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Tax Exemption Rules for Nonprofit Social Clubs

Nonprofit social clubs eligible for tax exemptions are groups "organized for pleasure, recreation and other similar nonprofitable purposes and which have substantially all of their activities for those purposes," according to the Internal Revenue Service. Section 501(c)(7) of the IRS code lists social groups typically eligible for the tax exemption, including college alumni associations, college fraternities or sororities operating chapter houses, country clubs, amateur sportsmen clubs, amateur athletic clubs, certain dinner clubs, and hobby and garden clubs.

  1. Purpose and Nondiscrimination

    • As of 2011, the number of social clubs reporting to the IRS totaled 48,477, according to the National Center for Charitable Statistics. To receive and maintain the tax exemption, these groups must show the IRS that personal contact exists among members and that members come together for a common pleasure, recreation or other nonprofitable purpose.

      A group must also show the IRS that it's a club by having limits for membership consistent with its purpose. A nonprofit horseback riding club might choose to limit membership to people who own horses, for example. The IRS also requires that clubs are supported solely by membership fees, dues and assessments, although social clubs can raise funds from members through the use of club facilities or from club activities. However, a social club may not promote itself as providing goods and services to the general public.

      Social clubs also must not discriminate on the basis of race, color or religion, although they can limit membership to those with a particular religious faith, if the club's purpose is to further the religion's teachings or principles, or if it's an auxiliary of certain fraternal beneficiary societies, according to the IRS.

    No Private Benefit

    • As with other types of tax-exempt nonprofits, the IRS prohibits a social club's net earnings from solely benefiting anyone with a personal and private interest in the organization's activities, including undistributed earnings. For example, providing a decrease in membership dues without a corresponding increase in other fees paid for club support can cause the group to lose its tax exemption. Providing a cash award to a winner of a club competition is not cause for loss of the exemption.

      Providing meals, refreshments, or services related to the club's exempt purposes only to its own members, their dependents or guests will not cause a denial or loss of the exemption.

    Gross Reciepts

    • A social club must be supported mostly by membership fees, dues and assessments. But it can also receive up to 35 percent of its gross receipts, including investment income, from sources outside of its membership. However, if more than 15 percent of this amount comes from use of the club’s facilities or services by the public, or from other activities not furthering the club's stated purposes, the club is at risk of losing the exemption, according to IRS rules.

    Tax Deductibility

    • Donors to 501(c)(7) social clubs cannot deduct their donations as charitable contributions on their federal income tax return. Income tax deductions are primarily provided to 501(c)(3) public benefit organizations, such as charitable, religious, educational, scientific and literary organizations.

    Required Filings

    • Social clubs must file annual informational returns of their income and expenses with the IRS on Form 990. They may also need to file other returns and pay employment taxes.

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