501(c)(7) Tax-Exempt Social Club Organizations: Mastering Tax and Operational Requirements

Reporting Nonmember and Nontraditional Income, Keeping Within Safe Harbor, and Defending IRS Exemption Challenges

Recording of a 110-minute CPE webinar with Q&A


Conducted on Monday, November 23, 2015

Recorded event now available

or call 1-800-926-7926
Program Materials

This webinar will give a detailed overview of the accounting and operational requirements of an IRC 501(c)(7) “social club” organization. The panel will offer concrete illustrations of “non-member” and “nontraditional income,” review the safe harbors for unrelated income, and provide guidance on responding to IRS challenges to exempt status.

Description

Social club organizations organized under IRC Section 501(c)(7) serve a useful exempt purpose in allowing groups organized without a profit motive to avoid paying tax on revenue from membership dues and other member sources. However, IRC 501(c)(7) social clubs have become a target of IRS scrutiny for violations of the federal tax code. The IRS has stated that good tax compliance equals good governance, and there is undoubtedly truth to such statement.

The principal areas of concern with respect to IRC 501(c)(7) organizations are excess nonmember income and nontraditional income. The IRC specifies that social clubs claiming an exempt purpose must derive their operating support primarily from members, through dues, fees and assessments. The IRS has established safe harbor amounts for the amount of nonmember income that an IRC 501(c)(7) organization may receive; if an exempt social club exceeds safe harbor percentages for nonmember income, its exempt status could be jeopardized.

The prohibition against nonmember income extends to nontraditional income, which the IRS defines as income from activities that, if conducted with members, would not further the club’s tax-exempt purposes. Advisers to IRC 501(c)(7) organizations must ensure the club does not derive excess nontraditional income to avoid unnecessary tax consequences.

Listen as our experienced panel provides a detailed and practical exploration into the operating and tax tasks and requirements to operating an IRC 501(c)(7) organization.

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Outline

  1. Organizing principles of IRC 501(c)(7);
  2. Transactions and events that can trigger UBTI or loss of exempt status (including excess non-member income, advertising for non-member use of facilities, nontraditional income, reciprocal income).
  3. Use of subsidiaries;
  4. How to defend a challenge to exempt status; and
  5. Certain tax differences between tax-exempt clubs and taxable clubs (diverse treatment of capital assessments and initiation fees and insurance proceeds)

Benefits

The panel will discuss these and other important issues:

  • What are the nonmember and non-related income definitions and thresholds for IRC 501(c)(7) organizations?
  • How does UBTI and other non-member income impact the exempt status of a social club?
  • What documentation is essential for defending against an IRS challenge to tax exempt status?
  • Certain tax differences between tax-exempt clubs and taxable clubs.

Faculty

James J. Reilly
James J. Reilly

Partner
Condon O'Meara McGinty & Donnelly

Mr. Reilly practices in the area of not-for-profit organizations, including foundations, religious organizations,...  |  Read More

James W. Gilson, CPA
James W. Gilson, CPA

Condon O'Meara McGinty & Donnelly

Mr. Gilson works with not-for-profit organizations and private clubs, and his prime areas of practice include...  |  Read More

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