Social Clubs

•
Department of the Treasury
Internal Revenue Service
IRS Tax Exemot and Government Entities
Release Number: 202243018
Release Date: 10/28/2022
UIL Code: 501.07-00
CERTIFIED MAIL - RETURN RECEIPT REQUESTED Dear
Why we are sending you this letter
Date: December 2, 2021
Taxpayer ID number:
Form:
Tax periods ended:
Person to contact:
Name:
ID number:
Telephone:
Fax:
This is a final determination that you don't qualify for exemption from federal income tax under Internal Revenue Code (IRC) Section 501(a) as an organization described in IRC Section 501(c)(7), for the tax periods above. Your determination letter dated , is revoked.
Our adverse determination as to your exempt status was made for the following reasons: You have not established that you are operated substantially for pleasure and recreation of your members or other nonprofitable purposes and no part of the earnings inures to the benefit of any private shareholder within the meaning of IRC Section 501 ( c )(7). You have exceeded the non-member income test for tax year ending Organizations that are not exempt under IRC Section 501 generally are required to file federal income tax returns and pay tax, where applicable. For further instructions, forms and information please visit www.irs.gov.
What you must do if you disagree with this determination If you want to contest our final determination, 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 courts listed below.
How to file your action for declaratory judgment
If you decide to contest this determination, you may file an action for declaratory judgment under the provisions ofIRC Section 7428 in one of the following three venues: 1) United States Tax Court, 2) the United States Court of Federal Claims or 3) the United States District Court for the District of Columbia.
Please contact the clerk of the appropriate court for rules and the appropriate forms for filing an action for declaratory judgment by referring to the enclosed Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status. You may write to the courts at the following addresses:
United States Tax Court
400 Second Street, NW
Washington, DC 20217
U.S. Court of Federal Claims 717 Madison Place, NW Washington, DC 20439 U.S. District Court for the District of Columbia 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 declaratory judgment under IRC Section 7428.
Letter 6337 (12-2020)
Catalog Number 74808E
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 (T AS) if you can't resolve your tax problem with the IRS, or you believe an IRS procedure just isn't working as it should. T AS 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 T AS 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 s· cerely,
T\" •
I!
? A ( ;I
«~r- . ' )f;:l({,A
Sean E. O'Reilly 'd ·
Director, Exempt Organizations Examinations
Letter 6337 (12-2020)
Catalog Number 74808E
S"..a Department of the Treasury fJtl1II Internal Revenue Service IRS Tax Exempt and Government Entitles CERTIFIED MAIL - Return Receipt Requested Dear'
Why you're receiving this letter
Date:
March 31, 2021
TlllfNIVAI' ID number:
FOffll:
Tax periods ended:
Penon to contact·
Name:
ID number:
Telephone:
Fax:
Address:
Manager's contact lnfonnatlon:
Name:
10 number:
Telephone:
Response due date:
April30,2021
We enclosed a copy of our audit report, Form 886·A, Explanation ofitems, explaining that we propose to revoke your tax-exempt status as an organization described in Internal Revenue Code Section 501(c)(7).
If you agree
If you haven't already, please sign the enclosed Form 6018, Consent to Proposed Actio11, 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 Vvith the manager shown at the top of this letter.
2. Send any information you want us to consider.
3. Fite 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.
Letter 3618 (Rev. 8-2019)
The IRS Appeals Office is independent of the Exempt Organizations division and resolves most disputes infcrmally. 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 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 inconsi3tently 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.
If we 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 determinatio:r: letter.
Contacting the Taxpayer Advocate Office is a taxpayer right
The Taxpayer Advocate Service C' AS) 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 T AS 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)
If you have questions, you can contact the person shown at the top of this letter.
Enclosures:
Form 886-A
Fonn 6018
Publication 892
Publication 3498
Sincerely,
~~ean E. O'Reilly f Director, Exempt Organizations Examinations
Letter 3618 (Rev. 8-2019)
3
Fonn886-A
Name of taxpayer

# ISSUE

Department of the Treasury - Internal Revenue Service
Explanations of Items
Tax Identification Number (last 4 digits) Schedule number or exhibit YearJPeriod ended Whether _ ( ) continues to qualify for exemption under IRC Section 501(c)(7) due to excessive revenue from sources outside their membership?

# FACTS

The was granted tax-exemption under IRC Section 50l(c)(7) on recreational and other activities to its members. The was formed to who are members of, or who are pledged to become members of, the to provide social. ofthe Per the Articles ofincorporation, the exempt purpose is to acquire, improve. and maintain lands and buildings to be suitable for housing members and and to have assembly~ , , and and facilities available to members of the Chapter. The currently a building to of the The organization reported the following sources and amounts of revenue on Forms for the periods ending . Total Revenues of$ for the tax year ending _ . Total Investment Income of $ was included in the total revenue for the tax year ending -Total Revenues of$ for the tax year ending _ . Total Investment Income of$ was included in the total revenue for the tax year ending

# LAW

IRC Section 501(cX7) 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.
Treas. Reg. Section l.501(cX7) provides that, in general, the exemption extends to social and recreation dubs 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 non-profitable purposes, and is not exempt under section 501(a).
Prior to its amendment in 1976, IRC Section 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 Numb&r 20B10W
Page_1 _ www.n.gov Form 886-A (Rev. 5•2017) Form886-A Department of the Treasury - lntemal Revenue Service
Explanations of Items
Schedule number or exhibit
1
Name of taxpayer Tax ldentifteation Numbel' (last 4 digits) 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 ofits gross receipts if no income is derived from non-members' use of club facilities.
( c) ln addition. the Committee Report states that where a club receives unusual amounts of income. such as from the sale of its clubhouse or similar facilities, that income is not to be included in the 35 percent formula.
Revenue Ruling 66-149 bolds asocial club as not exempt as an organization described in IRC Section 501 ( c )(7) where it derives a substantial part of its income from non-member sources.
Revenue Procedure 71-17 sets forth the guidelines for determining the effect of gross receipts derived from the general public's use of a social club's facilities on exemption under IRC Section 50l(c)(7). Where nonmember income from the usage exceeds the standard as outlined in this Revenue procedure. the conclusion reached is that there is a non-exempt purpose and operating in this manner jeopardizes the organization's exempt status.
T axfAYER'S POSITION
The position has not been provided.
GOVERNMENT'S POSITION
The received Total Revenues of$ all of which was from investment income for the year ending That amount equals 1/o of all revenues received. The exceeded the o/o of revenue from sources outside of members threshold as outlined in Public Law 94-568, during tax year ending as reported on the Form The received Total Revenues of$ all of which was from investment income for the year ending . That amount equals ¼> of all revenues received. The exceeded the o/o ofrevenue from sources outside of members threshold as outlined in Public Law 94-568> during tax year ending as reported on the Fonn.
Based on the examination, the does not qualify for exemption as a social club described in IRC Section 501(c)(7) which provides that in general. this exemption extends to social and recreation clubs which are supported solely by membership fees, dues, and assessments.
Catalog Number 2081<MI
Page _..2_ www.n.gov
Form 886-A (Rev. 5-2017)
Form886-A Department of the Treasuty - lnternal Revenue Service
Explanations of Items
Name of taxpayer Tax Identification Number (last 4 digits) Schedule number or exhibit 1 Year/Period ended Revenue Ruling 66-149 support this position stating that a social club that derives a substantial part of its income from sources outside of members is not exempt as an organization described under IRC Section 501(c)(7).
Accordingly. it is proposed that the CONCLUSION tax-exempt status is revoked effective The no longer qualifies for exemption under IRC Section 501(c)(7) due to excessive revenue from sources outside of member income that exceeded the ¾ threshold on a continuing basis. Therefore, the exempt status under IRC Section 501(c)(7) is revoked effective Should this revocation be upheld, Form must be filed starting with tax periods beginning Catalog Number 2081M Page_L WWW.ifs.gov Form 886-A (Rev. 5-2017)