A 501c7 social club is meant to provide its members with access to social and recreational facilities. Section 501c7 allows the organization of social clubs for pleasure, recreation, and other nonprofitable purposes.
No private shareholders of the club are allowed to benefit from its net earnings. These clubs are exempt from federal tax once they receive the 501c7 status.
Requirements Of 501c7 Social Clubs
Given below are some requirements laid by the IRS for social clubs to qualify for the 501c7 status (donorbox.org has a great starter guide)
- The club must be organized for exempt purposes like recreation, pleasure, or other nonprofitable purposes.
- The club must be supported by membership fees, dues, and assignments.
- No individual or shareholder of the club is allowed to profit from its net earnings.
- Members of the club must have opportunities to interact, engage and communicate with each other. The membership must also be limited.
- Recreational services must not be provided on a commercial basis.
- The club must not discriminate against people on the basis of race, color, or religion.
Examples Of 501c7 Social Clubs
Some types of 501c7 social clubs are,
- College sororities/fraternities or other academic sororities/fraternities
- Community associations that own and maintain recreational facilities
- Country clubs and dinner clubs
- Sports club which includes sports like tennis and swimming
- Hobby clubs
- Alumni clubs
These clubs must have limited membership and must not provide public services.
They should receive no more than 15% of their gross receipts from the sale of goods and services to non-members and no more than 35% of gross receipts from non-members sources.
Failure to meet these requirements will automatically invalidate their tax exemption status.
How To Start A 501c7 Social Club
Given below are the steps to start a 501c7 social club.
- The first step in starting a 501c7 social club is to organize a board of directors. The selected people must be passionate about the club and willing to devote their time and energy to it. The board members should include a president/chair, secretary, and treasurer. A registered agent should also be selected for receiving service of process on behalf of the club in the rare case your club gets sued in the future.
- The club’s membership base should be determined depending upon the services your club provides. The members can be school students, neighbors, or young adults.
- You will need to file as a nonprofit organization with your state. You can do this online or by mail. Your organizing documents should have several clauses like a nondiscrimination clause, a clause against self-dealing and conflicts of interest, and a purpose clause that states that your club is formed for exempt purposes.
- The board of directors should work on creating the bylaws and articles of incorporation. Hiring a lawyer who specializes in nonprofits will be very helpful since he will know your state’s legal requirements. He will also help you fill out the IRS Form 1024, the application for exemption recognition.
- You should get your Employer Identification Number by filing the SS-4 form (IRS), which is available on the official IRS website. This can be done online or sent by mail. This number will help you set up your club’s business bank account.
- Once your club is established, the next step is to fill out IRS Form 1024. This form is 22 pages long, but some sections can be avoided for 501c7 organizations. In the form, you will need to mention your club’s activities, list the names of board members, financial data, budgets for projects, and other relevant information.
- You will also have to fill the IRS Form 990 to ensure ongoing compliance for your 501c7 social club. This should be done on an annual basis. Failure to file a Form 990 for three consecutive years will result in invalidation of your club’s exemption status.
Social clubs are not charitable organizations, so they cannot provide tax deductions to donors or receive funding from foundations. They generally cannot open their facilities to the public without losing tax exemption.