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specific portion of fees would be set aside for capital
improvements, and all income and receipts were commingled. The
court stated that “the amount or proportion to be used for
capital improvements must be stated at the time of ‘assessment’
and earmarked for that purpose at the time of receipt.”
In Maryland Country Club, Inc. v. United States, 75-2 USTC
par. 16,190 (D. Md. 1975), judgment revd. 539 F.2d 345 (4th Cir.
1976), the court, after examining the above- cited cases19,
concluded that there were three basic conditions of earmarking:
First, there must be a definite commitment to engage in some
capital construction; second, at the time of the initial payment,
both the club and the member must be operating under the
19 In addition to the above-cited cases, the court also
examined Cactus Heights Country Club v. United States, 280
F.Supp. 534 (D.S.D. 1967)(holding that a resolution, prior to
collection of the funds, to apply 80 percent of the funds
collected to capital improvements was sufficient to bring that 80
percent within the exception), and Pinehurst Country Club v.
United States, 248 F.Supp 690, 692-693 (D. Colo. 1965). The
court said that Pinehurst was probably at the clearly qualified
end of the scale of acceptable earmarking, stating that,
“Although earmarking was not in question in that case, the
earmarking which did occur and which was plainly acceptable
serves as a useful example in other cases.” Maryland Country
Club, Inc. v. United States, 75-2 USTC par. 16,190, at 88,952 (D.
Md. 1975), judgment revd. 539 F.2d 345 (4th Cir. 1976). In
Pinehurst the new members, in addition to paying dues, had an
option of paying an assessment for capital improvements and
construction in cash or in installments. The amounts paid as
capital contributions were accounted for separately and deposited
in a separate escrow bank account, and thereafter were
transferred directly from the escrow account to a construction
account at which time members who had paid construction
assessments were credited with the amounts not used.
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