Educational group denied social-club exemption

Plain-English summary

An organization applied for exemption as a social club under section 501(c)(7), but its main activity was holding educational events about a particular philosophy for members and the public. It treated anyone who donated as a member, had no established membership fee, did not submit bylaws, and did not show that members had voting or management rights. The IRS found no organized social or recreational program and no consistent commingling of a bona fide membership for pleasure or recreation. Instead, the organization was effectively providing educational classes to an unlimited group of donors and guests. The IRS therefore denied section 501(c)(7) status, and the determination became final after no protest was filed within 30 days.

Ruling snapshot

• Question: Did the organization qualify as a social club with a bona fide membership and substantial recreational commingling?
• Outcome: denied
• Key authorities: IRC § 501(c)(7); Rev. Ruls. 58-588, 58-589, 70-32, 74-148

Full text (IRS public release)

Department of the Treasury Date:
Internal Revenue Service 10/23/2023
Tax Exempt and Government Entities Employer ID number:

IRS P.O. Box 2508
Cincinnati, OH 45201

Form you must file:
1120

Tax years:
All

Person to contact:

Release Number: 202403017
Release Date: 1/19/2024
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: 08/23/2023

Employer ID number:

Person to contact:
Name:

ID number:
Telephone:
Fax:

Legend: UIL:

W = Formation Date 501.07-00
X = State of Formation

Y = Philosophy

Z = Related Organization

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 on W in X as a nonprofit mutual benefit corporation. Your specific corporate purpose states
you are formed to promote awareness of the evidence for Y in the natural world and the science based on this
evidence. No Bylaws were submitted with your application.

You provide educational events open to your members and the public. These events include expert speakers
who are involved in the Y movement. These events are scheduled at least once per quarter. Your chapter
officers and volunteers initiate and conduct these events. You also conduct chapter meetings to discuss ideas
and plan your activities and events. These are generally members only meetings, however, you allow non-
members to attend these meetings depending on the topics discussed. In addition, your chapter officers meet to
plan events, discuss chapter financials, plan budgets, and coordinate activities with Z, a related organization that
also promotes the Y movement, and which mission you support.

You indicate the only qualification to be a member is one must be open to the Y movement and learn more
about it through dialogue. Anyone who donates to you is considered a member, and anyone can be a donor. You
use donated space for your events. Donors can bring guests to your educational events and they are under no

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

2

obligation to donate to you or become a member. Your Articles of Incorporation do not include any additional
information on members, and as stated previously, Bylaws were not submitted with your application to provide
additional insight on your membership, nor their role in governance. Your primary source of income is through
your member donations as you do not have an established membership fee structure. These donations are used
to fund your educational events. Expenses related to hosting your events constitute the majority of your
expenses.

You state in a subsequent written response to additional information, you are not operated simply for pleasure
or recreation, but you are operated for the non-profitable purpose of educating the public on the Y movement.
You noted that the pleasure your members receive from attending these events is to learn and interact with the
invited speakers.

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 58-588, 1958-2 C.B. 265, states that an organization formed by several individuals to operate a
health, recreational, and social club but whose predominant activity is the selling of services for profit to an
unlimited number of so-called ‘members,’ who have no voice in the management of the club and whose only
rights are to use the club’s facilities upon the payment of specified fees, is not a tax exempt social club within
the meaning of IRC Section 501(c)(7). In distinguishing members from non-members, the ruling notes that
certain members may not be true members but are instead merely a guise under which virtually unlimited
number of individuals may utilize the club’s facilities. As a result, the organization’s income amounted to
merely transactions with the general public.

Revenue Ruling 58-589, 1958-2 C.B. 266, provides that, in making a determination as to whether an
organization comes within the provisions of IRC Section 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 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 for pleasure and recreational purposes must play a material part in the life of the

_ organization.

Rev. Rul. 70-32, 1970-1 CB 132, states that a social club is not exempt from federal income tax as an
organization described in IRC Section 501(c)(7) where the club’s sole activity is ownership, operation, and
maintenance of aircraft used by club members. It was found the organization did not have an organized social
and recreational program. It was also found that there was very little commingling among its members for social

and recreational purposes.

Rev. Rul. 74-148, 1974-1 CB 138, states that an organization formed to provide bowling tournaments and
recreational bowling competitions among its members qualifies for exemption under IRC Section 501(c)(7)
where its overall program is designed to effect a commingling of members for their pleasure and recreation.
Membership is by invitation only and all applicants are approved by the board of directors. This organization

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

3

satisfies the commingling requirement through its substantial social and recreational activities and has
established prerequisite conditions for its members to be recognized as 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 the activities of which are for such purposes. There must be an established
membership of individuals whose common objective is directed towards pleasure and recreation. The
commingling of members actively working towards that objective must play a material part in the life of a
social club. You fail to meet these requirements as described below.

You were formed to promote awareness of the evidence for Y in the natural world and the science based on this
evidence and to conduct educational events to this effect. In connection with this purpose, you have not
established that you are a club organized and operated for pleasure, recreation, and other non-profitable
purposes. There is no evidence of an organized social and recreational program. While your members may have
a common objective to learn more about Y, you have no material criteria to establish a membership as you
consider a “member” to be anyone who donates funds to you. You have also not established that your members
have a common objective that are directed towards the purposes outlined in IRC Section 501(c)(7). Therefore,
you do not meet the requirements of Section 501(c)(7) as explained in Rev. Rul. 58-589. See also Rev. Rul. 70-
32.

Also, you are like the organization described in Rev. Rul. 58-588. This ruling highlights who is considered a
bona fide member of an organization exempt under IRC Section 501(c)(7). You consider anyone a member who
donates to you and thus virtually have an unlimited number of members with no true membership requirements.
Further, you have not submitted any documentation that these individuals have voting rights and any other
authority that shows them having any input in directing club business and activities. You indicate only your
chapter officers meet for material discussions on operations. Since your ‘members’ have no real authority in
your management, you are simply engaged in providing an educational class for a fee to the general public, and
these individuals are not considered bona fide members. Because you conduct your activities in this fashion and
this is your predominant activity, you therefore fail to meet the requirements of Section 501(c)(7).

You are unlike the organization described in Rev. Rul. 74-148. This organization qualified for IRC Section
501(c)(7) because it satisfied the commingling requirement. It also demonstrated through prerequisite
conditions that it has a membership that has an objective for pleasure and recreational purposes. You have not
provided any material evidence that your activities are geared toward substantial social or recreational activities.
And you have no true conditions for membership, as you are open to anyone who simply donates funds to you.
Therefore, you fail to meet the requirements of Section 501(c)(7).

Conclusion
You do not meet the requirements for IRC Section 501(c)(7). You are not organized and operated for pleasure,

recreation, and other non-profitable purposes, as substantially all of your activities are not for the purposes
described in this section. You do not have a bona fide membership, do not meet the traditional requirements to

be considered a club and there is no consistent commingling amongst your members for social and recreational
purposes. Therefore, exemption is not granted to you under 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

Letter 4034 (Rev. 01-2021)
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4

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:

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

Letter 4034 (Rev. 01-2021)
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5
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