The term 501(c) is used by the Internal Revenue Service of the United States to designate a non-profit organization that is tax exempt. The number 501(c)(7) refers to a type of a tax exempt organization known as social and recreational clubs.
What Kinds of Organizations May Qualify for 501(c)(7) Tax Exempt Status?
If a group of people get together for fun, recreational or other types of activities that are not generating revenue, then they may qualify for 501(c)(7) tax exempt status. In general, country clubs, sports clubs, fraternities and sororities and hobby clubs may all be tax exempt.
How Social and Recreational Clubs are Defined
Any organization that does not provide commercial goods or services may be tax exempt. If the club is supported solely by dues and fees paid by members and a substantial amount of club activities are devoted to social and recreational purposes, then it will qualify. Moreover, the IRS states that membership in these groups must be limited, that the membership must have personal contact with each other and that an individual with an interest in the club may not profit personally from it.
Why a 501(c)(7) Designation Makes Sense
When a group exists solely for non-profit purposes, they are legally entitled to tax exempt status. This means that no individual, nor the club as a whole, should have to pay taxes on any funds received by the club. This can be enormously helpful for a tennis club that wants to revamp its courts or a swim club that wants to build a swimming pool. The facilities will only be used by club members rather than the public, making the project not for profit and therefore tax exempt.
Does a Social Club Have to File Tax Returns?
Most recreational and social clubs are required by the IRS to file annual tax returns even if they are tax exempt. The filing of the return assures the government of the organization’s continued status as a non-profit venture. In some cases, clubs may be required to file additional forms. When the club is formed, it’s best to consult with an attorney or an accountant to make certain that bylaws are in compliance with state and federal law and that the proper forms are being filed with the IRS. Many accountants will assist with social club IRS filings at reduced cost.