DocketNumber: Docket No. 15696-79.
Citation Numbers: 42 T.C.M. 1202, 1981 Tax Ct. Memo LEXIS 207, 1981 T.C. Memo. 546
Filed Date: 9/24/1981
Status: Non-Precedential
Modified Date: 11/20/2020
MEMORANDUM FINDINGS OF FACT AND OPINION
EKMAN,
FINDINGS OF FACT
Some of the facts have been stipulated and are so found. The stipulation of facts and exhibits attached thereto are incorporated herein by this reference.
Petitioner, Waco Lodge No. 166, Benevolent and Protective Order of Elks, is an organization exempt from Federal income 1981 Tax Ct. Memo LEXIS 207">*208 tax pursuant to the provisions of
In a letter dated July 27, 1979, the District Director for the Internal Revenue Service Center at Austin, Texas informed petitioner that there was "no change" in its liability for unrelated business income tax as reported by petitioner in its Form 990-T. Then, on August 8, 1979, respondent sent to petitioner a statutory notice of deficiency determining 1981 Tax Ct. Memo LEXIS 207">*209 that petitioner did not report properly its unrelated business taxable income on Form 990-T.
Petitioner's avowed purpose and basis for its exemption under
Petitioner owns and operates a lodge which contains a meeting room, bar, lounge, and kitchen facility. During the taxable year in issue the lodge was open four nights each week. Every night the lodge was open, the bar was open and staffed with a paid bartender. One night a week, for approximately 49 weeks, petitioner conducted weekly bingo games. The bingo games lasted 3-1/2 hours and were operated by petitioner's members and their wives.
A minimum of five persons worked the bingo games: two collectors, two cashiers, and one caller. The caller was paid for 20 of the 49 weeks that bingo was played. He received $ 10 each night for 3-1/2 hours of work, which amounted to $ 200 over the course of the year. 1 Petitioner gave the two collectors and two cashiers access to free drinks from the bar. In 1976, these workers consumed 1981 Tax Ct. Memo LEXIS 207">*210 drinks worth $ 435.50. Neither the caller nor the bingo players were given drinks free, but they could purchase them if they so chose.
Approximately 35 people attended the bingo games nightly. Attendance was limited to members and their guests; however, after guests had come once to the lodge with a member and registered at the door, they could return to the lodge on other bingo nights and play without reregistering. Petitioner introduced no evidence to establish the number of bingo players who were guests.
Petitioner had bingo receipts of $ 9,116.23 and gross sales from the bar of $ 3,881.03 for the taxable year in issue, which it reported on Form 990-T as unrelated business income. It deducted as expenses the bartender's salary, other bar costs, bingo costs, and 67 percent of expenses such as depreciation which were attributable to maintaining the organization's facilities. Included among the deductions reported on Form 990-T as bingo expenses were:
Bingo workers | $ 435.50 |
Caller | 200.00 |
Lady Elks 21981 Tax Ct. Memo LEXIS 207">*211 | 762.59 |
Cleanup 3 | 50.00 |
Respondent's determination of a deficiency reallocated 75 percent of the bar receipts, bar expenses, and depreciation to income and expenses related to petitioner's exempt purpose. Other expenses were allocated 100 percent to petitioner's unrelated business income.
OPINION
Petitioner argues that its bingo games were not an unrelated 1981 Tax Ct. Memo LEXIS 207">*212 trade or business within the meaning of
An exempt organization has unrelated business taxable income if: (1) the income is from a trade or business; (2) such trade or business is regularly carried on; and (3) the conduct of such trade or business is not substantially related to the organization's performance of its exempt function.
Petitioner argues that even if its bingo activities satisfy the general definition of an unrelated business, 1981 Tax Ct. Memo LEXIS 207">*214 they are excepted from that definition under
The bartender's services on bingo night must be treated as part of the total work performed in carrying on the bingo games. While petitioner points 1981 Tax Ct. Memo LEXIS 207">*215 out that the bar was down the hall from the bingo room, this is not sufficient evidence to dissociate the bartender's services from the games. We note that petitioner allowed the collectors and cashiers to get free drinks from the bar during the games. Those workers considered the bar close enough to consume $ 435.50 in drinks during the year. 6 Further, the bar was open to all players who came to the bingo games. Petitioner has not discharged its burden of disproving the correctness of respondent's determination that the services of the bartender on bingo nights were part of the total work performed in connection with petitioner's unrelated trade or business of bingo. See
Petitioner's contention that free drinks are not compensation has intuitive appeal. However, the Supreme Court established long ago that the term "compensation" has broad application. See
We are forced to the conclusion that substantially all of the work performed in carrying on the bingo games was compensated. The bartender, the caller, and the collectors and cashiers were compensated. Petitioner makes the de minimis argument that even if the free drinks were compensation, such compensation was so insignificant that the workers were in virtually the same position as they would have been had they received no drinks at all, so they did not receive compensation within 1981 Tax Ct. Memo LEXIS 207">*218 the meaning of
Petitioner's final 1981 Tax Ct. Memo LEXIS 207">*219 argument is that its bingo games are excluded from the
Since we have found that petitioner's bingo games were an unrelated trade or business, that not substantially all of the work performed in carrying on the bingo games was without compensation, and that bingo games were illegal in Texas in 1976, we must also find that petitioner's receipts from those bingo games are subject to the unrelated business income tax imposed by
Respondent has also determined that petitioner is subject to an addition to tax under
Petitioner did not fail to file Form 990-T based upon its own belief that it had no unrelated business taxable income; it had before it an independent audit report from a tax service which did not indicate that it was liable for any unrelated business income tax. Relying upon the advice of a competent tax advisor under these circumstances constitutes reasonable cause for failure to file. See, e.g.,
1. Petitioner's secretary testified that the caller was paid at the minimum hourly wage for his work. The caller was paid [($ 10/night)/(3-1/2 hours/night)] = $ 2.86/hour.↩
2. The Lady Elks provided free sandwiches for everyone who attended bingo nights and were given $ 15 as reimbursement.
3. This covered one-time payments to persons, such as member's children, who did not work on a regular basis.↩
4. We have held that weekly bingo games satisfy the frequency and continuity requirement of
5. Petitioner's reimbursement to the women for materials supplied may sometimes have exceeded their costs. Any excess was, in this case, de minimis and may be disregarded.↩
6. Drink prices were 25" for soda water, 35" for beer, and 75" for mixed drinks. The $ 435.50 consumed yearly averages out to $ 2.22 per worker nightly, or approximately 3 mixed drinks, 6.3 beers, or 8.9 soda waters per worker nightly.↩
7. Petitioner's reliance on
(a) Total compensated hours | 266 |
(1) Caller's compensated hours (3.5 hours/night X 20 nights) = 70 | |
(2) Bartender's compensated hours (4 hours/night X 49 nights) = 196 | |
(b) Total hours worked | 1151.5 |
(1) Caller | 3.5 hours/night |
(2) Bartender | 4.0 hours/night |
(3) 4 Workers | 16.0 hours/night |
23.5 hours nightly | |
X 49 nights | |
1151.5 hours |
(c) 266 compensated hours/1151.5 total hours = 23.1 percent↩
9. In
Louis H. Porter v. Commissioner of Internal Revenue , 437 F.2d 39 ( 1970 )
Clement L. Hirsch v. Commissioner of Internal Revenue , 315 F.2d 731 ( 1963 )
Commissioner v. Smith , 65 S. Ct. 591 ( 1945 )
State v. Amvets Post Number 80 , 541 S.W.2d 481 ( 1976 )
Welch v. Helvering , 54 S. Ct. 8 ( 1933 )