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The first factor is whether the payment is specifically
earmarked or applied to a capital acquisition or expenditure.
Webster’s Ninth New Collegiate Dictionary defines earmarking as
“to designate or set aside (funds) for a specific use or owner”.
The repealed excise tax on club dues15 and the regulations
thereunder provide an appropriate framework for giving content to
the concept of earmarking as it should be applied in this case.16
Section 4241 imposed an excise tax on club dues and section 4243
provided an exemption from the excise tax for members’ payments
for the construction or reconstruction of capital improvements.17
The structure for imposing the club dues excise tax and allowing
the capital expenditure exemption parallels the approach under
section 118 for differentiating payments for services from
capital contributions; amounts that corporate shareholders or
association members pay for the use of corporation or association
facilities and services are ordinary income to the recipient,
15 Secs. 4241 and 4243, and the regulations thereunder,
were repealed by sec. 301 of the Excise Tax Reduction Act of
1965, Pub. L. 89-44, 79 Stat. 145.
16 The Commissioner has recognized that Federal income tax
principles can be relevant to the consideration of Federal excise
tax issues. G.C.M. 37989 (June 22, 1979); G.C.M. 36046 (Oct. 9,
1974); G.C.M. 35442 (Aug. 16, 1973).
17 Congress enacted sec. 4243 to provide club dues excise
tax relief from the burdensome and heavy initial cost of
construction or reconstruction of a club facility, whereas
“charges which go to the upkeep and operation of social,
athletic, or sporting clubs [were to] continue to be taxable.”
Conf. Rept. 2596, 85th Cong., 2d Sess. 4437-4438 (1958).
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