Family reunion organization denied social-club exemption

Plain-English summary

The IRS denied section 501(c)(7) exemption to an organization formed to continue one family's reunions. Membership was limited to descendants of a family member, and a privately owned family LLC was expected to fund transportation, lodging, food, and planned activities. The organization also proposed using funds to help family members after unexpected deaths or other emergencies. The IRS concluded that the periodic reunions did not occur often enough to make regular member commingling a material part of the organization's activities, as required by Revenue Rulings 58-589, 67-428, and 74-30. It also found that the death and emergency benefits would cause net earnings to inure to members, consistent with the analysis in Revenue Ruling 63-190.

Ruling snapshot

• Question: Did the family reunion organization qualify as a social club under section 501(c)(7)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(7); Rev. Rul. 58-589; Rev. Rul. 63-190; Rev. Rul. 67-428; Rev. Rul. 74-30

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 03/13/2023
Tax Exempt and Government Entities Employer ID number:
IRS PO Box 2508
Cincinnati, OH 45201 Form you must file:
1120
Tax years:
All

Person to contact:
Release Number: 202323009
Release Date: 6/9/2023
UIL Code: 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
Cincinnati, OH 45201
Date: 01/04/2023

Employer ID number:

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

Legend: UIL:

W = Date Application Submitted 501.07-00
X = Date of Incorporation

Y = State of Incorporation

B = Family

C = Member of Family

D = Funding LLC

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 submitted Form 1024, Application for Recognition of Exemption Under Section 501(a) of the Internal
Revenue Code on W.

You are incorporated on X, in the state of Y. You state your purpose is to continue family reunions of B and to
engage in any lawful act or activity for which non-profit corporations may be organized under the statutes of the
state of Y. You are formed to facilitate family reunions every to years. Your members only consist of
descendants from C. Prior to the passing of C, reunions were paid for from a trust that they established. Since
their passing, you wish to continue the tradition of reunions. Going forward, you will receive funding through
distributions made to you from D, an entity that is privately owned by family members of B. Your funds for
reunions will be used for transportation, lodging, food, and specific planned activities. You also indicate that
funds may be used to assist family members in case of unexpected death or emergencies. You have no other
stated activities.

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

Law

IRC Section 501(c)(7) exempts from federal income tax, 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 stipulates expanded criteria for determining whether an organization
qualifies for exemption under IRC Section 501(c)(7). 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 contacts and fellowship. A commingling of
the members must play a material part in the life of the organization.

Revenue Ruling 63-190, 1963-2 C.B. 212 describes a nonprofit organization which maintains a social club for
members and also provides sick and death benefits for members and their beneficiaries, that does not qualify for
exemption as a social club under IRC Section 501(c)(7).

Revenue Ruling 67-428, 1967-2 C.B. 204, states while fellowship need not be present between each member
and every other member of the club, in order for an organization to be exempt under IRC Section 501(c)(7),
regular fellowship must constitute a material part of the organization’s activities.

Revenue Ruling 74-30, 1974-1 C.B. 137 describes a flying club of limited membership that provides flying
privileges solely for its members. Its members are interested in flying as a hobby, constantly commingle in
informal meetings, maintain and repair the aircraft owned by the club, and fly together in small groups. Thus,
the organization qualifies for exemption under IRC Section 501(c)(7) of the Code.

Application of law

To meet the requirements of IRC Section 501(c)(7), substantially all of your activities must be for pleasure,
recreation, and other nonprofitable purposes. In addition, regular commingling must play an important role in
your activities and no part of your net earnings must inure to the benefit of your members. While your activities
are geared toward providing a social and recreational experience for B, you do not satisfy all of the
requirements of IRC Section 501(c)(7) as explained below.

You do not meet all of the criteria established in Revenue Ruling 58-589 to meet the operational requirements
of IRC Section 501(c)(7). As this ruling indicates, to meet the operational requirement, you must have an
established membership, personal contacts and fellowship. Also, regular commingling of your members must be
a material part of your activities. Your planned reunions are only conducted every to years. These
planned gatherings are not conducted often enough to satisfy this requirement and you have not provided any
other additional activities other than the planned reunions. Therefore, you do not meet the operational
requirement of IRC Section 501(c)(7). Also see Revenue Ruling 67-428 and Revenue Ruling 74-30.

You are similar to the organization described in Revenue Ruling 63-190 because you provide benefits for your
members similar in scope to the benefits described in this ruling. The ruling states that the payment of sick and
death benefits of any fashion is not a function of a social club. Therefore, you do not qualify for exemption as a
social club under IRC Section 501(c)(7) as your net earnings would inure to the benefit of your members.

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

Conclusion

Based on the information you provided, you do not qualify for exemption under IRC Section 501(c)(7). While
substantially all of your activities are geared toward pleasure and recreational purposes, you do not meet the
operational test because you do not meet the requirement for regular commingling, and your net earnings inure
to the benefit of your family members by offering benefits in the event of emergencies or unexpected death.
Therefore, we cannot grant 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