Unrelated Business Taxable Income - Social Clubs


The unrelated business taxable income of tax-exempt social clubs described in Internal Revenue Code section 501(c)(7) includes all gross income, less deductions directly connected with producing that income, but not including exempt function income . The dividends received deduction for corporations is not allowed in computing unrelated business taxable income, because dividends are not expenses incurred in producing income.  For similar reasons, a club may not offset losses from activities conducted with members against its income from unrelated activities, such as investment income.

A club does not recognize income when, within statutory time frames, it sells property used directly in performing its exempt function and acquires other property for such use.

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