Consolidated Sportsmen of Lycoming County

United States Tax Court T.C. Memo. 2026-109 CONSOLIDATED SPORTSMEN OF LYCOMING COUNTY, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent __________ Docket No. 18549-23X. Filed October 29, 2026. __________ P, a nonprofit corporation under the laws of Pennsylvania, applied to R for recognition of tax-exempt status as a social club under I.R.C. § 501(c)(7), stating that its primary activities were to promote better fishing and hunting as well as the conservation of forests and streams of the State of Pennsylvania. R granted recognition of P’s status in 1981. In 2011 P entered into an oil and gas lease granting extraction rights to a third party, and for subsequent years P reported the royalty income on its Forms 990 and 990–T. Club members did not personally engage in the mineral activity. Starting at least as early as 2017, these royalties often constituted more than 50% of P’s total annual income. R examined P’s returns for years starting with 2017, and R revoked his recognition of P’s tax-exempt status in a final adverse determination letter “effective 01/01/2023”. The revocation was based on R’s determination that P’s gas and mineral royalty-related activities were so substantial that it could no longer be said that “substantially all of the activities of [P] are for such [exempt club] purposes”, as required by I.R.C. § 501(c)(7). Served 10/29/26  2 [*2] P filed in the Tax Court a petition, pursuant to I.R.C. § 7428, seeking a declaratory judgment as to its tax-exempt status under I.R.C. § 501(c)(7). Held: The gas and mineral royalty-related activities undertaken on P’s property were substantial activities of P that were not for exempt club purposes. Therefore, P is not an organization described in I.R.C. § 501(c)(7). __________ James A. Sylvester and Robert S. Schwartz, for petitioner. Marie E. Small, Joan Casali, and Mary Michelle M. McCarthy, for respondent. MEMORANDUM OPINION GUSTAFSON, Judge: Petitioner, Consolidated Sportsmen of Lycoming County (“CSLC”), is a nonprofit corporation to which the Internal Revenue Service (“IRS”) previously granted recognition of tax- exempt status under section 501(c)(7), 1 the statute that grants exemption to “[c]lubs organized for pleasure, recreation, and other nonprofitable purposes”. The IRS revoked its recognition of CSLC’s tax- exempt status in a final adverse determination letter dated September 27, 2023, which stated it was “effective 01/01/2023”. CSLC challenged that adverse determination by filing its petition for declaratory judgment pursuant to section 7428(a)(1)(E). 2 1 Unless otherwise indicated, statutory references are to the Internal Revenue Code, Title 26 U.S.C., as in effect at the relevant times, regulation references are to the Code of Federal Regulations, Title 26 (Treas. Reg.) as in effect at the relevant times, and Rule references are to the Tax Court Rules of Practice and Procedure. We round monetary amounts to the nearest dollar. 2 The Commissioner’s answer (Doc. 7) to the petition “prayed . . . [t]hat the effective date of revocation be January 1, 2017 for years in issue 2017-2023, inclusive”—i.e., not merely effective January 1, 2023, the beginning of the year in which the determination was issued, as had been stated in the final adverse determination. The parties briefed the issue of retroactivity, but on August 19, 2026, the Commissioner filed a “Notice of [Partial] Concession” (Doc. 63), in which he stated: “Respondent concedes this issue so that revocation shall be prospective.”  3 [*3] The issue for decision is whether CSLC is entitled to exemption from tax under section 501(a) as a club described in section 501(c)(7). We hold that it is not. This case has been submitted without trial pursuant to Rule 122. The facts stated below are based on the pleadings and the parties’ joint administrative record and joint stipulation of facts to this case (including exhibits attached thereto). 3 See Rules 122, 217(b)(1) and (2). Background CSLC is a Pennsylvania Domestic Nonprofit Corporation, and its principal office is in Pennsylvania. 4 CSLC’s formation CSLC is a sportsmen’s club that was incorporated in June 1936. 5 CSLC owns and maintains approximately 230 acres of forest and meadow acreage in Lycoming County, Pennsylvania, atop Pennsylvania’s Marcellus Shale formation. 6 CSLC’s members meet and conduct the club’s activities on this property. Facilities for member activities include rifle ranges, shotgun areas for trap and skeet shooting, ball fields, camping sites, picnic areas, 3 On June 27, 2024, the parties jointly filed the administrative record (Doc. 20) and a stipulation of facts (Doc. 21), and they have stated in a status report that they “agree that the issue of the petitioner’s tax-exempt status/revocation can be decided on the basis of the administrative record and stipulation, and without a trial, as permitted by Tax Court Rules 217(a) and 122(a).” The parties originally presented their positions to the Court in submissions styled as motions for summary judgment under Rule 121. By order served April 24, 2025, the Court recharacterized these filings as deemed motions to submit the case under Rule 122. 4 Absent stipulation to the contrary, the U.S. Court of Appeals for the Third Circuit would be the presumptive venue for an appeal of the decision in this case. See § 7482(b)(1)(D), (2). 5 CSLC’s articles of organization state that it was formed to promote the conservation of forests, fields, and streams of the State of Pennsylvania, to promote better fishing and hunting, in particular in Lycoming County and adjoining counties, to promote the purification of streams and rivers of Pennsylvania, to promote the care and reforestation of Pennsylvania forests and woodlands, and to promote the enjoyment of outdoor life by its members and the community in general. Its articles also state that CSLC “is a corporation which does not contemplate pecuniary gain or profit, incidental or otherwise, to its members.” 6 The Marcellus Shale is a major natural gas formation under much of Pennsylvania, New York, and parts of other states.  4 [*4] and playground areas for children. Activities also include hunting, raising game, fishing, canoeing, kayaking, and swimming. Members also use the club for Civil Air Patrol training and participate in free safety training for police and environmental protection groups. (The Commissioner does not dispute that these activities qualify under section 501(c)(7) as “pleasure, recreation, and other nonprofitable purposes”.) In all relevant years, the great majority of the hours CSLC’s members and officers spent on club matters were devoted to or related to these recreational activities. CSLC filed Forms 990 (“Return of Organization Exempt From Income Tax”) and 990–T (“Exempt Organization Business Income Tax Return”) for tax years 2007–23. During 2017–23, CSLC’s “non-member income” consisted of CSLC’s investment income and gas royalty payments during the year. CSLC’s application for recognition of tax-exempt status On August 5, 1981, CSLC filed Form 1024, “Application for Recognition of Exemption”. The application explained: “Present activities include rifle ranges, shotgun areas for trap & skeet shooting, picnic areas, playground areas for children, camp sites, fishing, ball fields, raising game, and in general supporting outdoor activities.” In item 3, Part III, the form instructed: If you are engaged in any business or fund raising activity, describe in detail the nature and the scope of the activity. Attach copies of all agreements, if any, with other parties for the conduct of such business or fund raising activity. For each business activity engaged in, state how it contributes importantly to your exempt purposes. In response to this instruction, CSLC stated: “There are no outside fund raisers.” On Part IV (“Financial Data”), CSLC reported $9,600 of revenue from “Timber” (but no mineral royalties), but its projected budgets for 1982 and 1983 included no timber sales (and no mineral royalties). The IRS’s prior determination CSLC received IRS recognition of its tax-exempt status as a social club under section 501(c)(7) by a favorable determination letter dated November 19, 1981. The letter included the statements that the favorable determination was “[b]ased on information supplied, and  5 [*5] assuming your operations will be as stated in your application,” and “[i]f your purposes, character, or method of operation change, please let us know so we can consider the effect of the change on your exempt status.” The letter indicated that CSLC was required to file Form 990 “if your gross receipts each year are normally more than $10,000.” The Administrative Record shows that CSLC did file Forms 990 (and Form 990–T) starting no later than 2007, and the Commissioner does not assert that CSLC failed to file returns. Rice lease In March 2011 CSLC entered into an oil and gas lease with Rice Drilling B, LLC (“Rice”), to lease exclusively to Rice all the oil, gas, coalbed methane, and other minerals and their constituents on and under CSLC’s land for a primary term of five years. Pursuant to an addendum to the agreement dated March 2011, CSLC received in 2011 a signing bonus of approximately $921,800. In March 2011 CSLC’s board of directors, by unanimous vote, approved entering into the lease and addendum with Rice. Pursuant to the lease, royalties were not to be paid to CSLC until the lessee (Rice or its assignee) commenced extracting gas, which did not occur until December 2016. During 2017–23, the revenue from the gas leasing activity and investment income became significant sources of annual revenue for CSLC as follows: 7 Tax year Mineral royalties Percentage of total revenue 2017 $232,866 58.7 2018 186,099 58.3 2019 172,637 57.3 2020 78,027 35.2 7 For 2018 and 2019, the mineral royalty amounts are from petitioner’s Forms 990, line 11. For 2017 and 2020, royalty amounts are based on petitioner’s Forms 990 and are a combination of “royalties” and “rental income” (Part VIII, p. 9, lines 5 and 6c) to reflect an understanding CSLC and the Appeals Officer had that “rental income” was related to the gas leasing. The above statement is confirmed by CSLC’s statement in its letter to the Appeals Officer that, “[f]or 2017 and 2020 this rent revenue arose from [CSLC’s] ground leasing situation with gas producer(s).” For 2021–2023, royalty amounts are from CSLC’s Forms 990-T, Schedule A, page 3. The total income amounts are taken from the revenue agent’s chart (Exhibit 87-J; Doc. 20, at 1324), to which the CSLC’s reply brief appears to assent (Doc. 41, at 5 n.4).  6 [*6] 2021 34,085 19.6 8 2022 1,180,656 90.5 2023 303,610 44.6 Total $2,187,980 For those seven years, the average annual mineral royalties were well over $300,000; and in each year, non-member income exceeded 50% of gross revenue. CSLC’s net assets grew from $1,874,563 in 2017 to $2,941,648—i.e., an increase of more than $1 million—by the end of 2023. CSLC reported the royalties on its returns for these years. 9 In these years CSLC’s members spent virtually zero hours on mineral activities, and CSLC’s officers spent de minimis hours. But minerals do not extract themselves, and in the absence of evidence about the amount of time spent by Rice personnel (and in view of CSLC’s burden of proof), we must assume that Rice personnel spent substantial amounts of time each year on the mineral extraction activity. IRS’s examination An IRS agent reviewed CSLC’s tax returns for 2016, 2017, 2018, and 2019. The agent sent CSLC a 30-day letter dated October 27, 2021, which “propos[ed] to revoke your tax-exempt status” for “Tax periods ended: December 31, 2017”—i.e., a single year. His proposal was explained in an enclosed audit report that recounted the amounts of CSLC’s non-member income and other financial information from 2017, 2018, and 2019, and it stated the following “Conclusion”: The Consolidated Sportsmen of Lycoming County’s action of entering into an agreement to sell their gas and mineral rights has led to the generation of non-member investment 8 Tax year 2021 appears to be the only year in which the mineral royalties did not exceed 35% of total revenue. However, CSLC’s other investment income in 2021 amounted to $66,788, and that amount combined with the royalties yielded total non- member income of $100,873, which constituted 58% of total income. The chart above also shows that in two other years, royalties were less than 50% of total income (i.e., 35.2% in 2020 and 44.6% in 2023); but in both those years, total non-member income (i.e., including non-mineral investment income) exceeded 50% of total revenue—i.e., 51% in 2020 and 54% in 2023. 9 In a supplemental brief requested by our order (Doc. 46), the Commissioner tallied defects in CSLC’s reporting of the royalties (see Doc. 60, at 21–23), but CSLC’s returns for 2016–19 were clear enough on the subject to enable the IRS agent to propose revocation of tax-exempt status, as discussed below.  7 [*7] income and royalties. The income generated on the sale of the drilling rights, as evidenced . . . in the agreement, made by the organization, has caused the organization to consistently exceed the 35-percent non-member income limit imposed by the Internal Revenue Code. This has led to the determination that the organization is no longer qualified under Internal Revenue Code Section 501(c)(7), and the organization’s tax-exempt status must be revoked. Attached to the examiner’s letter was a Form 4621–A (“Exempt Organizations – Report of Examination (Proposed Status Changes)”), which on line 12 (“Nature of Proposed Status Change”) stated: “Revocation of exemption under IRC Section 501(c)(7), effective (date) Jan. 1, 2017”. In a letter dated November 10, 2021, CSLC stated that it had “determined not to consent to the revocation of the organization’s section 501(c)(7) status from and after January 1, 2017.” In a protest dated December 6, 2021, CSLC responded to the IRS examiner’s letter recommending revocation. CSLC asserted that the IRS misapplied the 35% rule primarily because very little of its members’ time was spent maintaining the gas lease operations and/or acquiring the revenue arising from petitioner’s gas lease. CSLC argued that the statute calls for an analysis of time spent engaged in social club activities by its members, rather than a social club’s revenue from member and non- member sources, in the determination of whether substantially all of a club’s activities are for pleasure, recreation, and other nonprofitable purposes. CSLC presented information for years back to 2016 and argued that a significant portion of its resources and its members’ activities were devoted to its exempt purposes of conservation and social activities, and it provided the number of hours its members and officials engaged in these activities. The protest asserted that CSLC’s exempt status “should . . . not be revoked effective January 1, 2017.” This protest resulted in communication and exchange of information between the IRS and CSLC. Final adverse determination On September 27, 2023 (almost two years after the October 2021 30-day letter proposing revocation), the IRS’s Office of Appeals issued to CSLC a “final adverse determination” that CSLC “do[es] not qualify for  8 [*8] exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(7).” The letter stated that revocation was “effective 01/01/2023”. The letter explained: We made the adverse determination for the following reasons: You are not organized for pleasure, recreation, and other nonprofitable purposes because a substantial amount of your activities (gas leasing) is not in furtherance of exempt purpose under IRC section 501(c)(7), regulations, and applicable revenue rulings and may have caused inurement.[10] Discussion I. General legal principles A. Scope and Standard of Review The parties agree that CSLC exhausted its administrative remedies within the IRS, as required by section 7428(b)(2), before timely filing its Petition. Section 7428(a)(1)(E) confers subject matter jurisdiction on the Tax Court to “make a declaration” with respect to the “initial qualification” or “continuing qualification” of an organization as an organization described in section 501(c)(7) which is exempt from tax under section 501(a). For purposes of section 7428, “a determination with respect to a continuing qualification includes any revocation of or other change in a qualification.” § 7428(a). The Commissioner may revoke a favorable determination letter for good cause. Treas. Reg. § 1.501(a)-1(a)(2). Under Rule 217(a), the scope of the Court’s review in an “initial qualification” case is limited to the stipulated or certified administrative record; but in a revocation case (such as this one), “[d]isposition . . . may 10 The letter made no further mention of inurement and gave no explanation of how inurement “may have” occurred. Neither the Commissioner’s opening brief (Doc. 32) nor his answering brief (Doc. 42) makes affirmative assertions of inurement in this case. By order (Doc. 46) we directed the Commissioner to state whether inurement is an issue in this case, and his response (Doc. 60, at 11–12) clarified that the “Commissioner does not contend that inurement is an issue in this case because [the Commissioner] has not demonstrated that any part of petitioner’s net earning inured to the benefit of any private shareholder pursuant to section 501(c)(7).”  9 [*9] be made on the basis of the administrative record alone only if the parties agree that the administrative record contains all the relevant facts and those facts are not in dispute.” Here the parties jointly stipulated the administrative record, to which neither objects, but they have also jointly filed additional stipulations of fact, indicating that the case is not to be decided on the basis of the administrative record alone. Such a case might then be the subject of a trial, but they jointly informed the Court that “[t]he parties agree that the issue of the petitioner’s tax exempt status/revocation can be decided on the basis of the administrative record and stipulation, and without a trial, as permitted by Tax Court Rules 217(a) and 122(a).” We therefore deemed the case submitted fully stipulated under Rule 122. In cases involving tax exemption under section 501(a), as in tax cases generally, “the determination of the commissioner . . . is endowed with a presumption of correctness. . . . To overcome this presumption, plaintiff has the burden of presenting ‘substantial evidence as to the wrongfulness of the commissioner’s determination.’” Puritan Lawn Mem’l Park Cemetery v. United States, 15 Cl. Ct. 234, 240 (1988) (quoting KFOX, Inc. v. United States, 206 Ct. Cl. 143, 151–52 (1975)). Consequently, an organization bears the burden of establishing that the Commissioner’s determination is erroneous. See Rule 142(a); Partners in Charity, Inc. v. Commissioner, 141 T.C. 151, 162 (2013). Although the case is fully stipulated, “[t]he fact of submission of a case, under paragraph (a) of this Rule [122], does not alter the burden of proof, or the requirements otherwise applicable with respect to adducing proof, or the effect of failure of proof.” Rule 122(b); see Pascucci v. Commissioner, T.C. Memo. 2024-43, at *9, aff’d, No. 24-2429, 2025 WL 3152654 (2d Cir. Nov. 12, 2025). Because we review the final adverse determination de novo, petitioner has the burden to prove its entitlement to exempt status by the preponderance of the evidence. See Partners in Charity, 141 T.C. at 162. B. Tax-exempt social clubs 1. Exemption under section 501(c)(7) Section 501(a) generally exempts from taxation dozens of types of organizations described in sections 501(c) and (d) and 401(a), including social “[c]lubs organized for pleasure, recreation, and other nonprofitable purposes” under section 501(c)(7). (The statute calls these organizations simply “clubs”, but in this Opinion we follow the prevailing custom in the case-law and refer to them as “social clubs”.)  10 [*10] The tax exemption for social clubs originated in section 11(a)(9) of the Revenue Act of 1916, ch. 463, 39 Stat. 756, 767 (“Club organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net income of which inures to the benefit of any private stockholder or member”). This exemption appeared in the Internal Revenue Code of 1939 as section 101(9) (“Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private shareholder”). It appeared in the Internal Revenue Code of 1954 as section 501(c)(7), and was amended to its present form in 1976, see Act of Oct. 20, 1976, Pub. L. No. 94-568, § 1(a), 90 Stat. 2697, 2697, when “organized and operated exclusively for” became “organized for”, and when “substantially all of the activities of which are for such purposes” was added, thus effectively replacing an “exclusively” standard with a “substantially all” standard. Probably the best-known type of tax-exempt organization is a charity exempt under section 501(c)(3), contributions to which may entitle the donor to a deduction under section 170(a) and (c)(2). A charity may not be “operated for the benefit of private interests such as designated individuals, the creator or his family, shareholders of the organization, or persons controlled, directly or indirectly, by such private interests.” Treas. Reg. § 1.501(c)(3)-1(d)(1)(ii). Broadly speaking, it makes sense for a charity to be tax-exempt (and for contributions to it to be deductible) because a charity serves not private interests but the public interest. On the other hand, social clubs described in section 501(c)(7) are exempt from tax for a different reason. 11 If a woman uses her money to buy and maintain a kayak and enjoys using it, then nothing has yet occurred that implicates income tax (as long as she does not claim any income tax deduction for her kayak expenses). But if two women collaborate to buy and maintain a kayak and both enjoy using it, or if ten women join together and pay dues to do so, then a question might arise as to whether the pooling of their money constituted an entity that itself could be subject to income tax. Section 501(c)(7) answers that question in the negative by providing a tax exemption for “[c]lubs 11 The exemption for social clubs rests on a totally different premise. Social clubs are exempted from tax not as a means of conferring tax advantages, but as a means of ensuring that the members are not subject to tax disadvantages as a consequence of their decision to pool their resources for the purchase of social or recreational services. Portland Golf Club v. Commissioner, 497 U.S. 154, 162 (1990).  11 [*11] organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.” 12 (Emphasis added.) The statutory phrase “substantially all of the activities” is important in this case, as we show below. 2. Unrelated business income Social clubs are supported primarily by members’ dues, which are not tax deductible by the members. See § 274(a)(3). That member- derived “exempt function income”, see § 512(a)(3)(B), is not taxable to the club, by virtue of the club’s exemption from income taxation. However, section 512 defines, and section 511 makes the club subject to tax on, “unrelated business taxable income” (“UBTI”). For a social club, that definition is broadened by section 512(a)(3) (beyond the UBTI taxable to a charity) so that a social club’s UBTI includes its investment income and other non-member income. Thus, a social club does not owe tax on members’ dues but does owe tax on its investment income. In this case, the club’s mineral royalties are UBTI that is subject to tax; and even if CSLC prevails in this case, it will not avoid tax on those royalties (and it does not contend that it will). Not at issue in this case is the amount of CSLC’s tax liability on the mineral royalties, or whether those royalties are taxed as UBTI (either passive investment income or business income) if CSLC qualifies as an otherwise tax-exempt social club or instead are taxed as regular income if CSLC reverts to taxable status. We therefore need not resolve here an amount of tax liability. For present purposes, it is sufficient to observe that, one way or another, CSLC owes tax on its mineral royalties. The question pending in this case is whether those royalties affect CSLC’s entitlement to tax-exempt status. 12 “Inurement” of net earnings and “private benefit” are two distinct but overlapping causes of disqualification for tax exemption for a section 501(c)(3) charity. See Cap. Gymnastics Booster Club, Inc. v. Commissioner, T.C. Memo. 2013-193, at *13– 15. Inurement of net earnings also disqualifies a social club from exemption under section 501(c)(7), but “private benefit” does not, since the very nature of a club for “pleasure” and “recreation” is to benefit its members. Inurement is not an issue in this case. See supra note 10.  12 [*12] 3. 1976 amendment and legislative history As we have noted, before the 1976 amendment, section 501(c)(7) required that social clubs operate “exclusively” for nonprofitable club purposes. The amendment to section 501(c)(7) replaced the term “exclusively” with “substantially all”. The statutory amendment did not enact a 35% test, and no 35% test has ever been enacted. However, a 1976 Senate Finance Committee report had recommended such a limit: “It is intended that these [section 501(c)(7)] organizations be permitted to receive up to 35 percent of their gross receipts, including investment income, from sources outside of their membership without losing their tax-exempt status.” 13 If a club’s income sources were within these limits, then the club would be considered to be operated substantially for pleasure, recreation, and other nonprofitable purposes. The Senate Finance Committee report suggested that, even if a club’s income sources were in excess of the 35% limit, “[t]he decision . . . as to whether substantially all of the organization’s activities are related to its exempt purposes is to continue to be based on all the facts and circumstances.” S. Rep. No. 94-1318, at 4, 1976-2 C.B. at 599. 14 However, the committee did not intend “that these organizations should be permitted to receive, within the . . . 35-percent allowance[], income from the active conduct of businesses not traditionally carried on by these organizations.” But again, a 35% rule was never enacted. 4. The IRS’s administrative position The Commissioner acknowledges in brief that “[r]egulations to accompany the 1976 Amendment have not been issued, and no revenue ruling that embodies the . . . 35-percent guideline[] exists. The IRS relied on (and the Commissioner continues to rely on) the legislative history to section 501(c)(7) when it applied the 35-percent guideline to the petitioner.” His brief also asserts, and we assume, that the IRS “has interpreted the legislative history and applied the 35-percent rule consistently to social clubs over the course of four decades.” 13 S. Rep. No. 94-1318, at 4 (1976), reprinted in 1976-2 C.B. 597, 599; see also H.R. Rep. No. 94-1353, 1, 1–5 (1976). 14 Cf. Skillman Family Reunion Fund, Inc. v. United States, 196 F. Supp. 2d 543, 548 (N.D. Ohio 2002) (“[T]he drafting of the [‘facts and circumstances’] passage [in the Senate Finance Committee report] seems to presume that if the outside income exceeds thirty-five percent, the organization is not entitled to an exemption unless the facts and circumstances indicate that an organization is otherwise so entitled”).  13 [*13] The Tax Court has not addressed, in any case involving years after the 1976 amendment, the application of this 35% standard in adjudicating the tax-exempt status of a social club. 15 II. Analysis To resolve CSLC’s status as tax-exempt or non-exempt, we must determine whether, in the words of section 501(c)(7), “substantially all of the activities of” CSLC are “for pleasure, recreation, and other nonprofitable purposes”, when more than half of its revenue was derived from mineral extraction on its property. The Commissioner would have us apply to CSLC’s revenue the 35% standard suggested in the legislative history and employed in the IRS’s administrative practice, a standard greatly exceeded by CSLC’s mineral revenue, and hold that CSLC is not exempt. CSLC would have us note that virtually all of its members’ activities were exempt recreational activities and hold that CSLC is therefore exempt. The parties’ contentions prompt four tasks for interpreting and applying the statute: (a) identifying “the activities” to be considered as those “of” the club; (b) determining what metric— hours or dollars—is to be employed for quantifying those activities; (c) deciding the meaning of “substantially all”; and (d) discerning whether additional “facts and circumstances” affect the outcome in a given instance. A. “[A]ctivities of” the club CSLC maintains that, in evaluating “activities” for purposes of section 501(c)(7), one should look only at the activities of the members themselves. In this case, such a focus leaves only recreational activities in view, since the members’ only activities of any size were recreational, 15 In Santa Barbara Club v. Commissioner, 68 T.C. 200, 207 n.9 (1977), which concerned the status of a social club in the years 1969–71, we held: “[T]he act is effective only for taxable years beginning after Oct. 20, 1976. Pub. L. 94-568, sec. 1(d). Consequently, we see no basis for utilizing this provision or its legislative history in determining [the taxpayer’s] status during the taxable years before us in any manner.” A dissenting opinion invoked the 35% standard and stated: When, as here, we have a vague [statutory] standard to be applied and Congress has indicated [in the Senate Report] how it believes the standard should be applied, the course of judicial wisdom and responsibility calls for us to accept and follow those congressional guidelines . . . . [I]n deciding a case involving the business activities of a social club in 1977 or subsequently, the congressional guidelines [in the 1976 legislative history] will surely be given great weight. Id. at 212 (Simpson, J., dissenting).  14 [*14] and virtually none of the mineral-extraction-related activities that might put CSLC’s exempt status in doubt were undertaken by the members themselves. What were the members of the club doing? Only recreational activities. From that perspective, “substantially all” of the activities were qualifying. We think that perspective is too narrow. The word “members” does not occur in section 501(c)(7). The statute does not provide tax exemption for “members” but for “[c]lubs”. In the statutory phrase “activities of which”, the antecedent of “which” is not “members” (a word that does not occur in the statute) but “[c]lubs”. A club may indeed act through its members; and it is true (as CSLC implies) that if a club’s members conduct, for example, a fund-raising activity, then the members’ fund-raising is an activity of the club. See, e.g., Cap. Gymnastics Booster Club, T.C. Memo. 2013-193. But it is also true that if a club were to hire employees to conduct fund-raising, then the employees’ fund-raising, too, would be an activity of the club. Likewise, if a club contracts with a third party (such as Rice) to conduct mineral extraction on the club’s property, then that mineral extraction is an activity of the club, though undertaken by a third-party contractor. By analogy, in United Cancer Council, Inc. v. Commissioner, 109 T.C. 326 (1997), rev’d on other grounds and remanded, 165 F.3d 1173 (7th Cir. 1999), fundraising conducted by an outside professional fundraiser pursuant to contract was treated as fundraising activity of the charity. Likewise, a social club’s exploitation of its mineral interests does not cease to be an activity of the club merely because it is performed by a contractor. See Coastal Club, Inc. v. Commissioner, 43 T.C. 783 (1965), aff’d, 368 F.2d 231 (5th Cir. 1966) (decided under the pre-1976 version of section 501(c)(7)). 16 16 In Coastal Club, Inc., the Tax Court held non-exempt a social club that (like CSLC) “committed and devoted its land to the unrelated and nonrecreational purpose of producing profits through the leasing thereof to nonmembers or outsiders for oil and gas exploration and production and . . . under these leases it did regularly and consistently realize profits in such amounts as to overshadow its revenue from its members, namely, its receipts from dues and services and guests charges.” 43 T.C. at 810. Admittedly, section 501(c)(7) as in effect before 1976 was not identical to the later statute applicable here, since the earlier statute provided an exemption for clubs “organized and operated exclusively” for recreational purposes and had “no provision comparable to section 511 which separately taxes a club on its unrelated business income”, 43 T.C. at 806, so the analysis under the predecessor statute is not identical to the current analysis. But we think it is significant (and sufficient for our current purpose) that throughout its opinion the Tax Court characterized the oil and gas operation as a “purpose” and an “activity” of the social club.  15 [*15] In Skillman Family Reunion, 196 F. Supp. 2d at 547, the IRS revoked the tax-exempt status of an organization whose mission was similar to a family reunion committee, because 100% of its income came from non-member sources, i.e., investment income. The organization contended that less than one percent of its activities concerned investment matters, and that so long as its members spent substantially all of their time pursuing the club’s stated purposes, then the organization has maintained its exemption. The district court held, however, that “the characterization of the Fund’s operations is not to be hinged on the amount of time spent by the trustees in coordinating investments.” Id. at 548. It added that “if the primary evaluatory criterion were to lie in an examination of the activities of an organization’s members, then an organization would be free to conduct whatever side ventures it desired, at whatever income levels of profit, so long as the individual members were pursuing the stated purposes of the club.” Id. We agree, and we hold that the status of the club is determined by reference to all its activities, whether conducted by members, trustees, employees, or contractors. B. Hours vs. dollars CSLC complains that dollars are an invalid proxy for statutory “activities” and that members’ hours spent are the only valid measure, but CSLC cites no support for that non-obvious proposition. Hours spent can certainly be a valid measure of recreational activities engaged in by members, but hours spent might also be a measure of the mineral extraction activity—in this case, hours spent not by members but by the club’s contractor, Rice. If CSLC would insist that hours must be the focus for comparing the club’s recreation activity to its mineral extraction activity, then it was incumbent on CSLC to show the hours spent on mineral extraction by its contractor so they could be compared to hours spent on recreation by its members, but CSLC attempted no showing of a comparison of recreation hours versus mineral extraction hours. Moreover, it is not true that hours are the only possible measure of club activities, even of recreational activities. For some purposes, the dollar cost of (i.e., the amount CSLC spent on) members’ recreational activities might be informative, and that cost could be compared to the costs incurred in mineral extraction. But CSLC did not argue for a comparison of recreation costs in dollars versus mineral extraction costs in dollars.  16 [*16] To argue that “substantially all” its activities were recreation, CSLC made a showing of its members’ recreation hours in a virtual vacuum, with no comparison to mineral extraction hours, and with the insistence that the Court ignore the mineral extraction dollars. But as the district court observed in Skillman Family Reunion, 196 F. Supp. 2d at 547: [E]ven if the ratio of time spent on investments is small in comparison to the time spent pursuing family activities, Plaintiff cannot escape the fact that courts, based upon guidance from the legislative history of § 501(c)(7), regard the percentage of investment income, in relation to an organization’s total gross receipts, as an indicator of whether the organization is conducting “substantially all” of its activities for statutorily permissible non-profit purposes. See United States v. Fort Worth Club of Fort Worth, 345 F.2d 52, 56 (5th Cir.1965) (“the source of a club’s revenues, as well as their destination, is crucial in determining the purposes for which the club is ‘organized and operated’”). CSLC asserts that using revenue as a “proxy” fo