106 T.C. 369">*370 BEGHE, Judge: Respondent determined deficiencies in petitioner's Federal income tax for the years 1988, 1989, and 1990 in the 1996 U.S. Tax Ct. LEXIS 22">*23 amounts of $ 108,859, $ 113,473, and $ 65,051, respectively.

The deficiencies arise from respondent's inclusion in petitioner's gross income of membership transfer fees. The sole issue is whether the membership transfer fees paid to petitioner during 1988, 1989, and 1990 are contributions to capital or payments for services. We hold the transfer fees to be excluded from gross income as contributions to capital.

FINDINGS OF FACT

The parties have stipulated some facts, and the stipulation of facts and the attached exhibits are incorporated in this opinion. At all relevant times, petitioner maintained its principal place of business in Chicago, Illinois.

Petitioner, the Board of Trade of the City of Chicago (commonly referred to as the CBOT), is a taxable membership corporation organized in 1859 under a special act of the Illinois legislature. Petitioner's principal business is the operation of a futures exchange. Petitioner owns and manages the commercial office building (CBOT building) that houses its exchange facilities. The bulk of the space in the CBOT building, approximately 80-85 percent, is leased to third-party tenants.

The CBOT building is the largest asset shown on petitioner's1996 U.S. Tax Ct. LEXIS 22">*24 balance sheet. Petitioner's management believes that the current fair market value of the CBOT building is between $ 350 and $ 400 million. The CBOT building consists of the original landmark building constructed in the 1930's, a new trading floor that petitioner constructed in the early 1970's, and an adjacent 22-story commercial building that petitioner constructed in the early 1980's at a cost of between $ 110 and $ 120 million. Petitioner's borrowings to finance these acquisitions 106 T.C. 369">*371 are represented by one consolidated and extended mortgage debt secured by the CBOT building.

During the years in issue, the mortgage debt encumbering the CBOT building represented petitioner's single largest liability. The amounts of the mortgage debt as of December 31, 1988, 1989, and 1990 were $ 33,315,792, $ 30,695,564, and $ 27,793,779, respectively. Petitioner made payments of principal and interest on the mortgage debt in the total amount of $ 5,914,269 in each of the years in issue.

Ownership of petitioner is vested in its members and is represented by five classes of transferable memberships: Full memberships, associate memberships, Government Instruments Market (GIM) memberships, Commodity1996 U.S. Tax Ct. LEXIS 22">*25 Options Market (COM) memberships, and Index, Debt and Energy Market (IDEM) memberships.

Each class of membership carries specified voting rights, dissolution rights, and trading privileges. The most comprehensive membership, a full membership, has trading privileges on all markets on the CBOT, a full share on liquidation, and one vote on all matters voted on by CBOT members. The most restricted membership, an IDEM membership, has trading privileges only on the Index, Debt and Energy market, a one-half percent of one share on liquidation and voting rights to elect members of an IDEM liaison committee to the board of directors of the CBOT. The following chart shows the numbers of different memberships during the years in issue and summarizes the rights and privileges of each class:

1996 U.S. Tax Ct. LEXIS 22">*26 106 T.C. 369">*372 The bundles of rights inherent in CBOT memberships are divisible into two components: the ownership or equity component and the trading privilege component. Although all members of a class of membership have equal rights and privileges, approximately 35 to 40 percent of petitioner's members do not exercise their trading privileges. The owner of a membership is entitled to lease or delegate the trading privileges attributable to the membership. A member who leases or delegates trading privileges retains the voting and dissolution rights attributable to the membership. Included in the 35 to 40 percent of members who do not exercise their trading privileges are approximately 16 percent of petitioner's members who neither exercise their trading privileges nor lease or delegate them to third parties.

Petitioner's members may freely sell or transfer their memberships pursuant to petitioner's rules and procedures described infra pp. 10-11. During the taxable years 1988 through 1990, 494 full memberships, 334 associate memberships, 25 GIM memberships, 487 COM memberships, and 432 IDEM memberships were sold or otherwise transferred. At the time of trial, spring 1994, the fair market 1996 U.S. Tax Ct. LEXIS 22">*27 value of a full membership was approximately $ 575,000. When a membership is transferred, the transferee, in accordance with petitioner's rule 243, ¹ must pay a transfer fee.

Petitioner's rule 243 is separated into three sentences. The first states that "No transfer of a membership may be consummated unless the transferee pays to the Association a 106 T.C. 369">*373 transfer fee". ² The transfer fee applies not only to sales of memberships but also to transfers of memberships without consideration, such as intrafamily transfers and intrafirm transfers from the name of an owner firm's qualified partner or employee to another qualified individual in the firm. Petitioner's management regards the transfer fees as necessary for applicants to understand and recognize that they are the owners of the association.

1996 U.S. Tax Ct. LEXIS 22">*28 The second sentence of rule 243 states that "The amount of [the transfer fee] is established from time to time by the Board of Directors." ³ The amount of the transfer fee depends on the class of membership transferred. During the taxable years 1988 through 1990, the transfer fees set by petitioner's board of directors were $ 1,000 for full and associate memberships, $ 350 for GIM and COM memberships, and no fee for an IDEM membership. In the early 1970's petitioner's board of directors increased the transfer fees for full and associate memberships from $ 500 to $ 750. During this same period, petitioner constructed the new trading floor. In 1978, petitioner's board of directors increased the transfer fee for full and associate memberships from $ 750 to $ 1,000, effective in 1979 when petitioner began construction of the adjacent 22-story commercial building.

The final sentence of rule 243 states1996 U.S. Tax Ct. LEXIS 22">*29 that "The transfer fee so collected shall be used to purchase, retire or redeem the indebtedness encumbering the Board of Trade Building." ⁴ In 1988, 1989, and 1990, petitioner received transfer fees totaling $ 319,800, $ 333,350, and $ 345,050, respectively. The 106 T.C. 369">*374 amount of mortgage principal payments made by petitioner in each of the taxable years substantially exceeded the amount of the transfer fees collected by petitioner during those years. For example, the transfer fees received in 1989 and 1990, respectively, of $ 333,350 and $ 345,050, compare with the mortgage principal payments of $ 2,620,288 and $ 2,901,785 during those respective years.

1996 U.S. Tax Ct. LEXIS 22">*30 For accounting purposes, each transfer fee received by petitioner is recorded as "Restricted Capital" in one or the other of two capital accounts. Petitioner uses account No. 2810 (Capital-Membership Transfers) for transfer fees collected on transfers of full and associate memberships, and account No. 2808 (Capital-Interest Transfers) for transfer fees collected on transfers of GIM and COM memberships. After a mortgage principal payment is made, an equivalent amount of the transfer fees in accounts Nos. 2808 and 2810 is considered by petitioner as "Unrestricted Capital". From time to time, the balances in account Nos. 2808 and 2810 are transferred to account No. 2850 (Retained Earnings). These accounting transfers are not made until the amount of mortgage principal paid by petitioner exceeds the balances in accounts Nos. 2808 and 2810.

For financial reporting purposes, the transfer fees received by petitioner during the year are reflected in the Statements of Consolidated Members' Equity as capital contributions of new members. Since 1937, petitioner has so treated the transfer fees received. The transfer fees received by petitioner in 1988 and 1989 were the only amounts reflected1996 U.S. Tax Ct. LEXIS 22">*31 in the Statements of Consolidated Member's Equity in petitioner's financial statements as capital contributions of new members. The amount of capital contributions of new members reflected on the 1990 financial statements is the sum of the amount of transfer fees received in 1990 and the amounts received by petitioner on sales of new participation interests to members in 1990. ⁵ Petitioner showed, on Schedule L of Form 1120, U.S. Corporation Income Tax Return, all 106 T.C. 369">*375 transfer fees collected during the taxable years 1988 through 1990 as contributions to capital.

1996 U.S. Tax Ct. LEXIS 22">*32 A member who wishes to sell a membership submits to petitioner an offer to sell, which includes an offer price. Petitioner posts all offers to sell and bids to purchase on the bulletin board of the CBOT. A sale is effected when there is a match between an offer and a bid.

Petitioner's Member Services Department collects the transfer fees in connection with the transfers of memberships. When a membership is transferred, petitioner: (1) Maintains and publishes a list of bids to purchase and offers to sell; (2) receives and holds bid purchase money and transfer fees while bids to purchase are pending; (3) receives and holds the authorization of sale submitted by a prospective seller; (4) notifies the buyer and seller whenever a bid and offer match; (5) withholds from the tendered purchase price an amount necessary to pay any outstanding exchange fees or fines of the seller, as well as any trading related debts or membership financing of the seller owed to other members or clearing firms; (6) remits membership sale proceeds to all parties who submitted claims against the seller for repayment of outstanding debt, that have been "allowed" by the exchange; and (7) keeps records of all 1996 U.S. Tax Ct. LEXIS 22">*33 membership transfers, including intrafirm and intrafamily transfers, and membership exchanges.

Within 5 business days of acquiring the membership (unless the application was submitted and approved prior to the acquisition), the purchaser must submit an application for membership to petitioner. As part of the application process, prospective members are given a copy of petitioner's rules and they are tested on their knowledge of these rules. If the new owner of a membership fails to submit an application, is not elected to membership, or withdraws the application, petitioner's regulations require the new owner to sell the acquired membership within a 30-day period. If the membership is not sold within the 30-day period, petitioner auctions the membership and remits the proceeds to the seller. On all these compulsory resales of memberships, petitioner retains the transfer fee that was paid by the original purchaser and also collects a transfer fee from the new purchaser on the resale.

106 T.C. 369">*376 In addition to collecting the transfer fees, the Member Services Department collects fees from applicants, members, and others in the following five categories: (I) Application fees, (ii) delegate fees, 1996 U.S. Tax Ct. LEXIS 22">*34 (iii) registration fees, (iv) badge fees, and (v) miscellaneous fees.

Petitioner's Member Services Department collects application fees in connection with the processing of membership applications. From time to time, petitioner's board of directors reconsiders and revises the amount of the application fee. Increases in the application fee have been related to increases in the cost of operating the CBOT Member Services Department. The application fee for all first time applicants for any type of membership was $ 750 from January 1, 1988, through December 31, 1989, and $ 1,000 from January 1, 1990, through December 31, 1990. The application fee must be paid, regardless of whether the purchaser already owns another membership. However, a person who already owns a CBOT membership submits a short-form application in connection with the acquisition of an additional membership. During the years in issue, the application fee for a short-form application was $ 300.

The Member Services Department collects a delegate fee whenever a member wishes to lease the trading rights associated with his membership. The delegate-lessee must submit a delegate application and pay a nonrefundable delegate1996 U.S. Tax Ct. LEXIS 22">*35 fee. Every firm trading on the CBOT must be registered with petitioner and pay a registration fee in connection with its registration. All individuals who are required to wear a badge on the trading floor must pay the badge fee to petitioner. ⁶ The Member Services Department collects various miscellaneous fees, including fees for fingerprinting, certificates, and coat room services.

For financial reporting and tax purposes, petitioner reports the application, delegate, registration, badge, and miscellaneous fees as revenues included in gross income. For 1988, 1989, and 1990, these revenues equaled $ 1,167,750, 106 T.C. 369">*377 $ 1,115,021 and $ 2,718,419, respectively. ⁷ For each of the taxable years 1988 through 1990, the revenues of the Member Services Department exceeded its expenses.

1996 U.S. Tax Ct. LEXIS 22">*36 The bulk of petitioner's revenues is derived from transaction fees paid for each trade executed on the exchange and from rents for the lease of space in the CBOT building. For the years in issue, petitioner received the following revenues from these sources:

All funds received by petitioner, including transfer fees, are commingled in one bank account.

During 1988 and 1989 and prior years, CBOT members had paid quarterly dues assessed by the CBOT board of directors to help cover operating expenses. However, petitioner waived membership dues for every year from 1990 ⁸ through the time of trial, primarily because of the surplus in petitioner's operating revenues.

OPINION

1996 U.S. Tax Ct. LEXIS 22">*37 The issue for decision is whether petitioner must include in gross income the transfer fees that prospective members pay in connection with their acquisitions of memberships. Petitioner characterizes the transfer fees as contributions to capital and principally relies on section 118 ⁹ for the proposition that contributions to capital are not included in the 106 T.C. 369">*378 gross income of a corporation. Respondent characterizes the transfer fees as taxable payments for services that do not qualify as contributions to capital.

Section 118(a) states that "In the case of a corporation, gross income does not include any contribution to the capital of the taxpayer." Congress enacted section 118 to codify ¹⁰ the preexisting concept of a capital contribution by a nonshareholder, Brown Shoe Co. v. Commissioner, 339 U.S. 583">339 U.S. 583, 339 U.S. 583">591 (1950), or shareholder, 874 Park Ave. Corp. v. Commissioner, 23 B.T.A. 400">23 B.T.A. 400 (1931);1996 U.S. Tax Ct. LEXIS 22">*38 Paducah & Ill. R.R. v. Commissioner, 2 B.T.A. 1001">2 B.T.A. 1001 (1925); G.C.M. 4015, VII-1 C.B. 120 (1928), revoked by Rev. Rul. 77-354, 1977-2 C.B. 50.

Respondent postulates that, under section 1.118-1, Income Tax Regs., a payment cannot be a contribution to capital unless it is voluntary, pro rata, and required by the corporation to conduct its business, as described by the somewhat circumscribed example in the regulations. ¹¹ Respondent argues that the transfer fees are not contributions to capital because they are not needed by petitioner to conduct its business, and are neither voluntary nor pro rata.

1996 U.S. Tax Ct. LEXIS 22">*39 That the transfer fees are neither voluntary nor pro rata is not dispositive of whether the fees are capital contributions. Mandatory payments to a corporation may qualify as capital contributions, Concord Village, Inc. v. Commissioner, 65 T.C. 142">65 T.C. 142 (1975); Lake Petersburg Association v. Commissioner, T.C. Memo. 1974-55, and the Supreme Court has observed that a payment to a corporation can be a capital contribution even if some shareholders contribute less than others or nothing at all, Commissioner v. Fink, 483 U.S. 89">483 U.S. 89 (1987); see also Sackstein v. Commissioner, 14 T.C. 566">14 T.C. 566 (1950). These cases confirm that the language of the regulation is merely illustrative and does not exhaust the definition of a capital contribution.

106 T.C. 369">*379 Nor does petitioner's lack of need for the transfer fees in order to conduct its business compel the conclusion that they are not contributions to capital. The corporation's need is only another element of the illustrative language of the regulation. A payment can be a contribution to capital where it is not needed by the corporation for the1996 U.S. Tax Ct. LEXIS 22">*40 conduct of its business. See Cambridge Apartment Bldg. Corp. v. Commissioner, 44 B.T.A. 617">44 B.T.A. 617 (1941) (holding shareholder payments in excess of operating requirements to be contributions to capital when used to retire bonded indebtedness).

The correct characterization of a shareholder payment to a corporation depends on the capacities in which the shareholder and the corporation deal with each other in making and receiving the payment. Cf. sec. 1.301-1(c), Income Tax Regs. (limiting dividend treatment to amounts paid by a corporation to a shareholder in his capacity as such), sec. 1.311-1(e)(1), Income Tax Regs. (applying sec. 311 ¹² to distributions to shareholders made by reason of the corporation-shareholder relationship and not to transactions between a corporation and a shareholder in his capacity as debtor, creditor, employee, or vendee, where the fact that the distributee is a shareholder is incidental to the transaction). Here the characterization issue is complicated by the fact that the payors of the transfer fees become both equity owners of petitioner and its primary customers, and that, by becoming members, the payors of the transfer fees1996 U.S. Tax Ct. LEXIS 22">*41 become entitled to use the trading facilities of the exchange.

CBOT members' use of petitioner's trading facilities does not prevent the transfer fees from being contributions to capital. A payment by a member-owner of an organization can be a contribution to capital even where the member-owners receive goods or services from the corporation. See 65 T.C. 142">Concord Village, Inc. v. Commissioner, supra (payments by members to a cooperative housing corporation to fund a replacement reserve held to be contributions to capital, even though members1996 U.S. Tax Ct. LEXIS 22">*42 also leased property from the corporation); Minnequa Univ. Club v. Commissioner, T.C. Memo. 1971-305 (payments 106 T.C. 369">*380 by members to an incorporated non-stock social club to repair and improve the club's building held to be capital contributions even though the club's principal business was providing services to its members); Lake Forest, Inc. v. Commissioner, T.C. Memo. 1963-39 (payments by members to a cooperative housing corporation to meet mortgage amortization obligations were held to be capital contributions even though members also leased property from the corporation). Because petitioner's members have a dual role as users of the CBOT services and facilities and holders of equity interests in the CBOT, we must determine whether the payments were made in consideration of the receipt of goods or services from petitioner or as an investment in the capital of the corporation.

Respondent argues that the transfer fees are payments in consideration of obtaining access to the trading facilities and thus are ordinary income. We disagree. Petitioner charges its members a separate transaction fee for each trade executed on the exchange. 1996 U.S. Tax Ct. LEXIS 22">*43 A transaction fee is paid in consideration of the use of the trading facilities every time a trade is executed. The transaction fees amounted to more than $ 40 million in each of the 3 years in issue and are petitioner's primary source of revenue. We are not persuaded that the transfer fees, amounting to less than 1 percent of the transaction fees charged for actual use of the trading facilities, are payments in consideration of the use of trading facilities, even though payment of the transfer fee is a prerequisite to obtaining or retaining membership.

Respondent also argues that the transfer fees paid to petitioner were for services provided to its members in consideration of and in connection with membership transfers and are thus taxable income. In support of this argument, respondent asserts that, in exchange for the transfer fees, petitioner performs the services listed supra pp. 10-11.

We are not persuaded that these services are provided in consideration of the transfer fee. An indicator of whether a payment is for a good or service is whether the amount of the payment is directly related to the amount and number of services provided or merely incidental thereto. See1996 U.S. Tax Ct. LEXIS 22">*44 James Hotel Co. v. Commissioner, 39 T.C. 135">39 T.C. 135, 39 T.C. 135">142 (1962), affd. 325 F.2d 280">325 F.2d 280 (10th Cir. 1963); cf. sec. 1.311-1(e)(1), Income Tax Regs. In the case at hand, the amounts of petitioner's transfer 106 T.C. 369">*381 fees have no quantifiable correlation with the amounts or extent of the functions performed or services rendered by the Member Services Department. The same functions are performed for the different classes of members even though they pay different transfer fees. In fact, 432 IDEM memberships were either sold or transferred during the taxable years without the transferees paying any transfer fees, and the Member Services Department performed the same functions with respect to these transfers as it would have performed for a full membership transferee who paid $ 1,000. Petitioner, in some instances, assesses the same fees despite substantial differences in the amounts of services. For instance, the transfer fee for an intrafamily transfer of a full membership, which requires few of the services listed, is normally $ 1,000, the same transfer fee payable in connection with an outright sale of a full membership, which requires the entire1996 U.S. Tax Ct. LEXIS 22">*45 range of services.

In contrast to the transfer fees, the application fees paid in connection with applications for CBOT memberships are directly related to the services performed in connection with the applications. Short-form applications, which obviously require fewer services, require a lower fee than full applications. The application fees are based on the services rendered and, as such, are treated as ordinary income. On the other hand, the transfer fees are not based on the functions performed. Rather, the transfer functions are performed incidentally to the paying of the transfer fee. The lack of correlation between the different transfer fees and the functions performed by the Member Services Department supports the conclusion that the transfer fees are not payments for or in consideration of these services.

The parties agree that the payor's motive controls whether a payment is a contribution to capital, whether the payor is a nonshareholder, see United States v. Chicago, B & Q. R.R., 412 U.S. 401">412 U.S. 401, 412 U.S. 401">411-413 (1973); Brown Shoe Co. v. Commissioner, 339 U.S. 583">339 U.S. at 591, or a shareholder, Washington Athletic Club v. United States, 614 F.2d 670">614 F.2d 670, 614 F.2d 670">673-677 (9th Cir. 1980).1996 U.S. Tax Ct. LEXIS 22">*46 If the payor is a shareholder, we specifically look to see whether the payor has an investment motive in making the payment. See, id. (holding the investment motive to be the crucial element of capital contributions). If an investment motive exists, then the payment is a contribution to capital. 106 T.C. 369">*382 See Lake Petersburg Association v. Commissioner, T.C. Memo. 1974-55 (holding that payments of assessments to a housing cooperative were capital contributions and not membership fees for services turned on the conclusion that an investment motive existed); Minnequa Univ. Club v. Commissioner, supra (an investment interest in members' payment of assessments to a social club led to the conclusion that the payments were contributions to capital). The question in the case at hand is whether the CBOT members had an investment motive in paying the transfer fee.

Direct proof of the motive of the payor is rarely available. ¹³ Whenever state of mind is relevant under the tax laws, the most important operational question usually concerns the weight to be attached to external factors. Blum, "Motive, Intent, and Purpose in Federal 1996 U.S. Tax Ct. LEXIS 22">*47 Income Taxation", 34 U. Chi. Law Rev. 485, 544 (1967); cf. Recklitis v. Commissioner, 91 T.C. 874">91 T.C. 874, 91 T.C. 874">910 (1988) (the objective "badges" or indicia of fraud under sec. 6663); sec. 1.183-2(b), Income Tax Regs. (enumerating the objective factors taken into account evidencing a profit motive). The proper tax characterization cannot turn on the separate intentions of multiple participants in an organization, since each participant is apt to take a different view. Blum, supra at 539. Instead, motive or intent must be determined at the institutional level, which necessarily requires an examination of external factors. Therefore, we look to the objective facts and circumstances surrounding the payment to determine whether the members must or should be deemed to have an investment motive in paying the transfer fees.

1996 U.S. Tax Ct. LEXIS 22">*48 There is no preexisting checklist of objective factors that can be used as a template for deciding if the payors have an investment motive. Therefore, we look to other shareholder/club member capital contribution cases to isolate the objective factors that have tended to show an investment motive.

The transfer fees are similar to assessments paid by owners of interests in a housing cooperative, because any assessment paid by the cooperative owners can arguably be a charge for the privilege of residing on the premises, just as, 106 T.C. 369">*383 respondent argues, the transfer fee should be considered merely another charge for the privilege of trading on the CBOT. However, we held early on that some kinds of assessments imposed upon cooperative housing members by the cooperative are nontaxable contributions to capital. We will look to these cases to find some of the objective factors for our inquiry. ¹⁴

1996 U.S. Tax Ct. LEXIS 22">*49 In 874 Park Ave. v. Commissioner, 23 B.T.A. 400">23 B.T.A. 400 (1931), a housing cooperative corporation, pursuant to the terms of the proprietary leases, levied assessments on its tenant-shareholders for the purpose of amortizing debt secured by mortgages on its property. The taxpayer used the assessments to amortize the mortgage debt and credited the payments to its capital stock account. The Board of Tax Appeals held that these assessments were nontaxable contributions to capital because they were provided for in the leases and used for capital purposes.

In Cambridge Apartment Bldg. Corp. v. Commissioner, 44 B.T.A. 617">44 B.T.A. 617 (1941), the Commissioner determined deficiencies against a cooperative housing corporation on the ground that assessments collected from the tenant-shareholders for the ostensible purpose of retiring bonded indebtedness were income to the corporation. The taxpayer used most of the funds for operating expenses, but used any excess funds to retire its bonds. The Board, relying on 874 Park Ave., held that the excess of assessments used to retire bonds were nontaxable contributions to capital, notwithstanding the lack1996 U.S. Tax Ct. LEXIS 22">*50 of an explicit agreement between the corporation and the shareholders or any requirement that the corporation use the excess funds to retire the bonds.

Our most recent opinion on the housing coop capital contribution issue, Concord Village, Inc. v. Commissioner, 65 T.C. 142">65 T.C. 142106 T.C. 369">*384 (1975), is instructive. The taxpayer was a nonstock not-for-profit housing corporation operated for the benefit of its members, who had proprietary interests. However, upon the sale of their interests, members were required under the taxpayer's bylaws to forfeit to the corporation the part of the sale price that exceeded the FHA transfer value. We held that the forfeitures were taxable gain to the taxpayer, but that all proceeds of assessments accumulated in the taxpayer's replacement reserve were nontaxable contributions to capital. We upheld capital contribution treatment of the assessments on the ground that the replacement reserve was in a separate bank account earmarked solely for capital expenditures, and the member received no goods or services in consideration for the payments to the replacement reserve. Although we were concerned that members had no right, upon the transfer1996 U.S. Tax Ct. LEXIS 22">*51 of their memberships or at any other time, to any of the contributed amounts in the replacement reserve, we concluded that this did not compel a different result because it did appear that the amounts contributed to the replacement reserve did bear some relation to the value of the members' equity in the taxpayer. 65 T.C. 142">Id. at 157.

Cases that have denied capital contribution treatment, on which respondent relies, are also instructive in determining the characteristics of a capital contribution.

In United Grocers, Ltd. v. United States, 308 F.2d 634">308 F.2d 634 (9th Cir. 1962), the taxpayer, a grocery-buying cooperative, charged its members monthly dues to participate in the cooperative. The Court of Appeals for the Ninth Circuit concluded that the members had no investment motive in paying the dues because memberships were not transferable, and there was no way that members could recover their investments in the corporation.

In Washington Athletic Club v. United States, 614 F.2d 670">614 F.2d 670 (9th Cir. 1980), the court concluded that the membership-type fees, although earmarked for capital expenditures, could not 1996 U.S. Tax Ct. LEXIS 22">*52 be treated as capital contributions because the members had no equity interest in the club and received no legal entitlement for the payment of the fees other than access to the club and the right to vote for the board of directors. The court commented that the earmarking of the payments for capital expenditures was relevant and pertinent, but not determinative of, a contribution to capital. 614 F.2d 670">Id at 675.

106 T.C. 369">*385 In Affiliated Government Employees Distrib. Co. v. Commissioner, 37 T.C. 909">37 T.C. 909 (1962), affd. 322 F.2d 872">322 F.2d 872 (9th Cir. 1963), we addressed whether membership fees paid to the taxpayer, a nonstock membership corporation operating department stores for the exclusive use of its members and their guests, were contributions to capital. We held that the fees were payments for the privilege of shopping at the taxpayer's stores and were not contributions to capital because the members were not entitled to share in the profits of the enterprise and had no assurance of a share in the dissolution proceeds because the memberships were nonassignable and terminated at death. 322 F.2d 872">Id. at 918.1996 U.S. Tax Ct. LEXIS 22">*53

In Oakland Hills Country Club v. Commissioner, 74 T.C. 35">74 T.C. 35 (1980), we denied a country club's motion for summary judgment, holding that a "proprietary interest" is not sufficient to turn a membership fee into a capital contribution. However, the members could not resell their memberships or profit from appreciation in the value of the membership. We found the only benefit to the members was their right to use the club's facilities.

In American Medical Association v. United States, 887 F.2d 760">887 F.2d 760 (7th Cir. 1989), the Court of Appeals for the Seventh Circuit, to which an appeal in this case would lie, provided useful guidance in dealing with the member capital contribution issue. In holding that member dues placed in the AMA's "association equity" reserve account were current membership receipts that could be allocated to circulation income in the year received, the court rejected the taxpayer's alternative argument that membership fees so placed "should be likened to capital contributions." 887 F.2d 760">Id. at 773. The Court of Appeals explained:

The problem with this argument is that the AMA members1996 U.S. Tax Ct. LEXIS 22">*54 received nothing in return for their "investment" in the AMA other than the right to receive the benefits of membership in the single annual period for which dues were assessed. In exchange for a capital contribution the contributor receives a future or residual claim, for example, for return of capital as dividends or as the proceeds of liquidation. A capital contribution is in the nature of an investment whereby the investor purchases a continuing interest in an enterprise.¹⁴ In this case there is no evidence that AMA members received anything more for their annual membership fee than an annual membership; they received no claim of future benefit.