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.

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.

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.

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.

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.

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