Engineers Club of San Francisco v. United States

The Engineers Club of San Francisco (club) (plaintiff) was recognized as a social club under § 501(c)(7) of the Internal Revenue Code (code), which exempted the club from some income taxes. The club leased space in an office building. The club’s stated purposes included encouraging cooperation among engineers, fostering development of the profession, and providing physical space to carry out those purposes. The main function of the club was providing food and beverages during lunches and dinners. Typically, a club member who was also a member of some other professional organization would organize a meal at the club to host members of the professional organization, who may or may not themselves have been club members. The club also hosted outside organizations’ professional programming. The club did not program any professional activities of its own. The club petitioned the Internal Revenue Service (IRS) (defendant) for reclassification as a business league under § 501(c)(6) of the code, which provided more robust tax exemptions than did § 501(c)(7). The IRS denied the club’s request. The club followed standard procedure to protest the IRS’s denial by nonetheless applying for tax refunds. When the IRS duly denied those refunds, the club sued in district court. The district court ruled in favor of the club, and the IRS appealed.