Definition
A Social Club is a tax-exempt organization established under IRS Code Section 501(c)(7). These clubs are primarily organized for pleasure, recreation, and other nonprofitable purposes where significantly all the activities conducted align with these purposes. The vital aspect is that none of the net earnings benefit private shareholders or individuals. Common examples include country clubs, hobby clubs, sports clubs, and fraternities.
Key Characteristics:
- Organized for pleasure, recreation, and other nonprofitable purposes.
- Substantially all activities are devoted to these purposes.
- No part of the net earnings benefits private shareholders or individuals.
Examples
- Golf Clubs: Dedicated to the recreational playing of golf, including the organization of tournaments, member gatherings, and other related activities.
- Hobby Clubs: Such as photography clubs, where members gather to pursue and enjoy photography without the intent of profit.
- Fraternities and Sororities: College-based organizations that engage in various social, community service, and educational activities.
- Country Clubs: Offer a range of recreational and social activities, including dining facilities, swimming pools, and tennis courts, designed for member use.
Frequently Asked Questions
What is the primary requirement for a club to be tax-exempt under 501(c)(7)?
The club must be organized for pleasure, recreation, or other nonprofitable purposes, with substantially all activities dedicated to these aims.
Can a social club engage in profitable activities?
While a social club may engage in some profitable activities, these should not be the primary focus, and profits must not benefit private shareholders or individuals.
Are social clubs required to file tax returns?
Yes, tax-exempt social clubs must file annual returns using Form 990, which discloses the club’s income, expenditures, and other financial details.
Can social clubs charge membership dues and fees?
Yes, social clubs can charge membership dues and fees, which typically fund club activities and maintenance.
Are contributions to social clubs tax-deductible?
No, contributions to 501(c)(7) social clubs are not tax-deductible as charitable donations.
Related Terms
- 501(c)(3): A different category of tax-exempt status for organizations dedicated to charitable, religious, educational, or scientific purposes.
- Unrelated Business Income: Income generated from activities not substantially related to the club’s exempt purposes; subject to taxation.
- Form 990: The annual information return social clubs must file with the IRS.
- Membership Dues: Fees paid by members to support club operations and participate in activities.
Online References
- IRS Publication 557: Information regarding the requirements for tax exemption.
- IRS 501(c)(7) Tax-Exempt Rules: Direct guidance on regulations governing social clubs.
- National Council of Nonprofits: Resource for information on nonprofit organizations, including social clubs.
Suggested Books for Further Studies
- “Nonprofit Law: The Life Cycle of a Tax-Exempt Organization” by Elizabeth Schmidt
- “Tax Exempt Organizations: Cases and Materials” by John Simon, Harvey Dale, and Laura Chisolm
- “The Law of Tax-Exempt Organizations” by Bruce R. Hopkins
Fundamentals of Social Club Tax-Exempt Status: Tax Law Basics Quiz
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