Country club membership deposits.

• Author: Herndon, Diane P.
• Position: Tax treatment

Membership deposits intended to fund capital improvements were not includible in a country club's gross income, but were properly treated as nontaxable loans (IRS Letter Ruling (TAM) 9735002).

In the TAM, applicants for membership in the country club were required to pay membership deposits. Once the deposits were paid in full, the country club issued a noninterest-bearing promissory note for repayment. The note is payable in full at the earlier of (1) 30 years from the date of membership or (2) on the date the member resigns or the country club terminates the membership. Resigning or terminated members received the deposit decreased by any amounts owed to the club. The membership deposits were treated as liabilities by the country club.

The IRS held that, because the country club has an "absolute...