Tax Planning and Compliance for Tax-Exempt Organizations, 6th Edition

CHAPTER 9Social Clubs: §501(c)(7)

• 9.1 Organizational Requirements and Characteristics
  • (a) Purpose Clause and Activities
  • (b) Examples of Qualifying and Nonqualifying Clubs
• 9.2 Member Inurement Prohibited
  • (a) Inurement from Nonmember Revenues
  • (b) Direct Inurement to Members
• 9.3 Membership Requirements
  • (a) Discrimination
  • (b) Classes of Membership
  • (c) Company Memberships
  • (d) Subterfuge Clubs
• 9.4 Revenue Tests
  • (a) 35/15 Test
  • (b) Failing the Test
  • (c) Gift Tax for Club Gifts
• 9.5 Unrelated Business Income Tax
  • (a) Rationale for Different UBI Treatment
  • (b) Limitations on Deductions
  • (c) Nonmember Losses
  • (d) Direct and Indirect Costs
  • (e) How to Measure Profit Motive
  • (f) Aggregating Nonmember Activities
  • (g) Charitable Set-Asides
  • (h) Sales of Real Estate
• 9.6 Filing and Disclosure Requirements

Social clubs are defined in Internal Revenue Code (IRC) §501(c)(7) as “clubs organized for pleasure, recreation, and other nonprofitable purposes, substantially all of the activity of which are for such purposes and no part of the net earnings of which inures to the benefit of any private shareholder.” The tax exemption is based on the logic of allowing individuals to pool their funds for recreational purposes and is fundamentally very different from other types of exemptions. A club is not exempt because it provides public benefit, but rather because it serves to benefit private individuals. It is designed to allow individuals to join together on a mutual basis for personal reasons ...