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Nonmember Income of Tax-Exempt Social Clubs - Effect on Exempt Status

A social club may receive up to 35 percent of its gross receipts from nonmember sources, including investment income. No more than 15 percent of gross receipts may be derived from nonmember use of club facilities and services. Where the permitted levels of nonmember income are exceeded, all facts and circumstances will be taken into account in determining whether the club continues to qualify for exemption. Thus, the 15 percent and 35 percent are safe harbors.

These rules apply to income from traditional club activities that would further the club's exempt purposes if conducted with members. A club may not receive income from nontraditional business activities, consistent with the requirement that it be organized exclusively to further exempt purposes.

Income from nonmember sources is also subject to unrelated business income tax.

Additional information

Social Clubs: IRC 501(c)(7) Organizations - EO continuing professional education text article discussing application of "facts and circumstances" test when club exceeds safe harbor thresholds

Page Last Reviewed or Updated: 05-Mar-2014