To be exempt, a social club must meet the following requirements —

  • The club must be organized for exempt purposes.
  • Substantially all of its activities must further pleasure, recreation, and other similar purposes.
    • If the club exceeds safe harbor guidelines for nonmember and investment income, the facts and circumstances must show that it is organized substantially for exempt purposes. See “Nonmember Income of Tax-Exempt Social Clubs - Effect on Exempt Status" below for more information.
    • The club has de minimis income from nontraditional sources.
    • For a discussion of the effect of nonmember and "nontraditional" income on the tax-exempt status of social clubs under section 501(c)(7), see Tax Issues for Tax-Exempt Social Clubs.  
  • The club must provide an opportunity for personal contact among members, and membership must be limited.
  • The club must be supported by membership fees, dues, and assessments.
  • The organization’s net earnings may not inure to the benefit of any person having a personal and private interest in its activities.
  • The club's governing instrument may not contain a provision that provides for discrimination against any person on the basis of race, color, or religion.
  • The club may not hold itself out as providing goods and services to the general public.

Additional information

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. See “Unrelated Business Income Tax" below for more information.

Additional information

Tax Issues for Tax-Exempt Social Clubs

Social clubs may be exempt from federal income taxation if they meet the requirements of section 501(c)(7) of the Internal Revenue Code. Although they are generally exempt from tax, social clubs are subject to tax on their unrelated business income -- generally all income from non-members. See “Unrelated Business Income Tax” below for more information. In addition to being taxed on unrelated income, a social club may lose its exempt status if it receives too much unrelated income. See “Nonmember Income of Tax Exempt Social Clubs - Effect on Exempt Status” above for more information.

Additional information

Unrelated Business Income Tax

Even though an organization is recognized as tax exempt, it still may be liable for tax on its unrelated business taxable income. An exempt organization that has $1,000 or more gross income from an unrelated business must file Form 990-T (PDF), Exempt Organization Business Income Tax Return. This is in addition to the requirement to file an annual exempt organization return.

The Internal Revenue Code provides special rules for calculating the unrelated business taxable income of social and recreational clubs that are tax-exempt under section 501(c)(7). Under these rules, clubs are generally taxed on income from non-members who are not bona fide guests of members. The fact that income derived from non-members is used by an exempt organization in furthering its exempt purpose (such as expanding the club's facilities) does not change the fact that the income is from an unrelated activity and must be reported on Form 990-T. Clubs are also generally taxed on income from investments.

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Recordkeeping requirements

Social clubs that conduct activities with nonmembers must maintain adequate records. The records should be retained for at least three years from the due date of the organization’s annual return.  The records should be in sufficient detail to distinguish one type of income from another (gambling income vs. food sales income) and one type of expense from another.  If the organization is a membership organization, the records should also reflect whether the income is from members or nonmembers.

To maintain adequate records, clubs that allow nonmembers to use their facilities must collect and maintain certain information.

The information collected for a particular event should include:

  • Date
  • Total number in the party
  • Number of nonmembers in the party
  • Total charges
  • Charges attributable to nonmembers
  • Charges paid by nonmembers
  • Where a member pays all or part of the charges attributable to nonmembers, a statement signed by the member indicating whether he or she has been or will be reimbursed for such nonmember use and, if so, the amount of the reimbursement.

Additional information

Required Filings

Although they are exempt from income taxation, social clubs are generally required to file annual returns of their income and expenses with the Internal Revenue Service. If a club has unrelated business income, it must file an unrelated business income tax return. See “Unrelated Business Income Tax” above for more information. In addition to filing an annual exempt organization return, social clubs may be required to file other returns and pay employment taxes. Some clubs may be required to file certain returns electronically.

Additional information