- 34 -
in the book entries. Only then are the amounts in the book
entries reclassified as “unrestricted capital”. The bylaw
restriction in rule 243 and the accounting ledger accounts
sufficiently restrict the amounts of the transfer fees collected
until an equal amount is paid toward the mortgage principal.20
We thus conclude that petitioner's rule 243 and its accounting
procedures sufficiently earmark the transfer fees for use in
reducing its mortgage debt, a designated capital expenditure.
The second factor is whether the equity interest of the
members increased because of the contribution to the membership
organization. There is no dispute that petitioner's members are
the equity owners of petitioner. They have voting rights and
liquidation rights according to the interest held, and their
interests are freely transferable to qualified purchasers or
transferees. Because petitioner's largest liability is the
mortgage on the CBOT building, any decrease in that liability
directly increases petitioner's members' equity. The transfer
fees accounted for over $300,000 of the mortgage principal
20 The Commissioner in Maryland Country Club v. United
States, supra, argued that earmarking, under sec. 4243, required
that the taxpayer record the funds in a separate bookkeeping
account, which was to be matched by available qualified funds in
a bank account, and/or to designate funds as capital
contributions by some formal mechanism such as a bylaw. In the
case at hand, petitioner records the transfer fees in separate
bookkeeping accounts, which are always matched by available
qualified funds in its general bank account, and the transfer
fees are designated as capital contributions by petitioner’s rule
243.
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