Portland Golf Club v. Commissioner
United States Supreme Court
497 U.S. 154 (1990)
- Written by Daniel Clark, JD
Facts
The Portland Golf Club (club) (plaintiff) was a tax-exempt social club under § 501(c)(7) of the Internal Revenue Code. The club had two sources of unrelated business taxable income (UBTI): investment returns and food sales to nonmembers. The club claimed to generate losses on the nonmember food sales. The club calculated those losses by combining the direct costs of selling food to nonmembers, such as the cost of the food itself, with indirect costs, such as a portion of the club’s general fixed overhead costs. Without including the indirect costs, the club would have net gains on its nonmember food sales. The club used those losses to offset some of its taxable income from its investment returns. The Internal Revenue Service (IRS) (defendant) determined that the club was not permitted to use the food-sales losses to offset the investment income and assessed deficiencies. The club challenged the IRS in the United States Tax Court. After a long series of appeals and remands, the Ninth Circuit Court of Appeals issued a ruling favorable to the IRS. The United States Supreme Court granted the club’s petition for certiorari.
Rule of Law
Issue
Holding and Reasoning (Blackmun, J.)
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