![]() ![]() Activities not in furtherance of pleasure, recreation, and other nonprofit purposes In determining whether this requirement is met, the Service has examined the activities of social clubs in light of: the gross receipts test, an analysis of the facts and circumstances, and an analysis of whether the clubs were engaged in a nontraditional business activity.Ī. An organization can demonstrate commingling among members through meetings, gatherings, and the use of regular organization facilities.8 However, organizations that do not allow more than incidental contact between members are not entitled to exemption.9Ģ) The club must be organized for pleasure, recreation, and other nonprofit purposes.10Ī social club's governing document cannot authorize the club to engage in activities beyond the scope of § 501(c)(7).11 A club whose governing documents authorize it to engage in nonexempt activities must amend its governing documents in order to satisfy the statute.12 An organization that previously operated under a disqualifying charter that has since been amended to comply with the statute will be exempt "effective the first annual accounting period in which the proscribed activity was not carried on."13ģ) Substantially all of the organization's activities must be for pleasure, recreation, and other nonprofit purposes.14 The Service has indicated that the comingling of members distinguishes tax exempt social and recreational organizations from their commercial counterparts. For instance, where membership privileges are issued to an individual subject to the social club's usual approval procedures, regardless of whether a corporation pays the membership dues, the member will be the approved individual.6 However, where membership privileges are provided to a corporation that has the right to select its representatives at club functions without regard to the club's usual member approval procedures, the member is the corporation.7 Generally, club members should consist of individuals and not associations of other clubs.5 For purposes of determining whether a member is an individual or an organization, the Service has focused on who the membership is issued to. ![]() Though the term "club" is not defined, the IRM indicates that clubs have the following characteristics: membership of individuals, personal contact, commingling of members, fellowship among members, and shared interests and goals among members.4 The organization is prohibited from discriminating on the basis of race, color, or religion.ġ) The organization must be a club composed of individuals.3.No part of the organization's net earnings may inure to the benefit of a private shareholder and.Substantially all of the organization's activities must be for pleasure, recreation, and other nonprofit purposes.The club must be organized for pleasure, recreation, and other nonprofit purposes.The organization must be a club composed of individuals.Generally, the Internal Revenue Service ("IRS" or the "Service") imposes the following requirements on organizations exempt from federal income tax under IRC § 501(c)(7): Some clubs feature exclusively the intellectual, or artistic some amateur athletics and sports and other epicurean, terpsichorean, or social side: all falling clearly within the exemption.2 There are doubtless more different kinds of clubs than there are clubs in a deck of cards. Generally, the Code and Treasury Regulations (the "Regs") provide that entities organized and operated for pleasure, recreation, and other similar nonprofit purposes may be exempt from federal income tax.1 The nature of the activity, pastime, or hobby is not material so long as an organization exhibits the requisite social character. Internal Revenue Code ("IRC" or the "Code") § 501(c)(7) provides social and recreational clubs with an exemption from federal taxation of income derived from providing services related to its tax-exempt mission. This article is designed to present a comprehensive overview of the complex standards and restrictions that govern tax-exempt clubs. ![]() ![]() A nuanced understanding of these rules also may offer the door to opportunities of which you were never previously aware. Yet, understanding the scope and limits of the federal tax-exempt status that underlies so many cubs is critical to avoiding the significant pitfalls that might otherwise befall your club. Most club managers - thankfully - are not attorneys or accountants. ![]()
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