Creating A Non-Profit Stamp Club 501(C)(7)

This would be a way for an incorporated club to become a non-profit with less overhead and expense related to 501(c)(3), In a social club, any donations are NOT tax deductible. This supposedly also a club to be incorporated for legal protection, etc. but avoid taxes for dues from members, etc.

Does anyone have experience with setting up a stamp club as a non-profit under the IRS code 501(c)(7) Social Club? This is different code from what APS and other associations that are set up as a non-profit. In a social club, donations are not tax deductible.
IRS -
Social clubs may be exempt from federal income taxation if they meet the requirements of section 501(c)(7) of the Internal Revenue Code. Although they are generally exempt from tax, social clubs are subject to tax on their unrelated business income (see below), which includes income from nonmembersPDF. In addition to being taxed on unrelated income, a social club may lose its exempt status if it receives too much unrelated income. See "Effect of Nonmember Income" below.
https://www.irs.gov/charities-non-p...social-clubs

Yes. It's straightforward. The main requirement is holding members-only auctions so that the club's commission income doesn't come from non members.

I was in such a club that also wanted to hold an annual public stamp show. A sub group of officers set up a separate for-profit corp to run the show. Club members then volunteered to work the show, and the show made a partial donation back to the club, retaining and paying tax on other income to fund the next show. Talk to an accountant about moves like this. Internet comments can't be treated as reliable advice on tax questions.

Interesting. I wonder if the meaning, limitations, or requirements, of the various subsections of §501(c) have changed over time. My local club was organized under §501(c)(4) rather than §501(c)(7). Granted, the club has been in existence for many decades. It appears that subsection 4 is intended primarily for lobbying organizations rather than recreational, which is subsection 7.

cjpalermo1964

If the club is already incorporated, do you need a lawyer? From what I saw it was just filling out some forms (no lawyer needed) and filing annual paperwork. Yes. it states clearly that any income needs to be from members. There is a limit on non-member revenue. One needs to also file as a non-profit with the state.

The advice I got was that you can 'just fill out the IRS forms' and submit BUT if you make a mistake it could result in a year or longer delay in getting the revised forms approved. So either get some copies of existing forms that have been approved and use them to fill yours out correctly the first time or get a lawyer who knows how do it.
Don

One point of clarification for discussion purposes: a 501(c)(7) is organized under the tax-exempt organizations in the federal code. A non-profit or not-for-profit is a designation under the state.

A 501(c)(4) is a social welfare organization and falls more into the education/issue advocacy realm. 501(c)(3) and 501(c)(4) organizations are very closely scrutinized by the IRS and require more disclosures because the tax benefits for contributions are greater than other 501(c) organizations. 501(c)(4) organizations are more commonly-lobbying or politically-oriented organizations. At one point, I worked jointly for a 501(c)(3) and 501(c)(4) and did fundraising for several 501(c)(4)s.

If possible, I recommend having an attorney or CPA review the application and provide some simple guidance for compliance requirements.

I agree with Don and Scott. Further, states like California that impose income tax usually will not grant state tax exempt status until after the IRS does at the federal level. In the meantime, the corporation is on the hook for applicable state tax. California also required the corporation to have a federal and state tax ID on file while waiting, OR the SSN of an officer. If the state thought corporate tax was owed, that's the taxpayer they pursued. So the usual sequence was: form corporation designated as nonprofit under state law; obtain federal EIN and state entity ID immediately before any collections of revenue; apply to IRS for exempt status; receive federal exempt status letter; apply for state exempt status.

These approvals take months, so if the club is depending on one member to complete the process, having someone else monitoring that person is wise.

My opinion is, the more non-lawyers who interact with the IRS, the better society is served, especially if the non-lawyer never has done so before. That said, a lawyer or an officer or member of another exempt entity may know the "magic words" to get yours approved, and that may be worth paying.