Social club loses exemption over public operations and excess nonmember income

Plain-English summary

The IRS revoked a social club whose facility, bar, games, fundraisers, food sales, and event rentals were open to members and the general public. Member dues were only a small portion of revenue, while recurring nonmember income exceeded the statutory 15 percent public-use and 35 percent outside-income thresholds. The club kept no separate records for member and nonmember receipts and acknowledged that it could not survive without public participation. It also paid scholarships directly to recipients without monitoring their use, lacked activities requiring member fellowship, and provided financial assistance and death benefits that are not social-club functions. The IRS concluded that the organization was not operated substantially for pleasure, recreation, or other nonprofitable purposes under section 501(c)(7).

Ruling snapshot

• Question: Did the club continue to qualify under section 501(c)(7) despite public access, excess nonmember income, inadequate records, scholarships, and death benefits?
• Outcome: revocation
• Key authorities: IRC §§ 501(c)(7) and 512(a)(3)(B); Treas. Reg. § 1.501(c)(7)-1; Pub. L. 94-568; Rev. Procs. 71-17; Rev. Ruls. 55-716, 58-589, and 63-190

Full text (IRS public release)

Department of the Treasury                                             Date:
Internal Revenue Service                                              April 28, 2022
Tax Exempt and Government Entities                                    Taxpayer ID number:

Number: 202248015                                                     Form:
Release Date: 12/2/2022
                                                                      Tax periods ended:

                                                                      Person to contact:
                                                                      Name:
                                                                      ID number:
                                                                      Telephone:
                                                                      Fax:

UIL: 501.07-00

CERTIFIED MAIL - RETURN RECEIPT REQUESTED

Dear                         :

Why we are sending you this letter
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 organized and operated exclusively for an exempt purpose within the meaning of IRC
Section 501(c)(7). Your non-member income has exceeded the 15% and 35% threshold as outlined in Public
Law 94-568 for tax years ending                         and                         . Additionally, your club is open
to the general public, lacks commingling of members, and provides for death benefits to members. As a result,
you are not operating substantially for pleasure, recreation, or other non-profitable purposes.

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
of IRC 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        U.S. Court of Federal Claims       U.S. District Court for the District of Columbia
400 Second Street, NW          717 Madison Place, NW              333 Constitution Ave., N.W.
Washington, DC 20217           Washington, DC 20439               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 (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:




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.
                                                          Sincerely,

                                                          Lynn A. Brinkley
                                                          Acting Director, Exempt Organizations Examinations
Enclosures:
Publication 1
Publication 594
Publication 892




                                                                                              Letter 6337 (12-2020)
                                                                                              Catalog Number 74808E
Department of the Treasury                                             Date:
Internal Revenue Service                                              June 11, 2020
Tax Exempt and Government Entities                                    Taxpayer ID number:
Exempt Organizations Examinations
                                                                      Form:

                                                                      Tax periods ended:

                                                                      Person to contact:
                                                                      Name:
                                                                      ID number:
                                                                      Telephone:
                                                                      Fax:
                                                                      Address:

                                                                      Manager’s contact information:
                                                                      Name:
                                                                      ID number:
                                                                      Telephone:
                                                                      Response due date:

CERTIFIED MAIL – Return Receipt Requested

Dear                         :

Why you’re receiving this letter
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.

After we issue the final adverse determination letter, we’ll announce that your organization is no
longer eligible to receive tax deductible contributions under IRC Section 170.

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.

Letter 3618 (Rev. 8-2019)
Catalog Number 34809F

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
       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.

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 determination letter.

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.

                                                        Sincerely,



                                                        Sean E. O’Reilly
                                                        Director, Exempt Organizations
                                                        Examinations

Enclosures:
Form 886-A
Form 6018
Form 4621-A
Publication 892
Publication 3498




                                                  3                       Letter 3618 (Rev. 8-2019)
                                                                          Catalog Number 34809F

                                    Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                         or exhibit
                                        Explanations of Items
  Name of taxpayer                                           Tax Identification Number (last 4 digits)   Year/Period ended




ISSUE

Whether the                         continues to qualify for exemption under IRC § 501(c)(7)?

FACTS

                     was granted exemption on                                as a social club organization described
under Section 501(c)(7) of the Internal Revenue Code.

Per a review of the organization’s articles of incorporation, the purpose of                      is to
unite            and for mutual benefit. To foster and cultivate the social, educational and business
relations of the members. To encourage among the members closer personal acquaintance and a
                                      . To gather, receive and disseminate such information as may seem
helpful to the members; to interchange ideas in rendering mutual assistance. To forward and promote
the general welfare and prosperity of the members and to improve their status and condition. To
encourage the promotion and establishment and to improve, maintain and conduct said             and
recreational facilities and reading rooms for the members and their friends. To purchase, lease, hold,
sell, develop, mortgage, convey or otherwise acquire or dispose of real and personal property
necessary or proper for the carrying out of the purposes of this corporation. To invest and reinvest
surplus funds in such securities or properties as the Board of Directors may from time to time
determine. To circulate publications of any kind and description. To assist in any other matters
pertaining to the welfare and advancement of the members and for the attainment of the highest order
in the                        .

         operates a facility open to members and the general public. The income is derived from
donations,           , fundraisers,                       ,          ,           , pool table, kitchen food
sales, advertising income and member dues. The               consists of      different games;         ,
    and           machines. All the activities conducted by the organization are made available to the
members and the general public. Members pay a $ annual membership fee, which offers the
members a discount at the bar, non-members pay regular price at the bar per information received
during the initial interview. In addition,        had a sign in          posted on            double door
entrance alerting that non-members pay a different price than the prices offered to members.                is
also available upon request for events hosted by members or non-members.

           operates a                 , both which are open to members and the general public.
currently has a license issued by the state of         liquor authority to sell                     at the
facility. The type of              held by          is     –                              . An   -
                is a standard full  license; it does not contain restrictions regarding the sale of
alcoholic beverages for consumption on the premises. The holding of an                         differs from
a                        , since a                    contains restrictions on the sale of
            . Under a                      a      can sell                              members only. The
      does not hold a license with such restrictions.




 Catalog Number 20810W                     Page    1                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                    Department of the Treasury – Internal Revenue Service                Schedule number
      Form 886-A                                                                                         or exhibit
                                        Explanations of Items
  Name of taxpayer                                           Tax Identification Number (last 4 digits)   Year/Period ended




           holds fundraisers to raise money for their                        . The fundraisers are open to
the general public and the club allows the participation and contribution of the general public during the
fundraising events. The                          is offered for             purposes only and they are
offered to           based on need and merit.               has a manner of selection in place to avoid
private benefit. The specific criteria used to select recipients are; financial need, grades and the amount
of         expense. Any board member can be part of the                    selection committee since the
identity information of the applicant is not exposed when the applications are submitted to the selection
committee for review. The amount of the grant is dependent on the amount of household income and
the         amount, if the          is a member, an additional $       are granted. The                are
paid to the               recipient and not directly to the school.           does not keep track of the
payments nor does it have any type of documentation requirements to ensure that the grant money is
paid to the         for the intended purposes.

The income derived from the sales or receipts from non-members is unknown because                    does
not keep separate records for member and non-member income. The only income that is traced by the
     as member income is the annual income received from membership dues. Per multiple statements
made on                         and                       by the president appointed during the years
under examination and a statement made by the current president on                            , without the
participation and contribution of non-members            would not be able to survive. The former
president also stated that most of the income is derived from non-members, since members do not
contribute much nor have significant participation in the activities conducted by          . A precise
amount of non-member income is unknown for the years ending in                              and
           since the club was unable to retrieve cash register reports from the bar sales.            was
also unable to provide non-member income records for kitchen sales, fundraisers,              , juke box
and the pool table. The organization does not hold events that are particularly organized for its
members.

           provides financial assistance to their members and non-members when they are in need and
provides death benefits to its members and their beneficiaries. The assistance provided can be for
different types of needs, like assistance paying for rent for a  -time emergency, to pay for electricity,
gas and groceries. The organization also allows members to use the facility -free of charge- to conduct
fundraisers for deceased beneficiaries and/or provides financial assistance for deceased members or
their beneficiaries.

 LAW:

 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) -1(a) of
 the Regulations provides that, in general, the exemption extends to social and recreation clubs
 supported solely by membership fees, dues and assessments.

 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


 Catalog Number 20810W                     Page    2                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                   Department of the Treasury – Internal Revenue Service                Schedule number
     Form 886-A                                                                                         or exhibit
                                       Explanations of Items
 Name of taxpayer                                           Tax Identification Number (last 4 digits)   Year/Period ended




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;

     (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.

     (c) In 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.

Rev. Rul. 58-589, 1958-2 C.B. 266 tests the criteria for determining if an organization qualifies for
exemption under IRC section 501(a) as an organization described under § 501(c)(7) of the Code. This
ruling clearly specifies that exemption provided for organizations described in § 501(c)(7) applies only
to clubs which are organized and operated exclusively for pleasure, recreation, and other nonprofitable
purposes, but does not apply to any club if any part of its net earnings inures to the benefit of any
private shareholder. The exemption extends to social and recreational clubs which are supported
solely by membership fees, dues, and assessments. A club which engages in business, such as
making its social and recreational facilities available to the general public or by selling real estate or
other products, is not organized and operated exclusively for pleasure, recreation, and other
nonprofitable purposes, and is not exempt under section 501(a). Solicitation by advertisement or
otherwise for public patronage of its facilities is prima facie evidence that the club is engaging in
business and is not being operated exclusively for pleasure, recreation, or social purposes.

Revenue Ruling 63-190 articulates that the payment of sick and death benefits is not a function of a
social club. An organization that maintains a social club as described in section 501 (c) (7) and, in
addition, pays sick and death benefits to its members does not qualify for exemption from Federal
income tax as an organization described in section 501 (c)(4), (7), or (8) of the Code.

Revenue Ruling 55-716 provides evidence in reference to the definition of commingling, which
specifies that Section 501(c) of the code describes certain organizations exempt from Federal income
tax under section 501(a) and reads, in part, as follows:

(7) Clubs organized and operated exclusively for pleasure, recreation, and other nonprofitable
purposes, no part of the net earnings of which inures to the benefit of any private shareholder.

The term 'club' as used in the above section of law contemplates the commingling of members, one
with the other, in fellowship. Personal contacts and fellowship must also play a material part in the life
of an organization for it to come within the meaning of the term 'club'.


Catalog Number 20810W                     Page    3                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                   Department of the Treasury – Internal Revenue Service                Schedule number
     Form 886-A                                                                                         or exhibit
                                       Explanations of Items
 Name of taxpayer                                           Tax Identification Number (last 4 digits)   Year/Period ended




Revenue Procedure 71-17 describes the record keeping required when non-members use of a
facilities and the circumstances in which a host-guest relationship will be assumed. The guidelines set
forth under Revenue Procedure 71-17 sets forth that the club must maintain books and records for
each use and the amount derived therefrom. This requirement applies even though the member pays
initially for such use. For each occurrence the record must contain the following information:

            1. The date;
            2. The total number in the party;
            3. The number of nonmembers in the party;
            4. The total charges;
            5. The charges attributable to nonmembers;
            6. The charges paid by nonmembers;
            7. Where a member pays all or part of the charges attributable to nonmembers, a statement
        signed by the member indicating whether     has been or will be reimbursed for such
        nonmember use and, if so, the amount of the reimbursement:
            8. Where the member's employer reimburses the member or makes direct payment to
        for the charges attributable to nonmembers, a statement signed by the member indicating the
        name of      employer; the amount of the payment attributable to the nonmember use; the
        nonmember's name and business or other relationship to the member; and the business,
        personal, or social purpose of the member served by the nonmember use.
            9. Where a nonmember, other than the employer of the member, makes payment to              or
        reimburses a member and a claim is made that the amount was paid gratuitously for the benefit
        of a member, a statement signed by the member indicating the donor's name and relationship
        to the member, and containing information to substantiate the gratuitous nature of the
        payments or reimbursement.

Exceptions to these record keeping requirements are:
        1. Where a group of            or fewer individuals, at least one of whom is a member, uses club
          facilities, it will be assumed for audit purposes that the nonmembers are the guests of the
          member, provided payment for such use is received by the club directly from the member or
          the member's employer.
        2. Where          percent or more of a group using club facilities are members, it will likewise be
          assumed for audit purposes that the nonmembers in the group are guests of members,
          provided payment for such use is received by the club directly from one or more of the
          members or the member's employer.
        3. Solely for purposes of and , above, payment by a member's employer will be assumed to
          be for a use that serves a direct business objective of the employee-member.

Where a club makes its facilities available to the general public to a substantial degree, the club is not
operated exclusively for pleasure, recreation, or other non-profitable purposes.

Furthermore, defines the term “exempt function income” as the gross income from dues, fees,
charges, or similar amounts paid by members of the organization as consideration for providing such
members or their dependents or guests goods, facilities, or services in furtherance of the purposes


Catalog Number 20810W                     Page    4                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                     Department of the Treasury – Internal Revenue Service                Schedule number
     Form 886-A                                                                                           or exhibit
                                         Explanations of Items
 Name of taxpayer                                             Tax Identification Number (last 4 digits)   Year/Period ended




constituting the basis for the exemption of the organization to which such income is paid. To
substantiate that their income is from members, social clubs must keep adequate records.

Reg. 53.4945-4(c)(2) states that, with respect to any scholarship or fellowship grants, the organization
must make arrangements to receive a report of the courses that were taken by the grantee (if any) and
grades received by the grantee (if any) during each academic period. The report must be verified by
the educational institution which the grantee attended, and it must be obtained at least once a year. In
the case in which the grantees whose study at an educational institution does not involve the taking of
courses but only the preparation of research papers or projects, such as the writing of a doctoral
thesis, the foundation must receive a brief report on the progress of the paper or project at least once
a year. Such a report must be approved by the faculty member supervising the grantee or by another
appropriate university official. Upon completion of a grantee's study at an educational institution, a final
report must also be obtained.

Pittsburgh Press Club v. USA, 536 F.2d 572, (1976)
Should the gross receipts from nonmember and/or investment income exceed the permitted
thresholds, IRC § 501(c)(7) proposes further consideration by allowing the application of a “facts and
circumstances test”. While there are no specific criteria when looking at facts and circumstances, the
Court of Appeals has indicated some factors to consider in determining exempt status.

      Factors to consider in applying the “facts and circumstances test”:
            • Actual percentage of non-member gross receipts or investment income (as the
                percentages increase above the permitted levels, the facts and/or circumstances in the
                organization's favor must increase proportionately to avoid revocation)

              •     Frequency of use of club facilities or services by non-members and the net income
                    from such use (an unusual or single event that generates all of the non-member
                    income would be viewed more favorably than non-member income arising from
                    frequent use by non-members)

              •     Purpose for which a club's facilities are made available to non-members

              •     Whether or not the non-member income generates net profits for the organization

              •     The number of years that the percentage exceeded the permitted thresholds


GOVERNMENT’S POSITION

The club is not solely supported by membership dues, fees, assessments and revenue from member
use of           facility, as defined under Treasury Regs. §1.501(c)(7)-1(b). The total amount received
from member dues for the year ending in                           and                     were only
$      and $        , respectively. As a result, the organization has a minute amount of income derived
from member dues, as demonstrated with the data charted below.



Catalog Number 20810W                       Page    5                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                  Department of the Treasury – Internal Revenue Service                Schedule number
     Form 886-A                                                                                        or exhibit
                                      Explanations of Items
 Name of taxpayer                                          Tax Identification Number (last 4 digits)   Year/Period ended




                                    Member Dues        Total Revenue




In addition, the organization is open to the general public. As an organization operating under IRC §
501(c)(7) which is open to the general public, it directly violates the requirements described under
Treasury Regs. §1.501(c)(7)-1(b) and Rev. Rul. 58-589 applies, as it states that a club which engages
in business, such as making its social and recreational facilities available to the general public or by
selling real estate or other products, is not organized and operated exclusively for pleasure, recreation,
and other nonprofitable purposes, and is not exempt under section 501(a). The type of
held by the organization confirms that they are open to the public as it does not restrict the sale of
liquor to members only.

Furthermore, the organization failed to keep records of the non-member activity and use of the facility
as required by Revenue Procedure - , which applies to any organization operating under IRC §
501(c)(7). Consequently, all income- besides member dues- will be categorized as non-member
income and used in the calculation to determine member income and non-member income as shown
on the table found below.

                        Member Income        Non-member                Total Income          Non-member
                                               Income                                     income percentage
                           $                    $                       $                              %
                           $                    $                        $                             %


The calculation of non-member income illustrates that the organization derived % of their income
from non-member sources for the year ending in                        and % of income was derived
from non-member sources for the year ending in                       . Hence,         obtains a
substantial amount of income from non-members, presumed to be non-exempt function income, since
it does not meet the definition of exempt function income as described under Section 512(a)(3)(B). The
     has remarkably exceeded the % of gross receipts from sources outside its membership income




Catalog Number 20810W                    Page    6                 www.irs.gov                     Form 886-A (Rev. 5-2017)

                                   Department of the Treasury – Internal Revenue Service                Schedule number
     Form 886-A                                                                                         or exhibit
                                       Explanations of Items
 Name of taxpayer                                           Tax Identification Number (last 4 digits)   Year/Period ended




threshold, as outlined in Public Law 94-568, on a continuing basis during the tax years ending in
                     and                     .

Additionally, the organization grants scholarships to individuals. The              are made payable
directly to the            recipient rather than submitting payments directly to the school. The
organization does not track payments to ensure that the money granted as a                  is used for
the purposes intended. The individual is not required to submit any documentation or records to the
club in order to substantiate the use of the monies received. As a result, the organization does not
comply with the requirements set forth under Reg. 53.4945-4(c)(2).

Moreover,             does not hold any events or activities that require the direct participation and
commingling of its members as required by IRC § 501(c)(7). The organization did not provide any
evidence that would support that there is personal contact and fellowship playing a material part in the
life of the organization for it to come within the meaning of the term 'club'. Failure to provide evidence
that there is personal contact and fellowship playing a material part in the life of the club is in
opposition of Revenue Ruling 55-716; therefore, the organization cannot be defined as a ‘club’ under
IRC § 501(c)(7).

Lastly, death benefits are being provided to the        members and their beneficiaries. The
organization allows members to use the facility -free of charge- to conduct fundraisers for deceased
beneficiaries and/or provides financial assistance for deceased members or their beneficiaries. As
articulated in Revenue Ruling 63-190, the payment of sick and death benefits is not a function of a
social club. Revenue Ruling 63-190 also asserts that a social club as described in section 501 (c) (7)
that pays sick and death benefits to its members does not qualify for exemption from Federal income
tax as an organization described in section 501 (c)(4), (7), or (8) of the Code.


TAXPAYER’S POSITION

Taxpayer’s position has not been provided.


CONCLUSION

                      of         no longer qualifies for exemption under § 501(c)(7) of the Code as
the non-member income remarkably exceeded the % threshold of gross receipts from sources
outside its membership on a recurring basis. Additionally, the club no longer qualifies for exemption
under § 501(c)(7) of the Code considering that it is open to the public, lacks the commingling of
members and provides death benefits to its members. Therefore, it is proposed that your exempt
status under § 501(c)(7) of the Code be revoked effective                    .

Subject to the revocation being upheld, Form               must be filed starting with the tax period ending in
                    .




Catalog Number 20810W                     Page    7                 www.irs.gov                     Form 886-A (Rev. 5-2017)