Youth-golf fundraiser denied 501(c)(7) social-club status

Plain-English summary

An organization formed to raise money for youth golf programs applied for exemption as a 501(c)(7) social club. It planned to buy equipment for children, hold camps and events, and support golf programs, with all activities conducted by directors and donors. Its only members were board members, who met as needed for business, and it had no planned social activities or membership dues. The IRS denied exemption because a social club requires meaningful fellowship and commingling among members for pleasure or recreation. The organization also expected all of its income from gifts, grants, and contributions rather than member fees, exceeding the limits on nonmember receipts. Its youth-golf purpose may have been benevolent, but it did not satisfy the specific operating and funding rules for section 501(c)(7).

Ruling snapshot

• Question: Does a donation-funded youth-golf organization with board-only membership and no member social program qualify as a 501(c)(7) social club?
• Outcome: denied
• Key authorities: IRC § 501(c)(7); Treas. Reg. § 1.501(c)(7)-1(a); Rev. Ruls. 58-589, 70-32; Public Law 94-568

Full text (IRS public release)

Department of the Treasury Date.
Internal Revenue Service 07/22/2024
Tax Exempt and Government Entities Employer ID number:

IRS Box 2508
Cincinnati, OH 45201

Form you must file:
1120

Tax years:
All

Person to contact:

Release Number: 202442008

Release Date: 10/18/2024

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
IRS PO Box 2508
Cincinnati, OH 45201
Date: May 2, 2024

Employer ID number:

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

Legend: UIL:

B = State 501.07-00
C = Date

D = Location

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 incorporated in B on C and subsequently filed Form 1024. Your Articles of Incorporation state that
you are organized for charitable, religious, education, and scientific purposes, including, for such purposes, the
making of distributions to organizations that qualify as an exempt organization under Section 501(c)(3) or the
Internal Revenue Code or the corresponding section of any future federal tax code. Your Articles of
Incorporation state your specific purpose is to raise funds to assist in the growth and development of golf and
associated programs in the D. Your organizing document and your Form 1024 state you will:

e Provide funding to children who wish to play golf but do not have access to the appropriate equipment,
facilities, or teaching,

e Provide camps and organized events for kids, and

e Sponsor events in the area

You explained that 100% of your time will be committed to activities associated with the growth of youth golf
programs. Your membership consists only of the board of directors. There is no application process to become a
member and if new members are presented to be added to the board, existing members will vote. You require a
unanimous decision to approve new members.

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

2

You explained there are no planned social activities for the benefit of members. You state that your members
meet on an as needed basis in person to discuss business.

You state that board members and other donors will conduct and organize all activities, and all activities will be
funded by donations and gifts. There are no membership dues.

Law

IRC Section 501(c)(7) exempts from federal income tax clubs organized for pleasure, recreation, and other non-
profitable purposes, substantially all 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 Regulations (Treas. Reg.) Section 1.501(c)(7)-1(a) states that the exemption provided by IRC Section
501(a) for an organization 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. However, a
club otherwise entitled to exemption will not be disqualified because it raises revenue from members through
the use of club facilities or in connection with club activities.

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. In addition, the revenue ruling also provides that to retain exemption a club must not enter into
outside activities with the purpose of deriving a profit. If such income producing activities are other than
incidental, trivial or nonrecurrent, it will be considered that they are designed to produce income and will defeat
exemption under Section 501(c)(7).

Rev. Rul. 70-32, 1970-1 C.B. 132, describes a flying club that provided economical flying facilities for its
members, but had no organized social and recreation programs did not qualify for exemption under IRC Section
501(c)(7). Specifically, there was little commingling among members for social or recreational purposes.

The Committee Reports for Public Law 94-568, HR 1144, provides under IRC Section 501(c)(7) that social
clubs be operated substantially for pleasure, recreation, and other non-profit purposes. An organization may
receive up to 35% of its gross receipts from a combination of investment income and non-member receipts, as
long as non-member receipts do not represent more than 15% of total receipts.

Application of law

You do not qualify for exemption under IRC Section 501(c)(7), because you are not organized and operated
exclusively for pleasure, recreation or other nonprofitable purposes as required by Treas. Reg. Section
1.501(c)(7)-1(a). Your primary activities consist of raising funds to assist in the growth and development of
youth golf and associated programs in the D. Social and recreational purposes are conspicuously absent in your
operations. You have not established that your members have a common objective that are directed towards the

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

3

purposes outlined in IRC Section 501(c)(7). Further, you are not supported by membership fees, dues, and
assessments as required by the regulations, but you are supported by gifts, grants, and contributions. As
described in Rev. Rul. 58-589, although an organization may receive some income from the general public,
your revenue raising activities are more than incidental and, therefore, preclude exemption under IRC Section
501(c)(7).

You have no significant commingling of your members

You do not meet the requirements explained in Rev. Rul. 58-589 to qualify for exemption under IRC Section
501(c)(7). Specifically, there is little or no commingling of your members as required by the revenue ruling.
Similarly, in Rev. Rul. 70-32, a club that does not have commingling of its members was found to be not
exempt. You do not have regular meetings of members since you meet on an as needed basis.

You do not meet the nonmember income limitations for IRC Section 501(c)(7)

You fail the membership income tests set forth by the Committee Reports on Public Law 94-568 because you
are supported exclusively by gifts, grants, and contributions. You do not meet the facts and circumstances
exception for this income test because your only source of revenue is from gifts, grants, and contributions.

Conclusion

Based on the information provided, we conclude that you are not organized and operated for pleasure,
recreation, or other non-profitable purposes required for exemption for IRC Section 501(c)(7). You lack the
element of members commingling. You also receive all your income from nonmember sources. Accordingly,
you do not qualify for recognition of exemption 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
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

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

4

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,

Stephen A. Martin
Director, Exempt Organizations
Rulings and Agreements

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