There are many types of nonprofits, and the 501(c)(7) status is for social or recreational club organizations. Though net earnings do not serve a charitable purpose, they are exempt from paying federal income taxes under the Internal Revenue Service (IRS) Section 501(c)(7). 

The status assists social clubs in staying financially secure so they can continue to provide recreational, pleasurable, and other nonprofitable activities.

If your club offers access to recreational facilities, such as golf courses, hobbies, clubhouses, and swimming pools, applying for a 501(c)(7) status is a good idea.

This article will explain the meaning of this tax exemption, its requirements, benefits, and steps for starting a nonprofit social club.

‍

What is a 501(c)(7) Organization or Social Club?

A 501(c)(7) organization is a social or recreational club that has a federal tax exemption, meaning it is exempted from federal income tax by the IRS if they are "organized for pleasure, recreation, and other nonprofitable purposes."  This is different from many public charities or 501 c 3 for tax exempt purpose, where funds paid are primarily through donations. 

501(c)(7) doesn’t rely on donations or fundraising to support its club. Like other tax exempt entities, a 501(c)(7) raises money primarily through membership dues and fees from club members. These organizations exist for private benefit.

Some organizations that can potentially qualify for 501(c)(7) status under the IRS include a club organized as:

• College fraternities and sororities

• Sports clubs

• Country clubs

• Dinner clubs

• Hobby clubs

• Homeowners associations 

‍

Other kinds of IRS tax-exempt status to be aware of in the event you fall into these categories are:

• 501c: A tax exempt status that enables nonprofit organizations to focus more resources on their charitable or social purposes by reducing their tax liability. 

• 501c3: A tax exempt status for charitable organizations that receive donations and grants from the US federal government to cover operational costs.

• 501c6: A tax exempt status for charitable organizations created by individuals with common business interests rather than the public.

‍

5‍01 c 7 Membership Requirements 

The IRS outlines several exemption requirements for 501 c7 social clubs to qualify and secure the status of a 501(c)(7) tax-exempt organization. It’s essential to ensure your group meets each of the requirements.

‍

Purpose

Social clubs and their activities must exist for the pleasure and recreation of their members only, like you'd see with many hobby clubs. You must not claim to offer goods and services to the general public or collect gross income related to public benefit.

‍

Personal Contact

You must offer members the opportunity for face-to-face interactions, personal contact, and networking with each other. Think about country clubs and social clubs that often bring people together for meetings and gatherings.

‍

Limited Membership

Social clubs must limit membership, offering the club's facilities and activities only to members and their guests, not the general public. This may be for social or recreational purposes such as:

• Tennis club admission

• Community associations

• Gatherings to practice a particular religion

• Club functions for recreational purposes

• Charitable organizations looking to raise money

• Business leagues for sports or community-building

• Events that serve members

• A country club with membership requirements

• Other sport clubs 

Funding

Membership fees, dues, and assessments should support social clubs with their net earnings to create an exemption from federal taxation. Up to 35% of your revenue can come from non-membership sources, including investment income.

It's essential to collect gross receipts as a way to comply.

‍

501c7 Earnings

Your 501 c7 social club earnings from members should solely be used to enhance its activities and purpose. It should not be used for the private benefit of any club member.

‍

Equality

You should not discriminate against any individual based on color, race, or religion. You can limit your membership to members of any faith only if the club’s purpose is to further the teaching of a particular religion.

‍

Should You Start a 501(c)(7) Social Club?

‍Starting a social club is complex, but there are benefits and drawbacks. We’ll help you understand these below so you can make the most informed decision possible.

Benefits of Starting a 501(c)(7) Social Club

• Under the IRS, forming a 501(c)(7) organization offers tax benefits, as these organizations are exempt from paying federal taxes. You can reinvest the revenue you’ve raised through club activities into the social club, improving your recreational purpose.

• A 501(c)(7) status offers social clubs credibility and builds trust, which helps attract new members and partnership organizations.

• When you start a club, you meet like-minded individuals who share your values, allowing you to create a more significant impact within your community. 

‍

Drawbacks of Starting a 501(c)(7) Social Club

• Since 501(c)(7) is not a charitable organization, donors might not receive a tax deduction on donations or contributions. You may even have to pay taxes on funds raised by organizing 501 c7 fundraising events and activities for social clubs.

• Tax-exempt social clubs must be very cautious about activities and programs. You must ensure you’re by the IRS's tax-exempt purpose. You can't rent out your club facilities for other events for social clubs.

• You must file IRS Form 990 annually to ensure ongoing compliance for your 501(c)(7) social club. Although there are several types of Form 990, the kind you must file will depend on your organization's gross receipts.

‍

9 Steps for Setting up a 501(c)(7) Organization

‍

Step 1: Check Requirements Under 501(c)(7) Internal Revenue Code

Step 2: Select a Name for Your Nonprofit Social Club

Step 3: Create the Board of Your 501(c)(7) Organization

Step 4: Create Your Bylaws and Articles of Incorporation

Step 5: Get an Employer Identification Number

Step 6: Start a Nonprofit Bank Account

Step 7: Apply for Tax-Exempt Status with the IRS

Step 8: Find an Online Membership Collection Tool

Step 9: Identify Members and Start Promoting Your Club

‍

Step 1: Check Requirements Under 501(c)(7) Internal Revenue Code

Review the IRS social club web page guidelines to confirm that you meet the criteria to start a 501(c)(7) organization.

‍

Step 2: Select a Name for Your Nonprofit Social Club 

Once you’ve decided, it's time to pick a unique and exciting name for your social club. Visit your state’s Secretary of State website to see if your selected name is available and register it as soon as possible. Check the domain name availability as well to create a website easily. 

What you name your organization is critical to its success, as it will differentiate it from others. A great name will make you memorable while giving the world a sense of your mission. It will also encourage prospective supporters to learn more about your nonprofit. Take time to develop a name aligned with your club’s purpose.

‍

Step 3: Create the Board of Your 501(c)(7) Organization 

Every nonprofit organization should have a board, and the number of members will depend on state laws. Some states only require two members, but most require a minimum of three.

Your board should have a President, also known as Chair, Secretary, and Treasurer. You can also hire a Vice President or Co-Chair. Ensure your nonprofit board members have the skills, knowledge, and experience to serve your club’s purpose.

‍

Step 4: Create Your Bylaws and Articles of Incorporation 

When drafting these documents for social clubs, consider state- or city-specific requirements.

Getting help from a local attorney with experience in tax-exempt organizations will help ensure compliance with state and local laws.

According to the IRS rules, your nonprofit bylaws should be voted on and passed/accepted by the board of directors. These documents explain how your organization operates and guide your club internally. The IRS will review your bylaws to ensure your purpose and procedures comply with the 501(c)(7) requirements.

Your bylaws must be well-written, and everyone involved in your 501 c7 social club must have a copy.

Articles of Incorporation are needed for your organization to become a legal entity in the state where you’re operating. This document will comprise your club's name, registered address, name and address of board members, and purpose. 

Note: Both these documents will be sent to the IRS for review.

‍

Step 5: Get an Employer Identification Number

An Employee Identification Number (EIN) is essential for several reasons. This 9-digit ID lets you file for tax exemption with the IRS, create a bank account for your club, and make payroll if your club grows. 

To apply for EIN status, you must fill out IRS Form SS-4 online and provide information, including the social security number of the organization's main contact.

‍

Step 6: Start a Nonprofit Bank Account

Once you've acquired the EIN, set up your nonprofit organization’s bank account. Find a bank that offers good perks for social and recreational clubs. Consider features like minimal fees, digital banking tools, high yield, and alignment with your values. 

‍

When opening your account, take the following documents with you: 

• Nonprofit bylaws

• Articles of Incorporation

• EIN details

• A list of staff members with their ID cards

‍

Step 7: Apply for Federal Income Tax Exemption with the IRS 

File for IRS Form 1024 to secure the tax-exemption status. You can fill it out online or download the application and fill in the details. Since the IRS form is lengthy and can be rejected for a minor error, it is better to hire a legal expert to guide you through the paperwork.

‍

Step 8: Find an Online Membership Management Software

Once you've completed the legal aspects of the 501(c)(7) organization, you can focus on its operational side.

You will require a solid solution to collect membership fees and organize your members' data—contact information, membership status, renewal dates, and engagement history.

Zeffy's 100% free membership management software for nonprofit organizations allows you to turn supporters into members.

‍

Step 9: Identify Members and Start Promoting Your Club 

Now that you're done setting up your 501(c)(7) organization, you must identify your ideal members. Depending on the type of 501 c7 social club you're operating, your members will comprise friends, classmates, community members, neighbors, colleagues, and online communities.

Create a list of potential members and promote your club to them via different communication channels. Use social media, direct mailing, emails, and word-of-mouth to grow visibility around your club. In promotions, highlight all social and recreational activities your club offers.

‍

‍

Case study - Delta Sigma Theta Sorority, INC, East Harris Chambers Liberty County Alumnae

Delta Sigma Theta Sorority, a Texas-based 501(c)(7), effectively leveraged Zeffy's 100% free membership management software to streamline their membership operations. By collecting membership fees online, they raised $34,164 and saved over $2,550 in platform and transaction fees.

Delta Sigma Theta Sorority also used Zeffy's ticketing software for their Ugly Sweater Christmas Party event. Through online ticket sales, they raised over $51,000 and saved an additional $1,708 in fees.

By implementing using the right tools, 501(c)(7) organizations like Delta Sigma Theta Sorority can successfully further their purpose of providing recreational and social activities for members.

‍

Wrapping it Up on 501(c)(7) Social Clubs

While obtaining 501(c)(7) status requires dedication, time, and effort, it's a rewarding path to build a vibrant community around your shared interests and create a lasting impact. 

As you establish your social club, invest in powerful yet user-friendly member management tools to streamline administrative tasks like tracking memberships, collecting membership fees, and coordinating activities.

Zeffy offers 100% free membership management software tailored for clubs and associations. You can create custom forms, set automated membership renewals, and send automated tax receipts—all for free! 

‍

‍

FAQs on 501(c)(7) Status and Tax Exempt Organizations

‍

‍

‍

‍

‍