Portland Golf Club v. Commissioner of Internal Revenue

PETITIONER: Portland Golf Club
RESPONDENT: Commissioner of Internal Revenue
LOCATION: Attorney Registration and Disciplinary Commission of Illinois (Chicago Office)

DOCKET NO.: 89-530
DECIDED BY: Rehnquist Court (1988-1990)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 497 US 154 (1990)
ARGUED: Apr 17, 1990
DECIDED: Jun 21, 1990

Clifford M. Sloan - on behalf of the Respondent
Leonard J. Henzke, Jr. - on behalf of the Petitioner

Facts of the case


Media for Portland Golf Club v. Commissioner of Internal Revenue

Audio Transcription for Oral Argument - April 17, 1990 in Portland Golf Club v. Commissioner of Internal Revenue

William H. Rehnquist:

We'll hear argument first in No. 89-530, the Portland Golf Club v. the Commissioner of Internal Revenue.

Mr. Henzke.

Leonard J. Henzke, Jr.:

The issue in this case involves the deductibility of the unrelated non-member business expenses of an exempt social club.

Specifically, whether the government is correct that there is a per se rule requiring an exempt social club to intend to report a tax profit on its tax return in order to deduct a loss on such business.

Here, Petitioner is a tax-exempt social club.

It is a golf club.

It has operated one of the finest golf courses in Oregon for the past 75 years.

In addition to its golf course, it operates a food and beverage business for members and also for non-members whose private parties are sponsored by members.

Virtually all the private party business is categorized as an unrelated business by Section 512(a)(3) of the Internal Revenue Code.

In the years at issue, this food and beverage unrelated business produced tax losses when... when computed according to a method stipulated by the government to be reasonable.

These losses were used to offset other unrelated business income... unrelated business income from another activity, the investment income.

The government disallowed the deduction which produced the losses on the basis that the food and beverage unrelated activity was not entered into with an intent to earn a profit.

We contend that no profit motive is required because the plain and ordinary meaning of the terms in Section 512(a)(3) do not require a profit motive.

The resolution of this case, in our view, depends completely on the terms of Section 512(a)(3).

Accordingly, I would like to take a few minutes to analyze the operation of this statute.

Section 512(a)(3) of the Code divides the activities of a social club into two parts, and for our convenience today I would like to call these parts categories or baskets.

Section 512(a)(3) creates two categories for the activities of an exemption... social club called the Exempt Category and the Unrelated Business Category.

Section 512(a)(3) then defines which club activities are to go into each category.

Section 512(a)(3)(b) narrowly defines the exempt category to consist of those activities which are member-paid social or recreational goods or services.

Goods or services that the members pay for; that's the exempt category.

On the other hand, Section 512(a)(3)(a) provides that all the remaining activities--

William H. Rehnquist:

Mr. Henzke, where will we find these sections?

In your brief?

Leonard J. Henzke, Jr.:

--The Section 512(a)(3)?

Well, it's in the--

William H. Rehnquist:

Well, in the--

Leonard J. Henzke, Jr.:

--appendix to the--

William H. Rehnquist:

--the one you... the appendix to your petition?

Leonard J. Henzke, Jr.:


No, the appendix to the brief.