If your club is organized for pleasure, recreation, and other
similar nonprofitable purposes and substantially all of its activities
are for these purposes, it should file Form 1024 to apply for
recognition of exemption from federal income tax.
In applying for recognition of exemption, you should submit the
information described in this section. Also see chapter 1 for the
procedures to follow.
Typical organizations that should file for recognition of exemption
as social clubs include:
- College alumni associations that are not described in
chapter 3 under Alumni association,
- College fraternities or sororities operating chapter houses
- Country clubs,
- Amateur hunting, fishing, tennis, swimming, and other sport
- Dinner clubs that provide a meeting place, library, and
dining room for members,
- Hobby clubs,
- Garden clubs, and
- Variety clubs.
Your organization will not be recognized as tax exempt if its
charter, bylaws, or other governing instrument, or any written policy
statement provides for discrimination against any person on the basis
of race, color, or religion.
However, a club that in good faith limits its membership to the
members of a particular religion to further the teachings or
principles of that religion and not to exclude individuals of a
particular race or color will not be considered as discriminating on
the basis of religion. Also, the restriction on religious
discrimination does not apply to a club that is an auxiliary of a
fraternal beneficiary society (discussed later) if that society is
described in section 501(c)(8) and exempt from tax under section
501(a) and limits its membership to the members of a particular
Private benefit prohibited.
No part of the organization's net earnings may benefit any person
having a personal and private interest in the activities of the
organization. For purposes of this requirement, it is not necessary
that net earnings be actually distributed. Even undistributed earnings
can benefit members. Examples of this include a decrease in membership
dues or an increase in the services the club provides to its members
without a corresponding increase in dues or other fees paid for club
support. However, fixed-fee payments to members who bring new members
into the club are not an inurement of the club's net earnings, if the
payments are reasonable compensation for performance of a necessary
To show that your organization possesses the characteristics of a
club within the meaning of the exemption law, you should submit
evidence with your application that personal contact, commingling, and
fellowship exist among members. You must show that members are bound
together by a common objective of pleasure, recreation, and other
Fellowship need not be present between each member and every other
member of a club if it is a material part in the life of the
organization. A statewide or nationwide organization that is made up
of individual members, but is divided into local groups, satisfies
this requirement if fellowship is a material part of the life of each
The term other nonprofitable purposes means other
purposes similar to pleasure and recreation. For example, a club that,
in addition to its social activities, has a plan for the payment of
sick and death benefits is not operating exclusively for pleasure,
recreation, and other nonprofitable purposes.
The membership in a social club must be limited. To show that your
organization has a purpose that would characterize it as a club, you
should submit evidence with your application that there are limits on
admission to membership consistent with the character of the club.
A social club that issues corporate membership is
dealing with the general public in the form of the corporation's
employees. Corporate members of a club are not the kind of members
contemplated by the law. Gross receipts from these members would be a
factor in determining whether the club qualifies as a social club. See
Gross receipts from nonmembership sources, later. Bona fide
individual memberships paid for by a corporation would not have an
effect on the gross receipts source.
The fact that a social club may have an associate (nonvoting)
class of membership will not be, in and of itself, a cause for
nonrecognition of exemption. However, if one membership class pays
substantially lower dues and fees than another membership class,
although both classes enjoy the same rights and privileges in using
the club facilities, there may be an inurement of income to the
benefited class, resulting in a denial of the club's exemption.
In general, your club should be supported solely by membership
fees, dues, and assessments. However, if otherwise entitled to
exemption, your club will not be disqualified because it raises
revenue from members through the use of club facilities or in
connection with club activities.
If your club will engage in business, such as selling real estate,
timber, or other products or services, it generally will be denied
exemption. However, evidence submitted with your application form that
your organization will provide meals, refreshments, or services
related to its exempt purposes only to its own members or their
dependents or guests will not cause denial of exemption.
Facilities open to public.
Evidence that your club's facilities will be open to the general
public (persons other than members or their dependents or guests) may
cause denial of exemption. This does not mean, however, that any
dealing with outsiders will automatically deprive a club of exemption.
Gross receipts from nonmembership sources.
A section 501(c)(7) organization may receive up to 35% of its gross
receipts, including investment income, from sources outside of its
membership without losing its tax-exempt status. Of the 35%, up to 15%
of the gross receipts may be derived from the use of the club's
facilities or services by the general public or from other activities
not furthering social or recreational purposes for members. If an
organization has outside income that is more than these limits, all
the facts and circumstances will be taken into account in determining
whether the organization qualifies for exempt status.
Gross receipts, for this purpose, are receipts from the normal and
usual (traditionally conducted) activities of the club. These receipts
include charges, admissions, membership fees, dues, assessments,
investment income, and normal recurring capital gains on investments.
Receipts do not include initiation fees and capital contributions.
Unusual amounts of income, such as from the sale of a clubhouse or
similar facility, are not included in gross receipts or in figuring
the percentage limits.
If your organization is a foundation formed for the exclusive
purpose of acquiring and leasing a chapter house to a local fraternity
chapter or sorority chapter maintained at an educational institution
and does not engage in any social activities, it may be a title
holding corporation (discussed, later, under section 501(c)(2)
organizations and under section 501(c)(25) organizations) rather than
a social club.
Tax treatment of donations.
Donations to exempt social and recreation clubs are not deductible
as charitable contributions on the donor's federal income tax return.