Golf membership fees are refundable deposits.

• Author: Ochsenschlager, Thomas P.

In CCA 200245010, the Serviceheld that golf club membership fees were refundable deposits and, thus, not includible in income in the year of receipt.

In the ruling, a taxpayer owns and manages public and private golf courses and collects a one-time flat membership fee from each new member, paid in addition to monthly fees and other dues. According to the membership contract, the club promises to pay to the member--on receipt of the full amount of the initial membership fee and approval of the membership application--the original principal amount of the fee, specified in a number of years from the application's approval date. It further states that the club will not refund a membership fee in whole or part if it terminates membership as a result of a violation of club rules and regulations, or if the member voluntarily terminates membership before a specified anniversary date.

Definition of Gross Income

Sec. 61 defines gross income as all income from whatever source derived. Regs. Sec. 1.61-1(a) provides that gross income includes income realized in any form, whether in money, property or services. According to Glenshaw Glass, 348 US 426 (1955), gross income also encompasses "an undeniable accession to wealth, clearly realized, over which a taxpayer has complete dominion." In Indianapolis Power & Light, 493 US 203 (1990) (IPL), a taxpayer did not have, in general, an accession to wealth, nor complete dominion over an item received subject to a repayment obligation (e.g., a refundable deposit or loan). However, a financial arrangement that purportedly requires repayment may actually serve to compensate the recipient in advance for services, goods or both.

In IPL, customers with suspect credit paid deposits to a utility company to secure future payment of electric bills. The company was obligated to refund the deposit once the customer either terminated service or proved its creditworthiness. Although the money could eventually be used to pay for electricity by virtue of customer default or choice, the customer was not obligated to...