Swim-team booster club denied social-club exemption

Plain-English summary

A voluntary association of parents and guardians of high school varsity swimmers and divers applied for exemption as a social club under section 501(c)(7). It raised funds through local business promotions, raffles, and merchandise sales and used the money for a team banquet, equipment, computers, communications, and student-athlete activities. The IRS found that the organization existed to support and promote the school team, not to provide pleasure, recreation, or social fellowship for its members. Its members did not have significant social activities or commingling of the kind required for a social club. The IRS therefore denied section 501(c)(7) exemption and required the organization to file Form 1120.

Ruling snapshot

• Question: Did the parent booster organization qualify as a social club under section 501(c)(7)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(7); Treas. Reg. § 1.501(c)(7)-1; Rev. Rul. 58-589

Full text (IRS public release)

Department of the Treasury Date:

Internal Revenue Service 03/15/2023
Tax Exempt and Government Entities

IRS PO Box 2508

Cincinnati, OH 45201

Employer ID number:

Form you must file:
Form 1120

Tax years:
All Years

Person to contact:

Release Number: 202323014
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
IRS PO Box 2508
Cincinnati, OH 45201
Date: 01/04/2023

Employer ID number:

Person to contact:

Name:

ID number:

Telephone:
Legend: UIL:
Y = Date 501.07-00
B = School
C = District
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 are an association that was formed on Y.

Your membership requirement is to be a parent and/or guardian of B varsity swimmers and divers. Membership
is voluntary and there are no member dues.

You plan and organize fundraising on behalf of the B swim and dive team. You partner with local for-profit
entities to offer members the opportunities to spend money at local establishments with a percentage of the
proceeds going back to you. You run periodic voluntary raffles for members and sell team magnets, t-shirts, and
bracelets to raise money. Your fundraising activities are planned by the booster club board and occur annually
between October and February.

Proceeds from fundraising go towards the student athletes end-of-season recognition banquet, team equipment,
and new computers for running meets and maintain statistics.

You partner with swim and dive coaches and members for the following reasons:

• To communicate season practice schedules, swim and dive meet requirements, achievements, local press
releases, and health and fitness information

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

2

• Offer volunteer opportunities for the student athletes
• Organize and run masters level swim meets, and local community service with veteran groups

Your primary source of financial income is fundraising. Parents of B varsity swimmers and divers are eligible
for membership and there are no membership dues. All surplus of funds must be turned over to the C.

Your mission statement is to provide parent support for the B varsity swim and dive team. Your specific
objectives and purposes for your booster club are:

• To sponsor, host and/or participate in events and activities that promote the varsity swim and dive team,
including fundraising and recognition of student athlete achievements

• To provide opportunities for student athletes to engage in community service, health and fitness
education, and college athletic planning

• To partner with the coaches, team captains and managers to provide training equipment, computer
systems and other accessories for improved athlete performance and experience

Law

IRC Section 501(c)(7) provides for the exemption from federal income tax of clubs organized and operated 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.

Treasury Regulation Section 1.501(c)(7)-1(a) states the exemption provided by section 501(a) for organizations
described in section 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. In general, this exemption extends to social and recreation clubs which
are supported solely by membership fees, dues, and assessments.

Revenue Ruling 58-589, 1958-2 C.B. 266, discusses the criteria for exemption under section 501(c)(7) of the
Code and holds that a club must have an established membership of individuals, personal contacts, and
fellowship to be a social club within the meaning of the statute. Commingling of the members must play a
material part in the life of the organization.

In Rev. Rul. 66-360, 1966-2 C.B. 228, a business corporation founded a national sorority as a nonprofit
organization for the purpose of forming chapters for the study and mutual pursuit of culture and for friendly
social contact. The national sorority’s constitution provides for an executive council whose powers include
fixing national initiation and annual fees, chartering new chapters , and withdrawing of national membership
privileges. The sorority’s constitution grants to the founding business corporation the right to select all
members of the executive council resulting in the business corporation controlling the sorority’s governing
body. The Service held that the sorority and its chapters are operated to serve the financial interests of the
business corporation and that neither the sorority nor its chapters are organized and operated for pleasure,
recreation, and other nonprofitable purposes.

Rev. Rul. 69-635, 1969-2 C.B. 126, describes an automobile club whose principal activity is rendering
automobile services to its members but has no significant social activities that does not qualify for exemption
under section 501(c)(7) of the Code.

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


3

Rev. Rul. 74-30, 1974-1 C.B. 137, describes a flying club of limited membership that provides flying privileges
solely for its members, assesses dues based on the club's fixed operating costs and charges fees based on
variable operating expenses, and whose 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, which
qualifies for exemption under section 501(c)(7) of the Code.

Application of law
Your bylaws are silent as to being organized for the pleasure, recreation or other nonprofitable purposes of your
membership.

Your activities support and promote a high school varsity swim and dive team, but you are not organized for
pleasure, recreation or other nonprofitable purposes of your members. Therefore, you are not organized as a
social or recreational club as described in IRC Section 501(c)(7) and Treas. Reg. Section 1.501(c)(7)-1(a).

You do not meet the criteria described in Rev. Rul. 58-589 because you do not have a substantial amount of
personal contact and fellowship and the commingling of your members does not play a material part in your
organization. You are similar to the organization described in Rev. Rul. 66-360 because you are not organized
or operated for pleasure, recreation or other nonprofitable purposes. You are similar to the organization
described in Rev. Rul. 69-635 because you have no significant social activities that engage in pleasure and
recreation. You are not similar to the organization described in Rev. Rul. 74-30 because you do not have
members who engage in a common interest with commingling of your members.

Conclusion

You do not meet the criteria of a social club because your members do not engage in recreation, pleasure, and
other nonprofitable purposes and you are formed to support and promote another organization; therefore, you do
not qualify for tax-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

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


4

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:

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,

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

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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