- 15 -
primarily because of the surplus in petitioner's operating
revenues.
OPINION
The issue for decision is whether petitioner must include in
gross income the transfer fees that prospective members pay in
connection with their acquisitions of memberships. Petitioner
characterizes the transfer fees as contributions to capital and
principally relies on section 1189 for the proposition that
contributions to capital are not included in the gross income of
a corporation. Respondent characterizes the transfer fees as
taxable payments for services that do not qualify as
contributions to capital.
Section 118(a) states that “In the case of a corporation,
gross income does not include any contribution to the capital of
the taxpayer.” Congress enacted section 118 to codify10 the
preexisting concept of a capital contribution by a
nonshareholder, Brown Shoe Co. v. Commissioner, 339 U.S. 583, 591
(1950), or shareholder, 874 Park Ave. Corp. v. Commissioner, 23
9 Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the years in issue.
10 Sec. 118 was a new provision of the 1954 Code. The
House Ways and Means Committee report described the section as
merely stating the existing law as developed through
administrative and court decisions. H. Rept. 1337, 83d Cong., 2d
Sess. A38 (1954).
Page: Previous 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 NextLast modified: May 25, 2011