source: Caselaw Access Project

author: Justice Blackmun Justice Kennedy,

license: Public Domain

text:
    PORTLAND GOLF CLUB v. COMMISSIONER OF INTERNAL REVENUE
    No. 89-530.
    Argued April 17, 1990
    Decided June 21, 1990

      Blackmun, J., delivered the opinion of the Court, in which Rehnquist, C. J., and Brennan, White, MARSHALL, and Stevens, JJ., joined, and in which O’Connor, Scalia, and Kennedy, JJ., joined except as to Parts III-B and IV. Kennedy, J., filed an opinion concurring in part and concurring in the judgment, in which O’Connor and Scalia, JJ., joined, post, p. 171.

      Leonard J. Henzke, Jr., argued the cause for petitioner. With him on the briefs was Allen B. Bush.

      Clifford M. Sloan argued the cause for respondent. On the brief were Solicitor General Starr, Assistant Attorney General Peterson, Deputy Solicitor General Wallace, Alan I. Horowitz, and Robert S. Pomerance.

   Justice Blackmun

delivered the opinion of the Court.

This case requires us to determine the circumstances under which a social club, in calculating its liability for federal income tax, may offset losses incurred in selling food and drink to nonmembers against the income realized from its investments.

I

Petitioner Portland Golf Club is a nonprofit Oregon corporation, most of whose income is exempt from federal income tax under § 501(c)(7) of the Internal Revenue Code of 1954, 26 U. S. C. § 501(c)(7). Since 1914 petitioner has owned and operated a private golf and country club with a golf course, restaurant and bar, swimming pool, and tennis courts. The great part of petitioner’s income is derived from membership dues and other receipts from the club’s members; that income is exempt from tax. Portland Golf also has two sources of nonexempt “unrelated business taxable income”: sales of food and drink to nonmembers, and return on its investments.

The present controversy centers on Portland Golf’s federal income tax liability for its fiscal years ended September 30, 1980, and September 30, 1981, respectively. Petitioner received investment income in the form of interest in the amount of $11,752 for fiscal 1980 and in the amount of $21,414 for fiscal 1981. App. 18. It sustained net losses of $28,433 for fiscal 1980 and $69,608 for fiscal 1981 on sales of food and drink to nonmembers. Petitioner offset these losses against the earnings from its investments and therefore reported no unrelated business taxable income for the two tax years. In computing these losses, petitioner identified two different categories of expenses incurred in selling food and drink to nonmembers. First, petitioner incurred variable (or direct) expenses, such as the cost of food, which varied depending on the amount of food and beverages sold (and therefore would not have been incurred had no sales to nonmembers been made). For each year in question, petitioner’s gross income from nonmember sales exceeded these variable costs. Petitioner also included as an unrelated business expense a portion of the fixed (or indirect) overhead expenses of the club — expenses which would have been incurred whether or not petitioner had made sales to nonmembers. In determining what portions of its fixed expenses were attributable to nonmember sales, petitioner employed an allocation formula, described as the “gross-to-gross method,” based on the ratio that nonmember sales bore to total sales. When fixed expenses, so calculated, were added to petitioner’s variable costs, the total exceeded Portland Golf’s gross income from nonmember sales.

On audit, the Commissioner took the position that petitioner could deduct expenses associated with nonmember sales up to the amount of receipts from the sales themselves, but that it could not use losses from those activities to offset its investment income. The Commissioner based that conclusion on the belief that a profit motive was required if losses from these activities were to be used to offset income from other sources, and that Portland Golf had failed to show that its sales to nonmembers were undertaken with an intent to profit. The Commissioner therefore determined deficiencies of $1,828 for 1980 and $3,470 for 1981; these deficiencies reflected tax owed on petitioner’s investment income. App. 48-51.

Portland Golf sought redetermination in the Tax Court. That court ruled in petitioner’s favor. 55 TCM 212 (1988), ¶ 88,076 P-H Memo TC. The court assumed, without deciding, that losses incurred in the course of sales to nonmembers could be used to offset other nonexempt income only if the sales were undertaken with an intent to profit. The court, however, held that Portland Golf had adequately demonstrated a profit motive, since its gross receipts from sales to nonmembers consistently exceeded the variable costs associated with those activities. The court therefore held that “petitioner is entitled to offset its unrelated business taxable income from interest by its loss from its nonmember food and beverage sales computed by allocating a portion of its fixed expenses to the nonmember food and beverage sales activity in a manner which respondent agrees is acceptable.” Id., at 217, ¶ 88,076 P-H Memo TC, at 413.

The United States Court of Appeals for the Ninth Circuit remanded. App. to Pet. for Cert, la, judgt. order reported at 876 F. 2d 897 (1989). The Court of Appeals held that the Tax Court had applied an incorrect legal standard in determining that Portland Golf had demonstrated an intent to profit from sales to nonmembers. The appellate court relied on its decision in North Ridge Country Club v. Commissioner, 877 F. 2d 750 (1989), where it had ruled that a social club “can properly deduct losses from a non-member activity only if it undertakes that activity with the intent to profit, where profit means the production of gains in excess of all direct and indirect costs.” Id., at 756. The same court in the present case concluded: “Because Portland Golf Club could have reported gains in excess of direct and indirect costs, but did not do so, relying on a method of allocation stipulated to be reasonable by the Commissioner, we REMAND this case to the tax court for a determination of whether Portland Golf Club engaged in its non-member activities with the intent required under North Ridge to deduct its losses from those activities.” App. to Pet. for Cert. 2a-3a.

Because of a perceived conflict with the decision of the Sixth Circuit in Cleveland Athletic Club, Inc. v. United States, 779 F. 2d 1160 (1985), and because of the importance of the issue, we granted certiorari. 493 U. S. 1041 (1990).

I — i I — i

Virtually all tax-exempt business organizations are required to pay federal income tax on their “unrelated business taxable income.” The law governing social clubs, however, is significantly different from that governing other tax-exempt entities. As to exempt organizations other than social clubs, the Code defines “unrelated business taxable income” as “the gross income derived by any organization from any unrelated trade or business (as defined in section 513) regularly carried on by it, less the deductions allowed by this chapter which are directly connected with the carrying on of such trade or business.” 26 U. S. C. § 512(a)(1). As to social clubs, however, “unrelated business taxable income” is defined as “the gross income (excluding any exempt function income), less the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income).” § 512(a)(3)(A). The salient point is that § 512(a)(1) (which applies to most exempt organizations) limits “unrelated business taxable income” to income derived from a “trade or business,” while § 512(a)(3)(A) (which applies to social clubs) contains no such limitation. Thus, a social club’s investment income is subject to federal income tax, while the investment income of most other exempt organizations is not.

This distinction reflects the fact that a social club’s exemption from federal income tax has a justification fundamentally different from that which underlies the grant of tax exemptions to other nonprofit entities. For most such organizations, exemption from federal income tax is intended to encourage the provision of services that are deemed socially beneficial. Taxes are levied on “unrelated business income” only in order to prevent tax-exempt organizations from gaining an unfair advantage over competing commercial enterprises. See United States v. American College of Physi cians, 475 U. S. 834, 838 (1986) (“Congress perceived a need to restrain the unfair competition fostered by the tax laws”). Since Congress concluded that investors reaping tax-exempt income from passive sources would not be in competition with commercial businesses, it excluded from tax the investment income realized by exempt organizations.

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. The Senate Report accompanying the Tax Reform Act of 1969, 83 Stat. 536, explained that that purpose does not justify a tax exemption for income derived from investments:

“Since the tax exemption for social clubs and other groups is designed to allow individuals to join together to provide recreational or social facilities or other benefits on a mutual basis, without tax consequences, the tax exemption operates properly only when the sources of income of the organization are limited to receipts from the membership. Under such circumstances, the individual is in substantially the same position as if he had spent his income on pleasure or recreation (or other benefits) without the intervening separate organization. However, where the organization receives income from sources outside the membership, such as income from investments . . . upon which no tax is paid, the membership receives a benefit not contemplated by the exemption in that untaxed dollars can be used by the organization to provide pleasure or recreation (or other benefits) to its membership. ... In such a case, the exemption is no longer simply allowing individuals to join together for recreation or pleasure without tax consequences. Rather, it is bestowing a substantial additional advantage to the members of the club by allowing tax-free dollars to be used for their personal recreational or pleasure purposes. The extension of the exemption to such investment income is, therefore, a distortion of its purpose.” S. Rep. No. 91-552, p. 71 (1969).

In the Tax Reform Act of 1969, Congress extended the tax on “unrelated business income” to social clubs. As to these organizations, however, Congress defined “unrelated business taxable income” to include income derived from investments. Our review of the present case must therefore be informed by two central facts. First, Congress intended that the investment income of social clubs should be subject to federal tax, and indeed Congress devised a definition of “unrelated business taxable income” with that purpose in mind. Second, the statutory scheme for the taxation of social clubs was intended to achieve tax neutrality, not to provide these clubs a tax advantage: Even the exemption for income derived from members’ payments was designed to ensure that members are not disadvantaged as compared with persons who pursue recreation through private purchases rather than through the medium of an organization.

h-i I — I

Petitioner’s principal argument is that it may deduct losses incurred through sales to nonmembers without demonstrating that these sales were motivated by an intent to profit. In the alternative, petitioner contends (and the Tax Court agreed) that if the Code does impose a profit-motive requirement, then that requirement has been satisfied in this case. We address these arguments in turn.

A

We agree with the Commissioner and the Court of Appeals that petitioner may use losses incurred in sales to nonmem-; bers to offset investment income only if those sales were motivated by an intent to profit. The statute provides that, as to social clubs, “the term ‘unrelated business taxable income’ means the gross income (excluding any exempt function income), less the deductions allowed by this chapter which are directly connected with the production of the gross income (excluding exempt function income). ” § 512(a)(3)(A) (emphasis added). As petitioner concedes, the italicized language limits deductions from unrelated business income to expenses allowable as deductions under Chapter 1 of the Code. See Brief for Petitioner 21-22. In our view, the deductions claimed in this case — expenses for food, payroll, and overhead in excess of gross receipts from nonmember sales — are allowable, if at all, only under § 162 of the Code. See North Ridge Country Club v. Commissioner, 877 F. 2d, at 753; Brook, Inc. v. Commissioner, 799 F. 2d 833, 838 (CA2 1986). Section 162(a) provides a deduction for “all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Although the statute does not expressly require that a “trade or business” must be carried on with an intent to profit, this Court has ruled that a taxpayer’s activities fall within the scope of § 162 only if an intent to profit has been shown. See Commissioner v. Groetzinger, 480 U. S. 23, 35 (1987) (“[T]o be engaged in a [§ 162] trade or business, . . . the taxpayer’s primary purpose for engaging in the activity must be for income or profit”). Thus, the losses that Portland Golf incurred in selling food and drink to nonmembers will constitute “deductions allowed by this chapter” only if the club’s nonmember sales were performed with an intent to profit.

We see no basis for dispensing with the profit-motive requirement in the present case. Indeed, such an exemption would be in considerable tension with the statutory scheme devised by Congress to govern the taxation of social clubs. Congress intended that the investment income of social clubs (unlike the investment income of most other exempt organizations) should be subject to the same tax consequences as the investment income of any other taxpayer. To allow such an offset for social clubs would run counter to the principle of tax neutrality which underlies the statutory scheme.

Petitioner concedes that “[generally a profit motive is a necessary factor in determining whether an activity is a trade or business.” Brief for Petitioner 23. Petitioner contends, however, that by including receipts from sales to nonmembers within § 512(a)(3)(A)’s definition of “unrelated business taxable income,” the Code has defined nonmember sales as a “trade or business,” and has thereby obviated the need for an inquiry into the taxpayer’s intent to profit. We disagree. In our view, Congress’ use of the term “unrelated business taxable income” to describe all receipts other than payments from the members hardly manifests an intent to define as a “trade or business” activities otherwise outside the scope of § 162. Petitioner’s reading would render superfluous the words “allowed by this chapter” in § 512(a)(3)(A): If each taxable activity of a social club is “deemed” to be a trade or business, then all of the expenses “directly connected” with those activities would presumably be deductible. Moreover, Portland Golf’s interpretation ignores Congress’ general intent to tax the income of social clubs according to the same principles applicable to other taxpayers. We therefore conclude that petitioner may offset losses incurred in sales to nonmembers against investment income only if its nonmember sales are motivated by an intent to profit.

B

Losses from Portland Golf’s sales to nonmembers may be used to offset investment income only if those activities were undertaken with a profit motive — that is, an intent to generate receipts in excess of costs. The parties and the other courts in this case, however, have taken divergent positions as to the range of expenses that qualify as costs of the nonexempt activity and are to be considered in determining whether petitioner acted with the requisite profit motive. In the view of the Tax Court, petitioner’s profit motive was established by the fact that the club’s receipts from nonmember sales exceeded its variable costs. Since Portland Golf’s fixed costs, by definition, have been incurred even in the absence of sales to nonmembers, the Tax Court concluded that these costs should be disregarded in determining petitioner’s intent to profit.

The Commissioner has taken no firm position as to the precise manner in which Portland Golf’s fixed costs are to be allocated between member and nonmember sales. Indeed, the Commissioner does not even insist that any portion of petitioner’s fixed costs must be attributed to nonmember activities in determining intent to profit. He does insist, however, that the same allocation method is to be used in determining petitioner’s intent to profit as in computing its actual profit or loss. See Brief for Respondent 44-46. In the present case the parties have stipulated that the gross-to-gross method provides a reasonable formula for allocating fixed costs, and Portland Golf has used that method in calculating the losses incurred in selling food and drink to nonmembers. The Commissioner contends that petitioner is therefore required to demonstrate an intent to earn gross receipts in excess of fixed and variable costs, with the allocable share of fixed costs being determined by the gross-to-gross method.

Although the Court of Appeals’ opinion is not entirely clear on this point, see n. 8, supra, that court seems to have taken a middle ground. The Court of Appeals expressly rejected the Tax Court’s assertion that profit motive could be established by a showing that gross receipts exceeded variable costs; the court insisted that some portion of fixed costs must be considered in determining intent to profit. The court appeared, however, to leave open the possibility that Portland Golf could use the gross-to-gross method in calculating its actual losses, while using some other allocation method to demonstrate that its sales to nonmembers were undertaken with a profit motive.

We conclude that the Commissioner’s position is the correct one. Portland Golf’s argument rests, as the Commissioner puts it, on an “inherent contradiction.” Brief for Respondent 44. Petitioner’s calculation of actual losses rests on the claim that a portion of its fixed expenses is properly regarded as attributable to the production of income from nonmember sales. Given this assertion, we do not believe that these expenses can be ignored (or, more accurately, attributed to petitioner’s exempt activities) in determining whether petitioner acted with the requisite intent to profit. Essentially the same criticism applies to the Court of Appeals’ approach. That court required petitioner to include some portion of fixed expenses in demonstrating its intent to profit, but it left open the possibility that petitioner could employ an allocation method different from that used in calculating its actual losses. Under that approach, some of petitioner’s fixed expenses could be attributed to exempt functions in determining intent to profit and to nonmember sales in establishing the club’s actual loss. This, like the rationale of the Tax Court, seems to us to rest on an “inherent contradiction.”

Petitioner’s principal response is that § 162 requires an intent to earn an economic profit, and that this is quite different from an intent to earn taxable income. Portland Golf emphasizes that numerous provisions of the Code establish deductions and preferences which do not purport to mirror economic reality. Therefore, petitioner argues, taxpayers may frequently act with an intent to profit, even though the foreseeable (and, indeed, the intended) result of their efforts is that they suffer (or achieve) tax losses. Much of the Code, in petitioner’s view, would be rendered a nullity if the mere fact of tax losses sufficed to show that a taxpayer lacked an intent to profit, thereby rendering the deductions unavailable. In Portland Golf’s view, the parties have stipulated only that the gross-to-gross formula provides a reasonable method of determining what portion of fixed expenses is “directly connected” with the nonexempt activity for purposes of computing taxable income. That stipulation, Portland Golf contends, is irrelevant in determining the portion of fixed expenses that represents the actual economic cost of the activity in question.

We accept petitioner’s contention that § 162 requires only an intent to earn an economic profit. We acknowledge, moreover, that many Code provisions are designed to serve purposes (such as encouragement of certain types of investment) other than the accurate measurement of economic income. A taxpayer who takes advantage of deductions or preferences of that kind may establish an intent to profit even though he has no expectation of realizing taxable income. The fixed expenses that Portland Golf seeks to allocate to its nonmember sales, however, are deductions of a different kind. The Code does not state that fixed costs are allocable on a gross-to-gross basis irrespective of economic reality. Rather, petitioner’s right to use the gross-to-gross method rests on the club’s assertion that this allocation formula reasonably identifies those expenses that are “directly connected” to the nonmember sales, § 512(a)(3)(A), and are “the ordinary and necessary expenses paid or incurred” in selling food and drink to nonmembers, see § 162(a). Language such as this, it seems to us, reflects an attempt to measure economic income — not an effort to use the tax law to serve ancillary purposes. Having calculated its actual losses on the basis of the gross-to-gross formula, petitioner is therefore foreclosed from attempting to demonstrate its intent to profit by arguing that some other allocation method more accurately reflects economic reality.

IV

We hold that any losses incurred as a result of petitioner’s nonmember sales may be offset against its investment income only if the nonmember sales were undertaken with an intent to profit. We also conclude that in demonstrating the requisite profit motive, Portland Golf must employ the same method of allocating fixed expenses as it uses in calculating its actual loss. Petitioner has failed to show that it intended to earn gross income from nonmember sales in excess of its total (fixed plus variable) costs, where fixed expenses are allocated using the gross-to-gross method. The judgment of the Court of Appeals is therefore affirmed.

It is so ordered.

Justice Kennedy,

with whom Justice O’Connor and Justice Scalia join, concurring in part and concurring in the judgment.

The Tax Court found that Portland Golf Club’s nonmember activity qualified as a trade or business under § 162(a) of the Internal Revenue Code of 1954, 26 U. S. C. § 162(a), and it allowed the club to deduct expenses associated with the activity from its income. 55 TCM 212 (1988), ¶ 88,076 P-H Memo TC. The Court of Appeals remanded because it found the club’s profit motive unclear. App. to Pet. for Cert, la, judgt. order reported at 876 F. 2d 897 (1989). Although the Tax Court had determined that the club intended the gross receipts from the nonmember activity to exceed the direct costs, the Court of Appeals held that § 162(a) requires an intent to produce gains in excess of both direct and indirect costs. The Court of Appeals remanded the case to allow the Tax Court to reconsider the club’s profit motive, taking account of the overhead and other fixed costs attributable to the nonmember activity. I agree with that decision, and so would affirm the Court of Appeals.

I join all but Parts III-B and IV of the Court’s opinion. I otherwise concur only in the judgment because the Court decides a significant issue that is unnecessary to our disposition of the case and, in my view, decides it the wrong way. When the Court of Appeals instructed the Tax Court to consider the club’s indirect costs, it did not specify how the club should allocate these costs between its member and nonmember activities. In particular, it left open the possibility that the club could use one allocation method to calculate its expenses under § 162(a), while using some other allocation method to demonstrate its profit motivation. See ante, at 167-168. Although the Court purports to affirm the Court of Appeals, its opinion eliminates this possibility, and thus works a dramatic change in the remand order. The Court rules in Parts III-B and IV that, if the club uses the so-called gross-to-gross method to allocate its fixed costs when computing its expenses, it must use the same allocation method to prove its profit motivation. The Tax Court and Court of Appeals, in my view, should have had the opportunity to consider this issue in the first instance. Because the Court has reached the question, however, I must state my disagreement with its conclusion.

A taxpayer’s profit motive, in my view, cannot turn upon the particular accounting method by which it reports its ordinary and necessary expenses to the Internal Revenue Service (IRS). The Court cites no authority for its novel rule and we cannot adopt it simply because we confront a hard case. Section 162(a) provides: “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business . . . .” 26 U. S. C. § 162(a). Although the section does not require a profit motivation by its express terms, we have inferred such a requirement because the words “trade or business,” in their ordinary usage, contemplate activities undertaken to earn a profit. See Commissioner v. Groetzinger, 480 U. S. 23, 27-28 (1987); Flint v. Stone Tracy Co., 220 U. S. 107, 171 (1911). Yet, I see no justification for making the profit-motive requirement more demanding than necessary to distinguish trades and businesses from other activities pursued by taxpayers. See Whipple v. Commissioner, 373 U. S. 193, 197 (1963). Because an activity may be a trade or business even if the taxpayer intended to show losses on its income tax forms under a permissible accounting method, the Court endorses an improper conception of profit motivation.

A taxpayer often may choose from among different accounting methods when computing its ordinary and necessary expenses under § 162(a). In this case, as stipulated by the IRS, the club could have allocated its fixed costs either by the gross-to-gross method or by the so-called actual-use method. Although the gross-to-gross method showed a net loss for the relevant tax years, the actual-use method would have shown a net profit. See ante, at 158, n. 5. If profit motivation turns upon the allocation method employed by the club in filling out its tax forms, then the status of the nonmember activity as a trade or business may lie within the control of the club’s accountants. I find this interpretation of the words “trade or business” simply “to affront common understanding and to deny the facts of common experience.” Helvering v. Horst, 311 U. S. 112, 118 (1940). A taxpayer does not alter the nature of an enterprise by selecting one reasonable allocation method over another.

The Court’s decision also departs from the traditional practice of the courts and the IRS. Rather than relying on strict consistency in accounting, the courts long have evaluated profit motivation according to a variety of factors that indicate whether the taxpayer acted in a manner characteristic of one engaged in a trade or business. See, e. g., Teitelbaum v. C. I. R., 294 F. 2d 541, 545 (CA7 1961); Patterson v. United States, 198 Ct. Cl. 543, 552-553, 459 F. 2d 487, 493-494 (1972); see Boyle, What is a Trade or Business?, 39 Tax Law. 737, 743-745 (1986); Lee, A Blend of Old Wines in a New Wineskin: Section 183 and Beyond, 29 Tax L. Rev. 347, 390-447 (1974). In a regulation based on a wide range of prior court decisions, the IRS itself has explained § 162 and profit motivation as follows:

“Deductions are allowable under section 162 for expenses of carrying on activities which constitute a trade or business of the taxpayer and under section 212 for expenses incurred in connection with activities engaged in for the production or collection of income or for the management, conservation, or maintenance of property held for the production of income. Except as provided in section 183 and [26 CFR] § 1.183-1 [which authorize individuals and S-corporations to offset hobby losses], no deductions are allowable for expenses incurred in connection with activities which are not engaged in for profit. . . . The determination whether an activity is engaged in for profit is to be made by reference to objective standards, taking into account all of the facts and circumstances of each case. Although a reasonable expectation of profit is not required, the facts and circumstances must indicate that the taxpayer entered into the activity, or continued the activity, with the objective of making a profit.” 26 CFR § 1.183-2(a) (1989).

To facilitate the application of this general standard, the IRS has supplied a list of nine factors, also based on a wide body of case law, for evaluating the taxpayer’s profit motive. These factors include: (1) the manner in which the taxpayer carries on the activity; (2) the expertise of the taxpayer or his advisors; (3) the time and effort expended by the taxpayer in carrying on the activity; (4) the expectation that assets used in the activity may appreciate in value; (5) the success of the taxpayer in carrying on other similar or dissimilar activities; (6) the taxpayer’s history of income or losses with respect to the activity; (7) the amount of occasional profits, if any, which are earned; (8) the financial status of the taxpayer; and (9) the elements of personal pleasure or recreation. See §§ 1.183-2(b)(l) to (9).

The Court today limits this longstanding approach by pinning the profit-motive requirement to the accounting method that a taxpayer uses to report its ordinary and necessary expenses under § 162(a). Although the tax laws in general strive to reflect the true economic income of a taxpayer, the IRS at times allows taxpayers to use accounting methods that understate their income or overstate their expenses. In this case, as the Court itself acknowledges, the IRS stipulated that the club could use the gross-to-gross allocation method to calculate its expenses under § 162(a) even though this method tends to exaggerate the percentage of fixed costs attributable to the club’s nonmember sales. See ante, at 157-158, n. 4. Yet, I see no basis for saying that, when the club took advantage of this unconditional stipulation, it committed itself to the legal position that the gross-to-gross method best reflects economic reality. Some inconsistency will exist if the club uses the gross-to-gross allocation method in computing the expenses, while using some other reasonable accounting method to prove that it undertook the nonmember activity as a trade or business. But the solution to this inconsistency lies in altering the stipulation in other cases, not in changing the longstanding interpretation of profit motivation.

The precise effect of the Court’s holding with respect to the club remains unclear. The Court states only that the club may not offset its losses from nonmember sales against its investment income. But I do not understand how the Court can confine its ruling to investment income alone. If the club’s nonmember activity does not qualify as a trade or business, then the club cannot use § 162(a) to deduct any of the expenses associated with the nonmember activity, not even to the extent of gross receipts. Confronted with this difficulty at oral argument, respondent stated that, in the absence of statutory authority, the IRS has allowed an offset of expenses against gross receipts out of its own “generosity,” a characteristic as rare as it is implausible. Tr. of Oral Arg. 42-43. The IRS, indeed, asserts the authority to disallow the offset in the future. See id., at 44. Cf. 26 U. S. C. § 183 (authorizing individuals and S-corporations to offset hobby losses). This possibility further counsels against making the profit-motive requirement more stringent than necessary to determine whether the club undertook the nonmember activity as a trade or business. For these reasons, I join the Court’s opinion, with the exception of Parts III-B and IV, and concur in the judgment.

      Section 501(c)(7) grants an exemption from federal income tax to “[c]lubs 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.”

       Section 511 of the Code provides that the “unrelated business taxable income” of an exempt organization shall be taxed at the ordinary corporate rate. The term “unrelated business taxable income,” as applied to the income of a club such as petitioner, is defined in § 512(a)(3)(A). That definition encompasses all sources of income except receipts from the club’s members.

       For 1980, gross receipts from nonmember sales in the bar and dining room totaled $84,422, while variable expenses were $61,821. For 1981, gross receipts totaled $106,547, while variable expenses were $78,407. App. 85.

       For example, if 10% of petitioner’s gross receipts were derived from nonmember sales, 10% of petitioner’s fixed costs would be allocated to the nonexempt activity. That method of allocation appears rather generous to Portland Golf. The club charges nonmembers higher prices for food and drink than members are charged, even though nonmembers' meals presumably cost no more to prepare and serve. It therefore seems likely that the gross-to-gross method overstates the percentage of fixed costs properly attributable to nonmember sales. The parties, however, stipulated that this allocation method was reasonable. Id., at 17.

       The following table shows petitioner’s losses when fixed costs are allocated using the gross-to-gross method:

        1980 1981

      Gross income $84,422 $106,547
      Variable expenses (61,821) (78,407)
      Allocated fixed expenses (51,034) (97,748)
      Net loss ($28,433) ($69,608)
      It is of interest to note that if petitioner’s fixed costs had been allocated using an alternative formula, known as the “square foot and hours of actual use” method, see id., at 29, its gross receipts exceeded the sum of variable and allocated fixed costs for both years:

        1980 1981

      Gross income $84,422 $106,547
      Variable expenses (61,821) (78,407)
      Allocated fixed expenses (3,153) (4,666)
      Net profit $19,448 $23,474

       The general rule under the Code is that losses incurred in a profit-seeking venture may be deducted from unrelated income; expenses of a not-for-profit activity may be offset against the income from that activity, but losses may not be applied against income from other sources. See 1 B. Bittker & L. Lokken, Federal Taxation of Income, Estates and Gifts ¶¶20.1.2, 22.5.4, pp. 20-6, 22-63 to 22-64 (2d ed. 1989).

       The Tax Court stated that Portland Golf “did intend to make a profit, and did make a profit between the amount received from sales to nonmembers and the costs related to those sales which would not have been incurred absent those sales.” 55 TCM, at 216, 188,076 P-H Memo TC, at 416. The Tax Court, in articulating this standard for determining whether intent to profit had been shown, relied on its earlier reviewed decision in North Ridge Country Club v. Commissioner, 89 T. C. 563 (1987). That decision subsequently was reversed. 877 F. 2d 750 (CA9 1989).

       The basis for the Court of Appeals’ remand order is not entirely clear to us. It appears, however, that the court left open the possibility that petitioner could establish its intent to profit by using some other method of allocating fixed costs (such as the “actual use” method, see n. 5, supra), while continuing to use the gross-to-gross formula in computing actual losses. Both parties interpret the Court of Appeals’ decision in this manner, and both express disapproval of that approach. See Brief for Respondent 47, n. 25 (“[T]his argument is untenable”); Brief for Petitioner 48 (“While the Ninth Circuit’s formula is better than that of the Government, it is basically unprincipled”). Our disposition of the case makes unnecessary precise interpretation of the Court of Appeals’ opinion.

       See also Brook, Inc. v. Commissioner, 799 F. 2d 833 (CA2 1986); Rev. Rui. 81-69, 1981-1 Cum. Bull. 351-352; A. Scialabba, The Unrelated Business Taxable Income of Social Clubs, 10 Campbell L. Rev. 249 (1988).

       Section 513(a) defines “unrelated trade or business” as “any trade or business the conduct of which is not substantially related ... to the exercise or performance by such organization of its charitable, educational, or other purpose or function constituting the basis for its exemption.”

       Section 512(a)(3)(B) defines “exempt function income” as “the gross income from dues, fees, charges, or similar amounts paid by members of the organization as consideration for providing such members or their dependents or guests goods, facilities, or services in furtherance of the purposes constituting the basis for the exemption of the organization to which such income is paid.”

       See S. Rep. No. 2375, 81st Cong., 2d Sess., 28 (1950) (“The problem at which the tax on unrelated business income is directed is primarily that of unfair competition. The tax-free status of [these] organizations enables them to use their profits tax-free to expand operations, while their competitors can expand only with the profits remaining after taxes”); H. R. Rep. No. 2319, 81st Cong., 2d Sess., 36 (1950). The tax on “unrelated business income” was added to the Code by the Revenue Act of 1950, ch. 994, 64 Stat. 906.

       See S. Rep. No. 2375, at 30-31; H. R. Rep. No. 2319, at 38.

       Portland Golf appears to concede this point, too. See Brief for Petitioner 10 (“The parties agree that all of the expenses in issue . . . are the types of corporate expenses allowed as deductions by Code Section 162”). Petitioner does not identify any other Code provision which would serve as a basis for the deduction claimed in this case.

       Section 183 of the Code permits a taxpayer to offset expenses incurred in a not-for-profit activity against income from that activity up to the amount of the income. Even before the enactment of § 183, moreover, the courts and the Commissioner had not required that revenues earned in activities showing a net loss be declared as taxable income. See 1 Bittker & Lokken, n. 6, supra, ¶22.5.4, p. 22-63. Although § 183 is inapplicable to a nonprofit corporation such as Portland Golf, the Commissioner has followed longstanding tax principles in permitting the deduction of expenses incurred in nonmember sales up to the amount of petitioner’s receipts. See Brief for Respondent 33. At issue in this case is petitioner's right to offset losses from nonmember sales against income from unrelated investments.

       The Code distinguishes a social club’s “exempt function income” from its “unrelated business taxable income” by looking to the source of the payment: “[EJxempt function income” is limited to money received from the members. § 512(a)(3)(B). However, a social club could easily organize events whose primary purpose was to benefit the membership, yet arrange for nonmembers to make modest contributions toward the cost of the events. Those contributions would constitute “unrelated business taxable income”; but if losses incurred in such activities could be used to offset investment income, it would be relatively easy for clubs to avoid taxation on their investments.
      The general rule that losses incurred in a not-for-profit activity may not be used to offset unrelated income rests on the recognition that one who incurs expenses without an intent to profit presumably derives some intrinsic pleasure or benefit from the activity. The Code’s limitation on deductibility (expenses may be deducted up to, but not above, the gross income produced by the activity) reflects the view that taxpayers should not be allowed to deduct what are, in essence, personal expenses simply because the activity in question generates some receipts. Just as an individual taxpayer may not offset personal expenses against income from other sources, a social club should not be allowed to deduct expenses incurred for the benefit of the membership from unrelated business income.

       The parties stipulated that the gross-to-gross formula was a reasonable method of allocating fixed expenses. App. 17. In his brief to this Court, however, the Commissioner states: “There may be room to debate whether the fixed costs allocated by petitioner to its nonmember sales constitute true economic costs of that activity that ought to be treated as ‘directly connected’ to the production of the nonmember sales income. It might be argued that only the variable costs are ‘directly connected with’ the nonmember activity, and therefore that only those variable costs should offset the gross receipts from the nonmember income." Brief for Respondent 45, n. 24.

       See n. 8, supra. The Tax Court noted that petitioner would have shown a profit on sales to nonmembers in both 1980 and 1981 if fixed costs had been allocated under the “actual use” method. See 55 TCM 212, 213 (1988), ¶ 88,076 P-H Memo TC 412, 413.

       The Tax Court consistently has held that the possibility of realizing tax benefits should be disregarded in determining whether an intent to earn an economic profit has been shown. (That is, the reduction in tax liability cannot itself be the “profit.”) See, e. g., Gefen v. Commissioner, 87 T. C. 1471, 1490 (1986) (“A transaction has economic substance and will be recognized for tax purposes if the transaction offers a reasonable opportunity for economic profit, that is, profit exclusive of tax benefits”); Seaman v. Commissioner, 84 T. C. 564, 588 (1985) (‘“[PJrofit' means economic profit, independent of tax savings”); Surloff v. Commissioner, 81 T. C. 210, 233 (1983) (same). Accord, Simon v. Commissioner, 830 F. 2d 499, 500 (CA3 1987). Portland Golf does not dispute this principle. See Brief for Petitioner 39 (“The cases have uniformly held that taxable businesses, in order to deduct expenses in excess of income, need only show an ‘economic profit’ independent of tax savings, or ‘economic gain’ independent of tax savings”) (footnotes omitted). We therefore assume, without deciding, that potential reductions in tax liability are irrelevant to the determination whether a profit motive exists.

       As stated earlier, § 512(a)(3)(A) limits deductions from unrelated business taxable income to “deductions allowed by this chapter.” In the present case, petitioner may offset losses from nonmember sales against investment income only if those losses are deductible under § 162. That Code provision states: “There shall be allowed as a deduction all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business.” Thus, the expenses petitioner seeks to deduct will constitute “deductions allowed by this chapter” only if they are “the ordinary and necessary expenses paid or incurred” in selling food and drink to nonmembers.

       We do not hold that, for other cases, any particular method of allocating fixed expenses must be used by social clubs. We hold only that the allocation method used in determining actual profit or loss must also be used in determining whether the taxpayer acted with a profit motive. Petitioner here has stipulated, however, to the reasonableness of the gross-to-gross method and has used that method in calculating its actual losses. We note that no other allocation method, used consistently, would have produced a result more favorable to petitioner. Had petitioner employed the actual-use method, or ignored fixed costs entirely, it could have established its intent to profit, but it would have realized a net gain from nonmember sales and its “unrelated business taxable income” would have been higher.

       The fact that petitioner suffered actual losses in 1980 and 1981 does not, by itself, prove that Portland Golf lacked a profit motive. A taxpayer's intent to profit is not disproved simply because no profit is realized during a particular year. See Treas. Reg. § 1.183 — l(c)(l)(ii), 26 CFR § 1.183 — l(c)(l)(ii) (1989) (most activities presumed to be engaged in for profit if gross income exceeds costs in any two of five consecutive years); Treas. Reg. § 1.183-2(b)(6), 26 CFR § L183-2(b)(6) (1989) (“A series of losses during the initial or start-up stage of an activity may not necessarily be an indication that the activity is not engaged in for profit"). Petitioner could offset these losses against investment income if it could demonstrate that it intended to earn gross income in excess of total costs, with fixed expenses being allocated under the gross-to-gross formula. Portland Golf has not asserted, however, that it possessed such a motive. The club’s reluctance to make that argument is understandable: In every year from 1975 through 1984, petitioner incurred losses from its sales to nonmembers when fixed costs are allocated on a gross-to-gross basis. 55 TCM, at 213. *88,076 P-H Memo TC, at 413.


author: Justice Scalia delivered Justice Marshall,

text:
    ILLINOIS v. RODRIGUEZ
    No. 88-2018.
    Argued March 20, 1990
    Decided June 21, 1990

      Scalia, J., delivered the opinion of the Court, in which Rehnquist, C. J., and White, Blackmun, O’ConnoR, and Kennedy, JJ., joined. MARSHALL, J., filed a dissenting opinion, in which Brennan and Stevens, JJ., joined, post, p. 189.

      Joseph Claps, First Assistant Attorney General of Illinois, argued the cause for petitioner. With him on the briefs were Neil F. Hartigan, Attorney General, Robert J. Ruiz, Solicitor General, Terence M. Madsen, Assistant Attorney General, Cecil A. Partee, Renée Goldfarb, and Theodore Fotios Burtzos.

      Michael R. Dreeben argued the cause for the United States as amicus curiae urging reversal. With him on the brief were Solicitor General Starr, Assistant Attorney General Dennis, and Deputy Solicitor General Bryson.

      James W. Reilley argued the cause for respondent. With him on the brief were Christine P. Curran, Dianne Ruth-man, and Rick Halprin.

      Briefs of amici curiae urging reversal were filed for the State of California by John K. Van de Kamp, Attorney General, Richard B. Iglehart, Chief Assistant Attorney General, John H. Sugiyama, Senior Assistant Attorney General, and Ronald S. Matthias and Clifford K. Thompson, Jr., Deputy Attorneys General; and for Americans for Effective Law Enforcement, Inc., et al. by Gregory U. Evans, Daniel B. Hales, George D. Webster, Joseph A. Morris, Jack E. Yelverton, Fred E. Inbau, Wayne W. Schmidt, Bernard J. Farber, and James P. Manak.

        Benjamin S. Waxman and Jeffrey S. Weiner filed a brief for the National Association of Criminal Defense Lawyers as amicus curiae urging affirmance.

   Justice Scalia delivered

the opinion of the Court.

In United States v. Matlock, 415 U. S. 164 (1974), this Court reaffirmed that a warrantless entry and search by law enforcement officers does not violate the Fourth Amendment’s proscription of “unreasonable searches and seizures” if the officers have obtained the consent of a third party who possesses common authority over the premises. The present case presents an issue we expressly reserved in Matlock, see id., at 177, n. 14: Whether a warrantless entry is valid when based upon the consent of a third party whom the police, at the time of the entry, reasonably believe to possess common authority over the premises, but who in fact does not do so.

I

Respondent Edward Rodriguez was arrested in his apartment by law. enforcement officers and charged with possession of illegal drugs. The police gained entry to the apartment with the consent and assistance of Gail Fischer, who had lived there with respondent for several months. The relevant facts leading to the arrest are as follows.

On July 26, 1985, police were summoned to the residence of Dorothy Jackson on South Wolcott in Chicago. They were met by Ms. Jackson’s daughter, Gail Fischer, who showed signs of a severe beating. She told the officers that she had been assaulted by respondent Edward Rodriguez earlier that day in an apartment on South California Avenue. Fischer stated that Rodriguez was then asleep in the apartment, and she consented to travel there with the police in order to unlock the door with her key so that the officers could enter and arrest him. During this conversation, Fischer several times referred to the apartment on South California as “our” apartment, and said that she had clothes and furniture there. It is unclear whether she indicated that she currently lived at the apartment, or only that she used to live there.

The police officers drove to the apartment on South California, accompanied by Fischer. They did not obtain an arrest warrant for Rodriguez, nor did they seek a search warrant for the apartment. At the apartment, Fischer unlocked the door with her key and gave the officers permission to enter. They moved through the door into the living room, where they observed in plain view drug paraphernalia and containers filled with white powder that they believed (correctly, as later analysis showed) to be cocaine. They proceeded to the bedroom, where they found Rodriguez asleep and discovered additional containers of white powder in two open attaché cases. The officers arrested Rodriguez and seized the drugs and related paraphernalia.

Rodriguez was charged with possession of a controlled substance with intent to deliver. He moved to suppress all evidence seized at the time of his arrest, claiming that Fischer had vacated the apartment several weeks earlier and had no authority to consent to the entry. The Cook County Circuit Court granted the motion, holding that at the time she consented to the entry Fischer did not have common authority over the apartment. The Court concluded that Fischer was not a “usual resident” but rather an “infrequent visitor” at the apartment on South California, based upon its findings that Fischer’s name was not on the lease, that she did not contribute to the rent, that she was not allowed to invite others to the apartment on her own, that she did not have access to the apartment when respondent was away, and that she had moved some of her possessions from the apartment. The Circuit Court also rejected the State’s contention that, even if Fischer did not possess common authority over the premises, there was no Fourth Amendment violation if the police reasonably believed at the time of their entry that Fischer possessed the authority to consent.

The Appellate Court of Illinois affirmed the Circuit Court in all respects. The Illinois Supreme Court denied the State’s petition for leave to appeal, 125 Ill. 2d 572, 537 N. E. 2d 816 (1989), and we granted certiorari. 493 U. S. 932 (1989).

II

The Fourth Amendment generally prohibits the warrant-less entry of a person’s home, whether to make an arrest or to search for specific objects. Payton v. New York, 445 U. S. 573 (1980); Johnson v. United States, 333 U. S. 10 (1948). The prohibition does not apply, however, to situations in which voluntary consent has been obtained, either from the individual whose property is searched, see Schneckloth v. Bustamonte, 412 U. S. 218 (1973), or from a third party who possesses common authority over the premises, see United States v. Matlock, supra, at 171. The State of Illinois contends that that exception applies in the present case.

As we stated in Matlock, supra, at 171, n. 7, “[cjommon authority” rests “on mutual use of the property by persons generally having joint access or control for most purposes . . . .” The burden of establishing that common authority rests upon the State. On the basis of this record, it is clear that burden was not sustained. The evidence showed that although Fischer, with her two small children, had lived with Rodriguez beginning in December 1984, she had moved out on July 1, 1985, almost a month before the search at issue here, and had gone to live with her mother. She took her and her children’s clothing with her, though leaving behind some furniture and household effects. During the period after July 1 she sometimes spent the night at Rodriguez’s apartment, but never invited her friends there, and never went there herself when he was not home. Her name was not on the lease nor did she contribute to the rent. She had a key to the apartment, which she said at trial she had taken without Rodriguez’s knowledge (though she testified at the preliminary hearing that Rodriguez had given her the key). On these facts the State has not established that, with respect to the South California apartment, Fischer had “joint access or control for most purposes.” To the contrary, the Appellate Court’s determination of no common authority over the apartment was obviously correct.

1 — l 1 — 1 1 — 1

A

The State contends that, even if Fischer did not in fact have authority to give consent, it suffices to validate the entry that the law enforcement officers reasonably believed she did. Before reaching the merits of that contention, we must consider a jurisdictional objection: that the decision below rests on an adequate and independent state ground. Respondent asserts that the Illinois Constitution provides greater protection than is afforded under the Fourth Amendment, and that the Appellate Court relied upon this when it determined that a reasonable belief by the police officers was insufficient.

When a state-court decision is clearly based on state law that is both adequate and independent, we will not review the decision. Michigan v. Long, 463 U. S. 1032, 1041 (1983). But when “a state court decision fairly appears to rest primarily on federal law, or to be interwoven with the federal law,” we require that it contain a “‘plain statement’ that [it] rests upon adequate and independent state grounds,” id., at 1040, 1042; otherwise, “we will accept as the most reasonable explanation that the state court decided the case the way it did because it believed that federal law required it to do so.” Id., at 1041. Here, the Appellate Court’s opinion contains no “plain statement” that its decision rests on state law. The opinion does not rely on (or even mention) any specific provision of the Illinois Constitution, nor even the Illinois Constitution generally. Even the Illinois cases cited by the opinion rely upon no constitutional provisions other than the Fourth and Fourteenth Amendments of the United States Constitution. We conclude that the Appellate Court of Illinois rested its decision on federal law.

B

On the merits of the issue, respondent asserts that permitting a reasonable belief of common authority to validate an entry would cause a defendant’s Fourth Amendment rights to be “vicariously waived.” Brief for Respondent 32. We disagree.

We have been unyielding in our insistence that a defendant’s waiver of his trial rights cannot be given effect unless it is “knowing” and “intelligent.” Colorado v. Spring, 479 U. S. 564, 574-575 (1987); Johnson v. Zerbst, 304 U. S. 458 (1938). We would assuredly not permit, therefore, evidence seized in violation of the Fourth Amendment to be introduced on the basis of a trial court’s mere “reasonable belief” — derived from statements by unauthorized persons — that the defendant has waived his objection. But one must make a distinction between, on the one hand, trial rights that derive from the violation of constitutional guarantees and, on the other hand, the nature of those constitutional guarantees themselves. As we said in Schneckloth:

“There is a vast difference between those rights that protect a fair criminal trial and the rights guaranteed under the Fourth Amendment. Nothing, either in the purposes behind requiring a ‘knowing’ and ‘intelligent’ waiver of trial rights, or in the practical application of such a requirement suggests that it ought to be extended to the constitutional guarantee against unreasonable searches and seizures.” 412 U. S., at 241.

What Rodriguez is assured by the trial right of the exclusionary rule, where it applies, is that no evidence seized in violation of the Fourth Amendment will be introduced at his trial unless he consents. What he is assured by the Fourth Amendment itself, however, is not that no government search of his house will occur unless he consents; but that no such search will occur that is “unreasonable." U. S. Const., Arndt. 4. There are various elements, of course, that can make a search of a person’s house “reasonable” — one of which is the consent of the person or his cotenant.. The essence of respondent’s argument is that we should impose upon this element a requirement that we have not imposed upon other elements that regularly compel government officers to exercise judgment regarding the facts: namely, the requirement that their judgment be not only responsible but correct.

The fundamental objective that alone validates all un-consented government searches is, of course, the seizure of persons who have committed or are about to commit crimes, or of evidence related to crimes. But “reasonableness,” with respect to this necessary element, does not demand that the government be factually correct in its assessment that that is what a search will produce. Warrants need only be supported by “probable cause,” which demands no more than a proper “assessment of probabilities in particular factual contexts . . . .” Illinois v. Gates, 462 U. S. 213, 232 (1983). If a magistrate, based upon seemingly reliable but factually inaccurate information, issues a warrant for the search of a house in which the sought-after felon is not present, has never been present, and was never likely to have been present, the owner of that house suffers one of the inconveniences we all expose ourselves to as the cost of living in a safe society; he does not suffer a violation of the Fourth Amendment.

Another element often, though not invariably, required in order to render an unconsented search “reasonable” is, of course, that the officer be authorized by a valid warrant. Here also we have not held that “reasonableness” precludes error with respect to those factual judgments that law enforcement officials are expected to make. In Maryland v. Garrison, 480 U. S. 79 (1987), a warrant supported by probable cause with respect to one apartment was erroneously issued for an entire floor that was divided (though not clearly) into two apartments. We upheld the search of the apartment not properly covered by the warrant. We said:

“[T]he validity of the search of respondent’s apartment pursuant to a warrant authorizing the search of the entire third floor depends on whether the officers’ failure to realize the overbreadth of the warrant was objectively understandable and reasonable. Here it unquestionably was. The objective facts available to the officers at the time suggested no distinction between [the suspect’s] apartment and the third-floor premises.” Id., at 88.

The ordinary requirement of a warrant is sometimes supplanted by other elements that render the unconsented search “reasonable.” Here also we have not held that the Fourth Amendment requires factual accuracy. A warrant is not needed, for example, where the search is incident to an arrest. In Hill v. California, 401 U. S. 797 (1971), we upheld a search incident to an arrest, even though the arrest was made of the wrong person. We said:

“The upshot was that the officers in good faith believed Miller was Hill and arrested him. They were quite wrong as it turned out, and subjective good-faith belief would not in itself justify either the arrest or the subsequent search. But sufficient probability, not certainty, is the touchstone of reasonableness under the Fourth Amendment and on the record before us the officers’ mistake was understandable and the arrest a reasonable response to the situation facing them at the time.” Id., at 803-804.

It would be superfluous to multiply these examples. It is apparent that in order to satisfy the “reasonableness” requirement of the Fourth Amendment, what is generally demanded of the many factual determinations that must regularly be made by agents of the government — whether the magistrate issuing a warrant, the police officer executing a warrant, or the police officer conducting a search or seizure under one of the exceptions to the warrant requirement — is not that they always be correct, but that they always be reasonable. As we put it in Brinegar v. United States, 338 U. S. 160, 176 (1949):

“Because many situations which confront officers in the course of executing their duties are more or less ambiguous, room must be allowed for some mistakes on their part. But the mistakes must be those of reasonable men, acting on facts leading sensibly to their conclusions of probability.”

We see no reason to depart from this general rule with respect to facts bearing upon the authority to consent to a search. Whether the basis for such authority exists is the sort of recurring factual question to which law enforcement officials must be expected to apply their judgment; and all the Fourth Amendment requires is that they answer it reasonably. The Constitution is no more violated when officers enter without a warrant because they reasonably (though erroneously) believe that the person who has consented to their entry is a resident of the premises, than it is violated when they enter without a warrant because they reasonably (though erroneously) believe they are in pursuit of a violent felon who is about to escape. See Archibald v. Mosel, 677 F. 2d 5 (CA1 1982).

Stoner v. California, 376 U. S. 483 (1964), is in our view not to the contrary. There, in holding that police had improperly entered the defendant’s hotel room based on the consent of a hotel clerk, we stated that “the rights protected by the Fourth Amendment are not to be eroded ... by unrealistic doctrines of ‘apparent authority.’” Id., at 488. It is ambiguous, of course, whether the word “unrealistic” is descriptive or limiting — that is, whether we were condemning as unrealistic all reliance upon apparent authority, or whether we were condemning only such reliance upon apparent authority as is unrealistic. Similarly ambiguous is the opinion’s earlier statement that “there [is no] substance to the claim that the search was reasonable because the police, relying upon the night clerk’s expressions of consent, had a reasonable basis for the belief that the clerk had authority to consent to the search.” Ibid. Was there no substance to it because it failed as a matter of law, or because the facts could not possibly support it? At one point the opinion does seem to speak clearly:

“It is important to bear in mind that it was the petitioner’s constitutional right which was at stake here, and not the night clerk’s nor the hotel’s. It was a right, therefore, which only the petitioner could waive by word or deed, either directly or through an agent.” Id., at 489.

But as we have discussed, what is at issue when a claim of apparent consent is raised is not whether the right to be free of searches has been waived, but whether the right to be free of unreasonable searches has been violated. Even if one does not think the Stoner opinion had this subtlety in mind, the supposed clarity of its foregoing statement is immediately compromised, as follows:

“It is true that the night clerk clearly and unambiguously consented to the search. But there is nothing in the record to indicate that the police had any basis whatsoever to believe that the night clerk had been authorized by the petitioner to permit the police to search the petitioner’s room.” Ibid, (emphasis added).

The italicized language should have been deleted, of course, if the statement two sentences earlier meant that an appearance of authority could never validate a search. In the last analysis, one must admit that the rationale of Stoner was ambiguous — and perhaps deliberately so. It is at least a reasonable reading of the case, and perhaps a preferable one, that the police could not rely upon the obtained consent because they knew it came from a hotel clerk, knew that the room was rented and exclusively occupied by the defendant, and could not reasonably have believed that the former had general access to or control over the latter. Similarly ambiguous in its implications (the Court’s opinion does not even allude to, much less discuss the effects of, “reasonable belief”) is Chapman v. United States, 365 U. S. 610 (1961). In sum, we were correct in Matlock, 415 U. S., at 177, n. 14, when we regarded the present issue as unresolved.

As Stoner demonstrates, what we hold today does not suggest that law enforcement officers may always accept a person’s invitation to enter premises. Even when the invitation is accompanied by an explicit assertion that the person lives there, the surrounding circumstances could conceivably be such that a reasonable person would doubt its truth and not act upon it without further inquiry. As with other factual determinations bearing upon search and seizure, determination of consent to enter must “be judged against an objective standard: would the facts available to the officer at the moment . . . ‘warrant a man of reasonable caution in the belief’ ” that the consenting party had authority over the premises? Terry v. Ohio, 392 U. S. 1, 21-22 (1968). If not, then war-rantless entry without further inquiry is unlawful unless authority actually exists. But if so, the search is valid.

* * *

In the present case, the Appellate Court found it unnecessary to determine whether the officers reasonably believed that Fischer had the authority to consent, because it ruled as a matter of law that a reasonable belief could not validate the entry. Since we find that ruling to be in error, we remand for consideration of that question. The judgment of the Illinois Appellate Court is reversed, and the case is remanded for further proceedings not inconsistent with this opinion.

So ordered.

Justice Marshall,

with whom Justice Brennan and Justice Stevens join, dissenting.

Dorothy Jackson summoned police officers to her house to report that her daughter Gail Fischer had been beaten. Fischer told police that Ed Rodriguez, her boyfriend, was her assaulter. During an interview with Fischer, one of the officers asked if Rodriguez dealt in narcotics. Fischer did not respond. Fischer did agree, however, to the officers’ request to let them into Rodriguez’s apartment so that they could arrest him for battery. The police, without a warrant and despite the absence of an exigency, entered Rodriguez’s home to arrest him. As a result of their entry, the police discovered narcotics that the State subsequently sought to introduce in a drug prosecution against Rodriguez.

The majority agrees with the Illinois Appellate Court’s determination that Fischer did not have authority to consent to the officers’ entry of Rodriguez’s apartment. Ante, at 181-182. The Court holds that the warrantless entry into Rodriguez’s home was nonetheless valid if the officers reasonably believed that Fischer had authority to consent. Ante this page. The majority’s defense of this position rests on a misconception of the basis for third-party consent searches. That such searches do not give rise to claims of constitutional violations rests not on the premise that they are “reasonable” under the Fourth Amendment, see ante, at 183-184, but on the premise that a person may voluntarily limit his expectation of privacy by allowing others to exercise authority over his possessions. Cf. Katz v. United States, 389 U. S. 347, 351 (1967) (“What a person knowingly exposes to the public, even in his own home or office, is not a subject of Fourth Amendment protection”). Thus, an individual’s decision to permit another “joint access [to] or control [over the property] for most purposes,” United States v. Matlock, 415 U. S. 164, 171, n. 7 (1974), limits that individual’s reasonable expectation of privacy and to that extent limits his Fourth Amendment protections. Cf. Rakas v. Rlinois, 439 U. S. 128, 148 (1978) (because passenger in car lacked “legitimate expectation of privacy in the glove compartment,” Court did not decide whether search would violate Fourth Amendment rights of someone who had such expectation). If an individual has not so limited his expectation of privacy, the police may not dispense with the safeguards established by the Fourth Amendment.

The baseline for the reasonableness of a search or seizure in the home is the presence of a warrant. Skinner v. Railway Labor Executives’ Assn., 489 U. S. 602 (1989). Indeed, “searches and seizures inside a home without a warrant are presumptively unreasonable.” Payton v. New York, 445 U. S. 573, 586 (1980). Exceptions to the warrant requirement must therefore serve “compelling” law enforcement goals. Mincey v. Arizona, 437 U. S. 385, 394 (1978). Because the sole law enforcement purpose underlying third-party consent searches is avoiding the inconvenience of securing a warrant, a departure from the warrant requirement is not justified simply because an officer reasonably believes a third party has consented to a search of the defendant’s home. In holding otherwise, the majority ignores our longstanding view that “the informed and deliberate determinations of magistrates ... as to what searches and seizures are permissible under the Constitution are to be preferred over the hurried action of officers and others who may happen to make arrests.” United States v. Lefkowitz, 285 U. S. 452, 464 (1932).

I

The Fourth Amendment provides that “[t]he right of the people to be secure in their . . . houses . . . shall not be violated.” We have recognized that the “physical entry of the home is the chief evil against which the wording of the Fourth Amendment is directed.” United States v. United States District Court, Eastern District of Michigan, 407 U. S. 297, 313 (1972). We have further held that “a search or seizure carried out on a suspect’s premises without a warrant is per se unreasonable, unless the police can show that it falls within one of a carefully defined set of exceptions.” Coolidge v. New Hampshire, 403 U. S. 443, 474 (1971). Those exceptions must be crafted in light of the warrant requirement’s purposes. As this Court stated in McDonald v. United States, 335 U. S. 451 (1948):

“The presence of a search warrant serves a high function. Absent some grave emergency, the Fourth Amendment has interposed a magistrate between the citizen and the police. This was done not to shield criminals nor to make the home a safe haven for illegal activities. It was done so that an objective mind might weigh the need to invade that privacy in order to enforce the law. The right of privacy was deemed too precious to entrust to the discretion of those whose job is the detection of crime and the arrest of criminals.” Id., at 455-456.

The Court has tolerated departures from the warrant requirement only when an exigency makes a warrantless search imperative to the safety of the police and of the community. See, e. g., id., at 456 (“We cannot be true to that constitutional requirement and excuse the absence of a search warrant without a showing by those who seek exemption from the constitutional mandate that the exigencies of the situation made that course imperative”); Warden v. Hayden, 387 U. S. 294 (1967) (hot pursuit); Chimel v. California, 395 U. S. 752 (1969) (interest in officers’ safety justifies search incident to an arrest); Michigan v. Tyler, 436 U. S. 499, 509 (1978) (“compelling need for official action and no time to secure a warrant” justifies warrantless entry of burning building). The Court has often heard, and steadfastly rejected, the invitation to carve out further exceptions to the warrant requirement for searches of the home because of the burdens on police investigation and prosecution of crime. Our rejection of such claims is not due to a lack of appreciation of the difficulty and importance of effective law enforcement, but rather to our firm commitment to “the view of those who wrote the Bill of Rights that the privacy of a person’s home and property may not be totally sacrificed in the name of maximum simplicity in enforcement of the criminal law.” Mincey, supra, at 393 (citing United States v. Chadwick, 433 U. S. 1, 6-11 (1977)).

In the absence of an exigency, then, warrantless home searches and seizures are unreasonable under the Fourth Amendment. The weighty constitutional interest in preventing unauthorized intrusions into the home overrides any law enforcement interest in relying on the reasonable but potentially mistaken belief that a third party has authority to consent to such a search or seizure. Indeed, as the present case illustrates, only the minimal interest in avoiding the inconvenience of obtaining a warrant weighs in on the law enforcement side.

Against this law enforcement interest in expediting arrests is “the right of a man to retreat into his own home and there be free from unreasonable governmental intrusion.” Silverman v. United States, 365 U. S. 505, 511 (1961). To be sure, in some cases in which police officers reasonably rely on a third party’s consent, the consent will prove valid, no intrusion will result, and the police will have been spared the inconvenience of securing a warrant. But in other cases, such as this one, the authority claimed by the third party will be false. The reasonableness of police conduct must be measured in light of the possibility that the target has not consented. Where “[n]o reason is offered for not obtaining a search warrant except the inconvenience to the officers and some slight delay necessary to prepare papers and present the evidence to a magistrate,” the Constitution demands that the warrant procedure be observed. Johnson v. United States, 333 U. S. 10, 15 (1948). The concerns of expediting police work and avoiding paperwork “are never very convincing reasons and, in these circumstances, certainly are not enough to by-pass the constitutional requirement.” Ibid. In this case, as in Johnson, “[n]o suspect was fleeing or likely to take flight. The search was of permanent premises, not of a movable vehicle. No evidence or contraband was threatened with removal or destruction .... If the officers in this case were excused from the constitutional duty of presenting their evidence to a magistrate, it is difficult to think of a case in which it should be required.” Ibid.

Unlike searches conducted pursuant to the recognized exceptions to the warrant requirement, see supra, at 191-192, third-party consent searches are not based on an exigency and therefore serve no compelling social goal. Police officers, when faced with the choice of relying on consent by a third party or securing a warrant, should secure a warrant and must therefore accept the risk of error should they instead choose to rely on consent.

II

Our prior cases discussing searches based on third-party consent have never suggested that such searches are “reasonable.” In United States v. Matlock, this Court upheld a warrantless search conducted pursuant to the consent of a third party who was living with the defendant. The Court rejected the defendant’s challenge to the search, stating that a person who permits others to have “joint access or control for most purposes . . . assume[s] the risk that [such persons] might permit the common area to be searched.” 415 U. S., at 171, n. 7; see also Frazier v. Cupp, 394 U. S. 731, 740 (1969) (holding that defendant who left a duffel bag at another’s house and allowed joint use of the bag “assumed the risk that [the person] would allow someone else to look inside”). As the Court’s assumption-of-risk analysis makes clear, third-party consent limits a person’s ability to challenge the reasonableness of the search only because that person voluntarily has relinquished some of his expectation of privacy by sharing access or control over his property with another person.

A search conducted pursuant to an officer’s reasonable but mistaken belief that a third party had authority to consent is thus on an entirely different constitutional footing from one based on the consent of a third party who in fact has such authority. Even if the officers reasonably believed that Fischer had authority to consent, she did not, and Rodriguez’s expectation of privacy was therefore undiminished. Rodriguez accordingly can challenge the warrantless intrusion into his home as a violation of the Fourth Amendment. This conclusion flows directly from Stoner v. California, 376 U. S. 483 (1964). There, the Court required the suppression of evidence seized in reliance on a hotel clerk’s consent to a war-rantless search of a guest’s room. The Court reasoned that the guest’s right to be free of unwarranted intrusion “was a right. . . which only [he] could waive by word or deed, either directly or through an agent.” Id., at 489. Accordingly, the Court rejected resort to “unrealistic doctrines of ‘apparent authority’ ” as a means of upholding the search to which the guest had not consented. Id., at 488.

III

Acknowledging that the third party in this case lacked authority to consent, the majority seeks to rely on cases suggesting that reasonable but mistaken factual judgments by police will not invalidate otherwise reasonable searches. The majority reads these cases as establishing a “general rule” that “what is generally demanded of the many factual determinations that must regularly be made by agents of the government — whether the magistrate issuing a warrant, the police officer executing a warrant, or the police officer conducting a search or seizure under one of the exceptions to the warrant requirement — is not that they always be correct, but that they always be reasonable.” Ante, at 185-186.

The majority’s assertion, however, is premised on the erroneous assumption that third-party consent searches are generally reasonable. The cases the majority cites thus provide no support for its holding. In Brinegar v. United States, 338 U. S. 160 (1949), for example, the Court confirmed the unremarkable proposition that police need only probable cause, not absolute certainty, to justify the arrest of a suspect on a highway. As Brinegar makes clear, the possibility of factual error is built into the probable cause standard, and such a standard, by its very definition, will in some cases result in the arrest of a suspect who has not actually committed a crime. Because probable cause defines the reasonableness of searches and seizures outside of the home, a search is reasonable under the Fourth Amendment whenever that standard is met, notwithstanding the possibility of “mistakes” on the part of police. Id., at 176. In contrast, our cases have already struck the balance against warrantless home intrusions in the absence of an exigency. See supra, at 191-192. Because reasonable factual errors by law enforcement officers will not validate unreasonable searches, the reasonableness of the officer’s mistaken belief that the third party had authority to consent is irrelevant.

The majority’s reliance on Maryland v. Garrison, 480 U. S. 79 (1987), is also misplaced. In Garrison, the police obtained a valid warrant for the search of the “third floor apartment” of a building whose third floor in fact housed two apartments. Id., at 80. Although the police had probable cause to search only one of the apartments, they entered both apartments because “[t]he objective facts available to the officers at the time suggested no distinction between [the apartment for which they legitimately had the warrant and the entire third floor].” Id., at 88. The Court held that the officers’ reasonable mistake of fact did not render the search unconstitutional. Id., at 88-89. As in Brinegar, the Court’s decision was premised on the general reasonableness of the type of police action involved. Because searches based on warrants are generally reasonable, the officers’ reasonable mistake of fact did not render their search “unreasonable.” This reasoning is evident in the Court’s conclusion that little would be gained by adopting additional burdens “over and above the bedrock requirement that, with the exceptions we have traced in our cases, the police may conduct searches only pursuant to a reasonably detailed warrant.” Garrison, supra, at 89, n. 14.

Garrison, like Brinegar, thus tells us nothing about the reasonableness under the Fourth Amendment of a warrant-less arrest in the home based on an officer’s reasonable but mistaken belief that the third party consenting to the arrest was empowered to do so. The majority’s glib assertion that “[i]t would be superfluous to multiply” its citations to cases like Brinegar, Hill, and Garrison, ante, at 185, is thus correct, but for a reason entirely different than the majority suggests. Those cases provide no illumination of the issue raised in this case, and further citation to like cases would be as superfluous as the discussion on which the majority’s conclusion presently depends.

IV

Our cases demonstrate that third-party consent searches are free from constitutional challenge only to the extent that they rest on consent by a party empowered to do so. The majority’s conclusion to the contrary ignores the legitimate expectations of privacy on which individuals are entitled to rely. That a person who allows another joint access to his property thereby limits his expectation of privacy does not justify trampling the rights of a person who has not similarly relinquished any of his privacy expectation.

Instead of judging the validity of consent searches, as we have in the past, based on whether a defendant has in fact limited his expectation of privacy, the Court today carves out an additional exception to the warrant requirement for third-party consent searches without pausing to consider whether “ ‘the exigencies of the situation’ make the needs of law enforcement so compelling that the warrantless search is objectively reasonable under the Fourth Amendment,” Mincey, 437 U. S., at 394 (citations omitted). Where this free-floating creation of “reasonable” exceptions to the warrant requirement will end, now that the Court has departed from the balancing approach that has long been part of our Fourth Amendment jurisprudence, is unclear. But by allowing a person to be subjected to a warrantless search in his home without his consent and without exigency, the majority has taken away some of the liberty that the Fourth Amendment was designed to protect.

       Justice MARSHALL’S dissent rests upon a rejection of the proposition that searches pursuant to valid third-party consent are “generally reasonable.” Post, at 196. Only a warrant or exigent circumstances, he contends, can produce “reasonableness”; consent validates the search only because the object of the search thereby “limit[s] his expectation of privacy,” post, at 198, so that the search becomes not really a search at all. We see no basis for making such an artificial distinction. To describe a consented search as a noninvasion of privacy and thus a nonsearch is strange in the extreme. And while it must be admitted that this ingenious device can explain why consented searches are lawful, it cannot explain why seemingly consented searches are “unreasonable,” which is all that the Constitution forbids. See Delaware v. Prouse, 440 U. S. 648, 663-654 (1979) (“The essential purpose of the proscriptions in the Fourth Amendment is to impose a standard of ‘reasonableness’ upon the exercise of discretion by government officials”). The only basis for contending that the constitutional standard could not possibly have been met here is the argument that reasonableness must be judged by the facts as they were, rather than by the facts as they were known. As we have discussed in text, that argument has long since been rejected.

      The majority insists that the rationale of Stoner is “ambiguous — and perhaps deliberately so” with respect to the permissibility of third-party searches where the suspect has not conferred actual authority on the third party. Ante, at 188. Stoner itself is clear, however; today’s majority manufactures the ambiguity. When the Stoner Court stated that the Fourth Amendment is not to be eroded “by unrealistic doctrines of ‘apparent authority,’” 376 U. S., at 488, and that “only the petitioner could waive by word or deed” his freedom from a warrantless search, id., at 489, the Court rejected precisely the proposition that the majority today adopts.
      The majority regards Stoners rejection of “unrealistic doctrines of ‘apparent authority’ ” as ambiguous on the theory that the Court might have been referring only to unreasonable applications of such doctrines and not to the doctrines themselves. Ante, at 187. But Stoner’s express description of apparent authority doctrines as unrealistic cannot be viewed as mere happenstance. The Court in fact used the word “applications” in the same sentence to refer to misapplications of the actual authority doctrine: “Our decisions make clear that the rights protected by the Fourth Amendment are not to be eroded by strained applications of the law of agency or by unrealistic doctrines of ‘apparent authority.’” 376 U. S., at 488 (emphasis added). The full sentence thus unambiguously confirms that Stoner rejected any reliance on apparent authority doctrines.
      Nor did the Stoner Court leave open the door for a police officer to rely on a reasonable but mistaken belief in a third party’s authority to consent when it remarked that “there is nothing in the record to indicate that the police had any basis whatsoever to believe that the night clerk had been authorized by the petitioner to permit the police to search the petitioner’s room.” Id., at 489. Stating that a defendant must “by word or deed” waive his rights, ibid., is not inconsistent with noting that, in a particular case, the absence of actual waiver is confirmed by the police’s inability to identify any basis for their contention that waiver had indeed occurred.

      The same analysis applies to Hill v. California, 401 U. S. 797 (1971), where the Court upheld a search incident to an arrest in which officers reasonably but mistakenly believed that the person arrested in the defendant’s home was the defendant. The Court refused to disturb the state court’s holding that “ ‘[w]hen the police have probable cause to arrest one party, and when they reasonably mistake a second party for the first party, then the arrest of the second party is a valid arrest.’ ” Id., at 802 (brackets in original) (quoting People v. Hill, 69 Cal. 2d 550, 553, 446 P. 2d 521, 523 (1968)). Given that the Court decided Hill before the extension of the warrant requirement to arrests in the home, Payton v. New York, 445 U. S. 573 (1980), Hill should be understood no less than Brinegar as simply a gloss on the meaning of “probable cause.” The holding in Hill rested on the fact that the police had probable cause to believe that Hill had committed a crime. In such circumstances, the reasonableness of the arrest for which the police had probable cause was not undermined by the officers’ factual mistake regarding the identity of the person arrested.