, to both the taxpayers and the Government, a club is permitted to file one return combining all payments of the tax on dues or membership fees and all payments of the tax on initiation fees received in a single filing period. But, the combined return, permitted for the purpose of convenience, cannot be construed to mean that the filing thereof has started the statutory period of limitation to run as to any taxes omitted from such return with respect to those members who have failed to pay either the tax due on dues or membership fees or the tax due on initiation fees or both.

Accordingly, it is held that where a club member fails or refuses to pay either the tax on dues or membership fees or the tax on initiation fees and there has been no attempt by the club to put the Government on notice of the member's liability for such tax, a direct assessment of the amounts due may be entered against the club member at any time, even though the club has filed timely returns of like taxes paid by other members for the same period. Likewise, the same conclusion would apply in similar situations involving any of the other so-called `collected' excise taxes, which are the taxes on admissions, communications, transportation of persons, and safe deposit boxes.