Key Takeaways

  • 501(c)(7) social clubs must be member-funded and focused on social or recreational purposes to maintain tax-exempt status.
  • Registration requirements for social clubs vary by state; while IRS recognition is not mandatory, clubs must file annual Form 990s.
  • Bylaws must align with IRS and state laws, covering membership, governance, and dissolution provisions.
  • Income limitations exist, with 65% from members and only 35% from non-member sources to retain tax exemption.
  • Tax exemptions do not apply to donations, and clubs can be taxed on unrelated business income.
  • Legal and financial compliance involves articles of incorporation, licensing, and potential state tax exemptions.
  • Failure to file tax forms for three years can lead to automatic revocation of tax-exempt status.

501 c 7 bylaws are the governing documents for a non-profit organization that is classified as tax-exempt. Organizations covered by 501(c)(7) include recreational and social clubs, including but not limited to sports organizations, fraternities, country clubs, hobby clubs, and other similar groups that do not generate profit or sell goods or services.

Qualifying for 501(c)(7) Status

Organizations in this category must be self-supported by dues and membership fees and primarily be engaged in recreational and/or social activities. The IRS requires these groups to limit membership to those with personal contact to one another.

With this tax status, funds raised by the club are not taxed. However, the money must be spent on non-profit projects. Annual tax returns must be filed to qualify for continued 501(c)(7) status.

If you are forming this type of club, consult with a CPA or tax attorney to ensure that you will qualify for 501(c)(7) status. You will need to make sure that your club bylaws adhere to IRS regulations.

Section 501(c)(7) organizations do not need to apply for this status with the IRS; they just need to file an annual Form 990 to identify themselves as a social club. Formal application is available but not required by law. To seek formal recognition, file IRS Form 1024.

Do Social Clubs Have to Be Registered?

Social clubs under 501(c)(7) are not legally required to register with the IRS for tax-exempt status but must comply with federal and state laws. Clubs can choose to file IRS Form 1024 for official recognition, though annual reporting via Form 990 is required. Additionally, many states require social clubs to register as nonprofits or corporations for liability protection. Clubs that operate under an assumed name may need to register a Doing Business As (DBA) with their state.

Before forming a club, check state laws to determine:

  • Whether incorporation is required.
  • Licensing or permit obligations (e.g., alcohol permits for clubhouses).
  • Sales tax exemption requirements.
  • Rules regarding private membership restrictions.

Failing to register in compliance with state laws can result in fines or loss of liability protections.

Tax Treatment of Social Clubs

Taxing social and recreational organizations would discourage people from forming these types of clubs in their communities, which is why they are treated as tax-exempt by the IRS. However, those who pay club dues or make donations may not use these as charitable tax deductions or deduct them as business expenses.

Organizations that qualify for 501(c)(7) must derive 65 percent of income from its membership and can rely on investment income and other sources for only 35 percent. No more than 15 percent of the club's income can come from providing facilities or services to the public.

Tax-exempt status can be revoked if the organization is found to discriminate based on race, religion, or other protected categories.

Financial Management & Fundraising Limits

Social clubs can raise funds through membership dues, events, and investments, but strict IRS rules apply:

  • At least 65% of income must come from member dues.
  • No more than 35% can come from outside sources like guest fees or facility rentals.
  • Up to 15% of total revenue may come from public services or facility usage.

If a club earns unrelated business income—such as renting space to non-members—it must file Form 990-T and pay taxes on that income.

Social clubs are not considered charitable organizations, meaning donations are not tax-deductible. For clubs seeking additional fundraising avenues, legal guidance may be necessary to avoid jeopardizing tax-exempt status.

IRS Reporting Requirements

Social clubs must file an annual Form 990, an informational return, with the IRS.

  • Three versions of this form include:
    • One for clubs with annual gross receipts exceeding $200,000 and/or assets exceeding $500,000
    • One for clubs that do not meet either of these thresholds (Form 990-EZ)
    • One for clubs with less than $50,000 in gross annual receipts (Form 990-N)
  • Failing to file this form for three consecutive years will result in termination of the club's tax-exempt status.
  • This means that the club must file Form 1120 and pay federal income tax, including for years when the Form 990 was not filed.

Consequences of Failing to File Tax Forms

Social clubs must submit annual IRS Form 990 reports based on revenue:

  • Form 990-N for revenue under $50,000.
  • Form 990-EZ for revenue between $50,000 and $200,000.
  • Form 990 for revenue exceeding $200,000.

Failure to file for three consecutive years results in automatic revocation of tax-exempt status. If revoked, the club must:

  1. File Form 1120 and pay corporate income tax.
  2. Apply for reinstatement by filing Form 1024 and paying back taxes.
  3. Submit all delinquent 990 forms for reinstatement consideration.

To avoid penalties, clubs should maintain accurate financial records and establish internal compliance protocols.

Incorporated Social Clubs

Social clubs that have incorporated may be taxed at the federal level on rent, interest, dividends, and other profits that result from the corporation's assets. An incorporated non-profit is an independent legal entity under state law and can enter into contracts and purchase property, open bank accounts, and enjoy liability protection.

To establish an official business entity for your club, you must file articles of organization with the Secretary of State, establish bylaws, and meet reporting and other requirements of state law.

Legal Considerations for Incorporation

Incorporating a social club provides legal protection but also introduces new responsibilities. Incorporated clubs must:

  • File articles of incorporation with the state.
  • Draft legally sound bylaws governing membership and operations.
  • Maintain separate bank accounts to avoid tax penalties.
  • Hold annual meetings with documented minutes.
  • Comply with state and federal employment laws if hiring staff.

Additionally, state-specific requirements may apply, such as annual reports, franchise taxes, or additional business licensing.

For clubs considering incorporation, seeking legal assistance ensures compliance with both state and IRS regulations.

Bylaws Pitfalls to Avoid

When creating bylaws for your non-profit organization, it's important to understate your state's laws governing this structure. These will supersede provisions of your bylaws that are not in accordance. Examples include the state's default rules for how many members are needed for an official vote, whether members are allowed to vote by proxy, and other regulations. Bylaws cannot contain provisions that are disallowed by applicable state laws.

You should make sure your bylaws are consistent not only with state law but with your organization's other official documents. Think about what if scenarios, such as what if a board member leaves, to create provisions for these eventualities in your bylaws. Consider forming a committee to create the bylaws made up of representatives of different areas of your organization. You may also want to consult a non-profit attorney who can advise you on the legal implications of your bylaws.

The bylaws also establish a governance arrangement. It makes sense to establish a flexible one so you don't need to change the bylaws if the organization's circumstances change.

Essential Provisions for 501(c)(7) Bylaws

Bylaws are critical to a club’s legal and operational framework. Well-drafted bylaws should include:

  1. Purpose and Mission – Clearly define social and recreational objectives.
  2. Membership Criteria – Specify eligibility, dues, and voting rights.
  3. Governance Structure – Outline board positions, term limits, and decision-making protocols.
  4. Financial Management – Detail dues collection, spending policies, and tax compliance.
  5. Conflict Resolution – Establish procedures for disputes, disciplinary actions, and member expulsion.
  6. Dissolution Clause – Address asset distribution if the club disbands.

Bylaws should align with state nonprofit laws and be reviewed regularly for compliance.

Frequently Asked Questions

1. Do social clubs have to be registered with the IRS? No, but they must file Form 990 annually to maintain tax-exempt status. Formal IRS recognition via Form 1024 is optional.

2. What happens if a social club earns income from non-members? Non-member income must not exceed 35% of total revenue. Excess income may be taxable under Form 990-T.

3. Can a social club lose its 501(c)(7) status? Yes. Common reasons include failing to file Form 990 for three years, exceeding income limits, or engaging in prohibited discrimination.

4. Are membership dues tax-deductible? No. Unlike charitable donations, membership fees for social clubs do not qualify for tax deductions.

5. What should be included in a social club’s bylaws? Key provisions include membership rules, governance structure, financial policies, and dissolution terms to ensure compliance and longevity.

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