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could not resell their memberships or profit from appreciation in
the value of the membership. We found the only benefit to the
members was their right to use the club's facilities.
In American Medical Association v. United States, 887 F.2d
760 (7th Cir. 1989), the Court of Appeals for the Seventh
Circuit, to which an appeal in this case would lie, provided
useful guidance in dealing with the member capital contribution
issue. In holding that member dues placed in the AMA’s
“association equity” reserve account were current membership
receipts that could be allocated to circulation income in the
year received, the court rejected the taxpayer’s alternative
argument that membership fees so placed “should be likened to
capital contributions.” Id. at 773. The Court of Appeals
explained:
The problem with this argument is that the AMA members
received nothing in return for their “investment” in
the AMA other than the right to receive the benefits of
membership in the single annual period for which dues
were assessed. In exchange for a capital contribution
the contributor receives a future or residual claim,
for example, for return of capital as dividends or as
the proceeds of liquidation. A capital contribution is
in the nature of an investment whereby the investor
purchases a continuing interest in an enterprise.14 In
this case there is no evidence that AMA members
received anything more for their annual membership fee
than an annual membership; they received no claim of
future benefit.
14. See, e.g., Commissioner v. Fink, 483 U.S. 89, 97
* * * (1987) (contributors must intend “to protect or
increase the value of their investment in the
corporation”); In the Matter of Larson, 862 F.2d 112,
117 (7th Cir. 1988)(capital contribution characterized
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