Social Clubs

Department of the Treasury
Internal Revenue Service
IRS Tax Exemot and Government Entities
Number: 202238015
Release Date: 9/23/2022
UIL: 501.07-00
CERTIFIED MAIL - RETlJRN RECEIPT REQUESTED Dear
Why we are sending you this letter
Date: May 6, 2021
Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
This is a final dete1mination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 50l(a) as an organization described in !RC Section 50l(c)(7), for the tax periods above. Your detennination letter dated , is revoked.
Our adverse detennination as to your exempt status was made for the following reasons: You have not established that you are organized and operated exclusively for an exempt purpose within the meaning of IRC Section 50 I ( c )(7). You have not established that you are organized and operated exclusively for pleasure, recreation, and other nonprofitable putposes, substantially all the activities of which are for such putposes and no part of the net earnings of which inures to the benefit of any private shareholder. You have exceeded the non-member income test for tax year ending Organizations that are not exempt under !RC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instmctions, fo1ms and info1mation please visit www.iIS.gov.
What you must do if you disagree with this determination
If you want to contest our final dete1mination, you have 90 days from the date this determination letter was mailed to you to file a petition or complaint in one of the three federal com1s listed below.
How to tlle your action for declaratory judgment
If you decide to contest this determjnation, you may file an action for declarato1y judgment lmder the provisions ofIRC Section 7428 in one of the following three venues: 1) United States Tax Com1, 2) the United States Com1 of Federal Claims or 3) the United States District Cout1 for the District of Columbia.
Please contact the clerk of the appropriate com1 for mles and the appropriate fo1ms for filing an action for declarato1y judgment by referring to the enclosed Publication 892, How to Appeal an IRS Dete1mination on Tax-Exempt Status. You may write to the courts at the following addresses:
United States Tax Com1
400 Second Street, NW
Washington, DC 20217
U.S. Court of Federal Claims
717 Madison Place, NW
Washington, DC 20439
U.S. Distiict Com1 for the District of Cohunbia 333 Constitution Ave., N.W.
Washington, DC 20001
Processing of income tax returns and assessments of any taxes due will not be delayed if you file a petition for declarato1y judgment lmder IRC Section 7428.
Letter 6337 (12-2020)
Catalog Number 7 4808E
Information about the IRS Taxpayer Advocate Service
The IRS office whose phone number appears at the top of the notice can best address and access your tax information and help get you answers. However, you may be eligible for free help from the Taxpayer Advocate Service (TAS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. TAS is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Contact your local Taxpayer Advocate Office at:
Internal Revenue Service
Taxpayer Advocate Office
Or call TAS at 877-777-4778. For more information about TAS and your rights under the Taxpayer Bill of Rights, go to taxpayeradvocate.irs.gov. Do not send your federal court pleading to the TAS address listed above. Use the applicable federal court address provided earlier in the letter. Contacting TAS does not extend the time to file an action for declaratory judgment.
Where you can find more information
Enclosed are Publication 1, Your Rights as a Taxpayer, and Publication 594, The IRS Collection Process, for more comprehensive information.
Find tax forms or publications by visiting www.irs.gov/forms or calling 800-TAX-FORM (800-829-3676).
If you have questions, you can call the person shown at the top of this letter.
If you prefer to write, use the address shown at the top of this letter. Include your telephone number, the best time to call, and a copy of this letter.
Keep the original letter for your records.
Enclosures:
Publication 1
Publication 594
Publication 892
Si9cerely, ,
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Sean E. O'Reilly (/ ·
Director, Exempt Organizations Examinations
Letter 6337 (12-2020)
Catalog Number 74808E
•
IRS
Department of the Treasury
Internal Revenue Service
Tax Exempt and Government Entities
CERTIFIED MAIL - Return Receipt Requested Dear
Why you're receiving this letter
Date:
9/10/2020
Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact Information:
Name:
ID number:
Telephone:
Response due date:
We enclosed a copy of our audit report, Form 886-A, Explanation of Items, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code

(IRC) Section 501(c)(7).
If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Action, and return it to the contact person shown at the top of this letter. We'll issue a final adverse letter determining that you aren't an organization described in IRC Section 501 ( c )(7) for the periods above.
If you disagree
1. Request a meeting or telephone conference with the manager shown at the top of this letter.
2. Send any information you want us to consider.
3. File a protest with the IRS Appeals Office. If you request a meeting with the manager or send additional information as stated in 1 and 2, above, you'll still be able to file a protest with IRS Appeals Office after the meeting or after we consider the information.
The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes informally. If you file a protest, the auditing agent may ask you to sign a consent to extend the period of limitations for assessing tax. This is to allow the
Letter 4102 (Rev. 8-2017)
Catalog Number 48373U
IRS Appeals Office enough time to consider your case. For your protest to be valid, it must contain certain specific information, including a statement of the facts, applicable law, and arguments in support of your position. For specific information needed for a valid protest, refer to Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.
Fast Track Mediation (FTM) referred to in Publication 3498, The Examination Process, generally doesn't apply now that we've issued this letter.
4. Request technical advice from the Office of Associate Chief Counsel (Tax Exempt Government Entities) if you feel the issue hasn't been addressed in published precedent or has been treated inconsistently by the IRS.
If you're considering requesting technical advice, contact the person shown at the top of this letter. If you disagree with the technical advice decision, you will be able to appeal to the IRS Appeals Office, as explained above. A decision made in a technical advice memorandum, however, generally is final and binding on Appeals.
Ifwe don't hear from you
If you don't respond to this proposal within 30 calendar days from the date of this letter, we'll issue a final adverse determination letter.
[DELETE PARAGRAPH BELOW IF NOT APPLICABLE - Only Applicable to Group Exemption Parent Organizations]
[Revenue Procedure 80-27 requires that, in the event your tax-exempt status is revoked, your group exemption will also be revoked. If that occurs, none of your subordinates will be able to rely on the group ruling for tax-exempt status. You should notify each subordinate of this proposed action.]
Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that can help protect your taxpayer rights. TAS can offer you help if your tax problem is causing a hardship, or you've tried but haven't been able to resolve your problem with the IRS. If you qualify for TAS assistance, which is always free, TAS will do everything possible to help you.
Visit www.taxpayeradvocate.irs.gov or call 877-777-4778.
For additional information
You can get any of the forms and publications mentioned in this letter by visiting our website at www.irs.gov/forms-pubs or by calling 800-TAX-FORM (800-829-3676).
2 Letter 3618 (Rev. 8-2019)
Catalog Number 34809F
If you have questions, you can contact the person shown at the top of this letter.
Enclosures:
Form 886-A
Form 6018
Sincerely,
Sean E. O'Reilly
Director, Exempt Organizations Examinations 3 Letter 3618 (Rev. 8-2019) catalog Number 34809F Form 886-A Department of the Treasury - Internal Revenue Service
Explanations of Items
Schedule number or exhibit
Name of taxpayer Tax Identification Number (last 4 digits) Year/Period ended

# ISSUE

Whether (" ") continues to qualify for tax exemption under Internal Revenue Code (IRC) § 501 (c)(7)?
FACTS is exempt as an organization described in IRC § 501 (c)(7) to provide social, recreational and other activities to its members.
The club is open for members only, but members may bring guest that may become members. has events such as and has a four lane range. files Forms & annually. On Form reports unrelated business taxable income ("UBTI"). reported Investment income of$ on its Form . In , total income from membership was calculated to be$ . Using these figures, received % of its income from sources outside its membership in reported Investment income of$ on its Form income membership was calculated to be Using these figures, % of its income from sources outside its membership in LAW . In , total received IRC § 501 (c)(7) exempts from federal income tax clubs organized for pleasure, recreation, and other non-profitable purposes, substantially all of the activities of which are for such purposes and not part of the net earnings of which inures to the benefit of any private shareholder.
Section 1.501 (c)(7) of the Regulations provides that, in general, the exemption extends to social and recreation clubs supported solely by membership fees, dues and assessments. However, a club that engages in a business, such as making its social and recreational facilities open to the general public, is not organized and operated exclusively for pleasure, recreation and other nonprofitable purposes, and is not exempt under section 501 (a).
Prior to its amendment in 1976, IRC § 501(c)(7) required that social clubs be operated exclusively for pleasure, recreation and other nonprofitable purposes. Public Law 94-568 amended the "exclusive" provision to read "substantially' in order to allow an IRC § 501 (c)(7) organization to receive up to 35 percent of its gross receipts, including investment income, from sources outside its membership without losing its tax exempt status. The Committee Reports for Public Law 94-568 (Senate Report No. 94-1318 2d Session, 1976-2 C.B. 597) further states;
Catalog Number 20810W
Page_1 _ www.irs.gov
Form 886-A (Rev. 5-2017)
Form 886-A Department of the Treasury - Internal Revenue Service
Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits)
Schedule number or exhibit
Year/Period ended

(a) Within the 35 percent amount, not more than 15 percent of the gross receipts should be derived from the use of a social club's facilities or services by the general public. This means that an exempt social club may receive up to 35 percent of its gross receipts from a combination of investment income and receipts from non-members, so long as the latter do not represent more than 15 percent of total receipts.

(b) Thus, a social club may receive investment income up to the full 35 percent of its gross receipts if no income is derived from non-members' use of club facilities.
Revenue Ruling 66-149 holds a social club as not exempt as an organization described in IRC §
501 (c)(7) where it derives a substantial part of its income from non-member sources.
Revenue Ruling 60-324 states by making its social facilities available to the general public the club cannot be treated as being operated exclusively for pleasure, recreation or other non-profitable purposes.
TAXPAYER"S POSITION was not aware of the 35% threshold. It was explained to that Revenue
Ruling 66-149 holds a social club as not exempt as an organization described in IRC § 501(c)(7) where it derives a substantial part of its income from non-member sources.
GOVERNMENT'S POSITION does not qualify for exemption as a social club described in IRC §501 (c)(7). exceeded the 35% threshold for income outside its membership, as outlined in Public Law 94-568, on a recurring basis during tax years ending and Accordingly, it is proposed that and CONCLUSION tax exempt status be revoked for full tax year-end no longer qualifies for exemption under IRC § 501 (c)(7) because its income has exceeded the 35% threshold on a continuing basis. Therefore, it is proposed that exempt status under IRC § 501 (c)(7) of the Code be revoked as of Catalog Number 20810W Page_2_ www.irs.gov Form 886-A (Rev. 5-2017)