501(c)(7) social-club exemption denied to a student-athlete funding group

Plain-English summary

A membership organization applied for tax exemption as a 501(c)(7) social club using Form 1024. Its sole purpose was to raise money from members and donate it to local student athletes, giving funds to school officials for equipment, uniforms, and similar items. When a coach requested funding, members voted on whether to approve it. Membership was open to anyone who donated, with no qualifications, and the group had no social or recreational activities; members would only mix if they happened to attend the same sporting event. The IRS denied exemption. A 501(c)(7) club must be organized and operated for pleasure and recreation, with commingling and fellowship among members playing a material part in its life. Because this group had no social or recreational program and no real commingling, it failed that test, much like the automobile and flying clubs denied exemption in prior revenue rulings. The organization did not protest, so the denial became final.

Ruling snapshot

• Question: Does an organization whose only activity is funding student athletes, with no social or recreational program, qualify as a tax-exempt social club under § 501(c)(7)?
• Outcome: denied (final adverse determination; no protest filed)
• Key authorities: IRC § 501(c)(7); Rev. Rul. 58-589; Rev. Rul. 69-635; Rev. Rul. 70-32; Chattanooga Automobile Club v. Commissioner, 182 F.2d 551 (6th Cir. 1950)

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 12/13/2022

Tax Exempt and Government Entities Employer ID number:
IRS PO Box 2508

Cincinnati, OH 45201 Form you must file:
Number: 202310012 Tax years:

Release Date: 3/10/2023

Person to contact:

UIL: 501.07-00

Dear

This letter is our 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). Recently, we sent
you a proposed adverse determination in response to your application. The proposed adverse determination
explained the facts, law, and basis for our conclusion, and it gave you 30 days to file a protest. Because we
didn't receive a protest within the required 30 days, the proposed determination is now final.

You must file the federal income tax forms for the tax years shown above within 30 days from the date of this
letter unless you request an extension of time to file. For further instructions, forms, and information, visit
www.irs.gov.

We'll make this final adverse determination letter and the proposed adverse determination letter available for
public inspection after deleting certain identifying information, as required by IRC Section 6110. Read the
enclosed Letter 437, Notice of Intention to Disclose - Rulings, and review the two attached letters that show our
proposed deletions. If you disagree with our proposed deletions, follow the instructions in the Letter 437 on how
to notify us. If you agree with our deletions, you don't need to take any further action.

If you have questions about this letter, you can call the contact person shown above. If you have questions
about your federal income tax status and responsibilities, call our customer service number at 800-829-1040
(TTY 800-829-4933 for deaf or hard of hearing) or customer service for businesses at 800-829-4933.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Enclosures:

Letter 437

Redacted Letter 4034
Redacted Letter 4038

Letter 4038 (Rev. 11-2021)
Catalog Number 47632S


Department of the Treasury
Internal Revenue Service
IRS PO Box 2508
Cincinnati, OH 45201

Date:

October 12, 2022
Employer ID number:

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

Legend: UIL:

X = State 501.07-00
Y = Date

Z = County, State

Dear

We considered your application for recognition of exemption from federal income tax under Internal Revenue
Code (IRC) Section 501(a). We determined that you don't qualify for exemption under IRC Section 501(c)(7).
This letter explains the reasons for our conclusion. Please keep it for your records.

Issues
Do you qualify for exemption under IRC Section 501(c)(7)? No, for the reasons stated below.

Facts

You were formed as a mutual benefit corporation in X on Y. Your Articles state you are organized exclusively
for charitable, religious, educational, and scientific purposes, including, for such purposes, the making of
distributions to organizations that qualify as exempt organizations under IRC Section 501(c)(3), or the
corresponding section of any future federal tax code.

You applied for exemption under IRC 501(c)(7) using Form 1024. You are a membership organization formed
to provide donations to Z student athletes. The donations will be provided to school officials to be used for
necessary equipment, uniforms, and similar items. Recipients of funding are chosen based on a written request.
Once a written request for funding is received (for example, a baseball coach requests funding for new
uniforms), members are asked to vote for or against the funding. Revenue consists of donations from members
and membership is open to anyone who donates (no membership qualifications).

Members will not co-mingle unless they happen to attend the same sports function. You currently have no
planned activities or events other than donating to Z student athletes. You have no social or recreational
activities. Your entire purpose is to provide funding to youth athletic programs in Z.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K


4

Law

IRC Section 501(c)(7) provides for exemption for clubs organized for pleasure, recreation, and other
nonprofitable purposes, substantially all of the activities of which are for such purposes and no part of the net
earnings of which inures to the benefit of any private shareholder.

Revenue Ruling 58-589, 1958-2 C.B. 266 provides that, in making a determination whether an organization
comes within the provisions of IRC 501(c)(7), all facts pertaining to its form of organization, method of
operation and activities should be considered. An organization must establish (1) that it is a club both organized
and operated exclusively for pleasure, recreation and other nonprofitable purposes and (2) that no part of its net
earnings inures to the benefit of any private shareholder or individual. To meet the first requirement, there must
be an established membership of individuals, personal contracts, and fellowship. A commingling of the
members must play a material part in the life of the organization.

Rev. Rul. 69-635, 1969-2 C.B. 126 held that an automobile club whose principal activity is rendering
automobile services to its members but has no significant social activities does not qualify for exemption under
IRC Section 501(c)(7). It noted that, in order to qualify for exemption under IRC Section 501(c)(7), a
commingling of members must play a material part in the activities of the organization.

Rev. Rul. 70-32, 1970-1 C.B. 132 held that a flying club providing economical flying facilities for its members
but having no organized social and recreation program does not qualify for exemption under IRC Section
501(c)(7). The sole activity of the club involves the ownership, operation, and maintenance of the aircraft for
use by the members. There is little commingling among members for social or recreational purposes.

In Chattanooga Automobile Club v. Commissioner. Warren Automobile Club, Inc. v. Commissioner, 182 F.2d
551 (6th Cir. 1950), the United States Court of Appeals 6th Circuit held that to be exempt under the Act of
Congress, a club must have been organized and operated exclusively for pleasure, recreation, and other non-
profitable purposes. The court further specified that the words "other non-profitable purposes" must be
construed as coming within the same classification as pleasure and recreation. In addition, there must be at least
some sort of comingling of members to constitute a club.

Application of law

IRC Section 501(c)(7) provides for exemption of clubs organized for pleasure, recreation, and other non-
profitable purposes, substantially all of the activities of which are for such purposes. There must be an
established membership of individuals who meet to make personal contacts and promote fellowship. The
comingling of members must play a material part in the life of the social club.

You have not established that you are a club organized and operated for pleasure, recreation, and other
nonprofitable purposes. The court in Chattanooga Automobile Club further clarifies that "other nonprofitable
purposes" must be construed as coming within the same classification as pleasure and recreation. Like the
organizations in Rev. Rul. 69-635 and 70-32, you have no substantial social or recreational activities. Your only
activity is to provide funding for student athletes.

Additionally, as Rev. Rul. 58-589 prescribes, you have not shown an established membership of individuals,
personal contracts, and fellowship. Your members are simply anyone who donates to the organization and there
is no co-mingling or fellowship between members unless by happenstance at a sporting event.

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K


3

Because your purposes and activities are not social or recreational and your members do not comingle, you do
not meet the requirements for exemption under IRC Section 501(c)(7).

Conclusion

You do not meet the requirements for exemption under IRC Section 501(c)(7).

If you agree

If you agree with our proposed adverse determination, you don't need to do anything. If we don't hear from
you within 30 days, we'll issue a final adverse determination letter. That letter will provide information on
your income tax filing requirements.

If you don't agree
You have a right to protest if you don't agree with our proposed adverse determination. To do so, send us a
protest within 30 days of the date of this letter. You must include:

¢ Your name, address, employer identification number (EIN), and a daytime phone number
« A statement of the facts, law, and arguments supporting your position
¢ A statement indicating whether you are requesting an Appeals Office conference

¢ The signature of an officer, director, trustee, or other official who is authorized to sign for the
organization or your authorized representative

¢ The following declaration:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I have examined this request, or this modification to the
request, including accompanying documents, and to the best of my knowledge and belief, the request
or the modification contains all relevant facts relating to the request, and such facts are true, correct,
and complete.

Your representative (attorney, certified public accountant, or other individual enrolled to practice before the
IRS) must file a Form 2848, Power of Attorney and Declaration of Representative, with us if they haven't
already done so. You can find more information about representation in Publication 947, Practice Before the
IRS and Power of Attorney.

We'll review your protest statement and decide if you gave us a basis to reconsider our determination. If so,
we'll continue to process your case considering the information you provided. If you haven't given us a basis
for reconsideration, we'll send your case to the Appeals Office and notify you. You can find more information
in Publication 892, How to Appeal an IRS Determination on Tax-Exempt Status.

If you don't file a protest within 30 days, you can't seek a declaratory judgment in court later because the
law requires that you use the IRC administrative process first (IRC Section 7428(b)(2)).

Where to send your protest
Send your protest, Form 2848, if applicable, and any supporting documents to the applicable address:

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K


4

U.S. mail: Street address for delivery service:
Internal Revenue Service Internal Revenue Service

EO Determinations Quality Assurance EO Determinations Quality Assurance
Mail Stop 6403 550 Main Street, Mail Stop 6403

PO Box 2508 Cincinnati, OH 45202

Cincinnati, OH 45201

You can also fax your protest and supporting documents to the fax number listed at the top of this letter. If you
fax your statement, please contact the person listed at the top of this letter to confirm that they received it.

You can get 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). If you have questions, you can contact the person listed at
the top of this letter.

Contacting the Taxpayer Advocate Service

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 if 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.

Sincerely,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

Letter 4034 (Rev. 01-2021)
Catalog Number 47628K