Country Club Dues Are Not Deductible – Period

January 10, 2006

As you know, no deduction is allowed for club dues [IRC Sec. 274(a)(3)]. This rule applies to amounts paid to any club organized for business, pleasure, recreation, or other social purpose. Clubs subject to these rules include those with a principal purpose of conducting entertainment activities for their members and guests or providing them access to entertainment facilities [Reg. 1.274-2(a)(2)(iii)]. This includes, among others, country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs that provide meals in settings generally considered to be conducive to business discussions.

But what if the taxpayer’s business necessitates the use of a club facility, such as a golf professional’s use of the golf course? Surely, as the use of the golf course is a basic requirement of that profession, the club fees should be deductible as a necessary trade or business expense. Apparently not—in a Small Tax Case Division opinion, the court determined that not even golf professionals and golf instructors may deduct golf club dues, as club dues are statutorily nondeductible under IRC Sec. 274(a)(3).

In the case at hand (Garcia, Rodolfo, TC Summary Opinion 2005-2, (1/3/2005)), the taxpayer was the head golf coach at a high school and attempted to deduct his country club dues as a business expense. However, the court looked to IRC Sec. 274(a)(3) and Reg. 1.274-2(a)(2)(iii)(a) in determining that “no one, including golf professionals or instructors may deduct club dues.” Accordingly, deductibility of the club dues as a business expense was denied to the taxpayer.

Observation: The nondeductibility of membership dues in a club organized for business, pleasure, recreation, or other social purposes extends to country clubs, golf and athletic clubs, airline clubs, hotel clubs, and clubs operated to provide meals under circumstances generally considered to be conducive to business discussion. However, trade associations, chambers of commerce, professional associations, and civic or public service organizations such as Rotary or Kiwanis organizations, are not subject to the dues disallowance [Reg. 1.274-2(a)(2)(iii)]. Also, business expenses incurred for the use of a club (e.g., business meals at a club) are deductible to the extent they satisfy the business substantiation requirements and subject to the 50% disallowance rules.

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