Did you know that social clubs can be tax-exempt organizations? A 501(c)(7) nonprofit is an institution created for fun and to promote relationships among members, like country clubs, sororities and fraternities, and hobby clubs.
The rules are relatively strict to keep an organization compliant, but if you can follow them, you can make it tax-exempt and put more of your income into events, activities, and socialization.
What is a 501(c)(7) Nonprofit?
A 501c7 is a social or recreational club created for pleasure, recreation, or other nonprofit purposes, consisting of members with shared interests, a common goal related to pleasure and recreation, and regular socialization opportunities for members. Additionally, the organization’s facilities must be open only to members and their guests.
It’s not just permitted for a 501(c)(7) to limit membership—it’s actually required. The organization must also earn the majority of its income from membership dues or fees, although it can receive up to 35% of its funding in other ways.
501(c)(7) nonprofit examples include college alumni associations, supper clubs, and sports clubs.
In order for a social club to be compliant under IRS rules, it must be organized for exempt purposes, provide opportunities for socialization among its limited number of members, be financially supported primarily through member dues, and it cannot include provisions which discriminate against people on the basis of race, color, or religion. In some cases, the latter can be flexible if the 501c7 is founded to promote the teachings of a specific religion and only admits members belonging to that faith.
There are also 501c7 rules about funding sources. Up to 35% of the organization’s income can derive from non-member sources, up to 15% can come from non-member use of club facilities, and the rest can come from investments or other nontraditional earnings.
Additionally, it’s the responsibility of the organization to keep careful records of their income. IRS Record Procedure 71-17 spells out recordkeeping requirements for clubs that allow nonmembers to access their services or facilities in any capacity.
How to Start a 501(c)(7) Social Organization
If you’d like to start a nonprofit social club but the form-filing and recordkeeping intimidates you, don’t worry—that’s exactly what BryteBridge Nonprofit Solutions is here for! We’re here to walk you through filing for tax exemption with Form 1024, sending in annual Form 990s, and everything else that comes with running a nonprofit.
We’ve served over 30,000 nonprofit entrepreneurs, and we’re passionate about helping you help others. So if you need a little support bringing people together, then contact us today and schedule a consultation to see what we can do to help you to make the best possible social club.