Welcome to the Club “TRACK”
Why this special series of sessions ?
• The Non-Profit Shoe
• How do you GROW your Club’s future?
• Club Insurance – Mixing and Matching a plan
that’s right for you
• LUNCHEON – Club meeting round table
• Clubs don’t Plan – they React! Planning for
Club Growth in a Shrinking Market – 2
sessions
Let’s Get Started!
• The Non-Profit Shoe
• How do you GROW your Club’s future?
• Club Insurance – Mixing and Matching a
plan that’s right for you
• LUNCHEON – Club meeting round table
• Clubs don’t Plan – they React! Planning
for Club Growth in a Shrinking Market – 2
sessions
Focus on Clubs
A Track for SSA Club leaders and
Members
Session 1
The Non-Profit Shoe – does it fit?
Dave Newill Frank Whiteley
IANAL, nor a CPA, neither is he!
You are hereby warned that the presenters are
NOT Internal Revenue Experts, nor are we
CPA’s or lawyers. Hence, all of the following
must be taken with some amount of caution.
If you are to proceed toward declaring your club
a 501 c3 or c7 non-profit, getting competent
legal and accounting assistance is highly
advised!
Is there an IRS agent / tax lawyer in the house?
Welcome to IRS 101 for Clubs!
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What is a 501 c(3) or c(7) organization?
How do you get such a title
Others have done it!
Questions & Answers
– Do you need to be a charitable
organization?
– Are you Ready?
– What’s in it for the club?
Funding of Non-Profit Organizations
501c(3)
• Donations – yes! Must Document, immediate
• Grants – more likely to get grant funds
• Dues – if you are charging for flying (use
charges) then “dues” may be operating donation
funds
• Sale of assets - Commercial or special loans
(member loans are likely not an option)
• Savings/Investments (sinking, escrow, or reserve
funds)
• Consideration of buying a new glider (40% 1st
year depreciation!) to lease back
Funding of Non-Profit Organizations
501c(7)
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Member loans/notes
Member assessments
Commercial loans
Sale of assets
Donations (subject to 501c(7) gross receipts
limits) and but may not benefit member.
• Savings/Investments (sinking, escrow, or
reserve funds)
Much of the following is taken from
the IRS web site
– go to www.irs.gov
search for “charitable organization”
Exemption Requirements 501 c(3)
To be tax-exempt as an organization described in IRC Section 501(c)(3) of the Code, an
organization must be organized and operated exclusively for one or more of the
purposes set forth in IRC Section 501(c)(3) and …none of the earnings of the
organization may inure to any private shareholder or individual.
In addition, it may not attempt to influence legislation as a substantial part of its
activities and it may not participate at all in campaign activity for or against political
candidates.
The organizations described in IRC Section 501(c)(3) are commonly referred to under the
general heading of "charitable organizations." Organizations described in IRC
Section 501(c)(3), other than testing for public safety organizations, are eligible to
receive tax-deductible contributions in accordance with IRC Section 170.
The exempt purposes set forth in IRC Section 501(c)(3) are charitable, religious,
educational, scientific, literary, testing for public safety, fostering national or
international amateur sports competition, and the prevention of cruelty to children or
animals. The term charitable is used in its generally accepted legal sense and
includes relief of the poor, the distressed, or the underprivileged; advancement of
religion; advancement of education or science; erection or maintenance of public
buildings, monuments, or works; lessening the burdens of government; lessening of
neighborhood tensions; elimination of prejudice and discrimination; defense of
human and civil rights secured by law; and combating community deterioration and
juvenile delinquency.
Publication 557, Tax-Exempt Status for Your Organization.
In addition, assets of an organization must be permanently
dedicated to an exempt purpose. This means that should an
organization dissolve, its assets must be distributed for an
exempt purpose described in this chapter, or to the federal
government or to a state or local government for a public
purpose.
To establish that an organization's assets will be permanently
dedicated to an exempt purpose, the articles of organization
should contain a provision insuring their distribution for an
exempt purpose in the event of dissolution.
For examples of provisions that meet these requirements,
download Publication 557, Tax-Exempt Status for Your
Organization
Social/Recreational and Hobby Clubs
To be exempt under Internal Revenue Code (IRC) section
501(c)(7), a social club must be organized for pleasure,
recreation, and other similar non-profitable purposes and
substantially all of its activities must be for these purposes. …….
Members must be bound together by a common objective
directed toward pleasure, recreation, and other non-profitable
purposes. ….
The membership in a social club must be limited. In general, a club
should be supported solely by membership fees, dues, and
assessments. A section 501(c)(7) organization may receive up
to 35% of its gross receipts, including investment income, from
sources outside of its membership without losing its tax-exempt
status. Of the 35%, not more than 15% of the gross receipts
may be derived from the use of the club's facilities or services by
the general public or from other activities not furthering social or
recreational purposes for members. ……
Life Cycle of a Public Charity - Starting Out
The first stage in the life cycle of any organization is its creation.
A nonprofit organization may be created as a:
Corporation
A trust
Or an unincorporated association
Any of these entities may qualify for exemption. Note, however, that
a partnership generally may not qualify.
To qualify for exemption under section 501(c)(3), an organization
must be organized exclusively for purposes described in that
section.
This means, among other things, that the organization’s articles of
organization must contain certain provisions.
The IRS provides sample articles of organization that contain the
required provisions. Most organizations also adopt by-laws.
You should also apply for an employer identification number, even if
you do not have employees.
State Rules
Articles of Organization
The trust instrument, corporate charter, articles of association, or other
written instrument by which the organization is created under state
law.
By-Laws
State law may require nonprofit corporations to have by-laws, and
nonprofit organizations generally find it advisable to have internal
operating rules. For additional information, you may want to contact
your Secretary of State’s office.
Employer Identification Number
Every organization must have an employer identification number, even if it
will not have employees.
Please note that the employer identification number is not your “taxexempt number”. That term generally refers to a number assigned by a
state agency that identifies organizations as exempt from state sales
and use taxes.
You should contact your state revenue department for additional
information about “tax exempt numbers”.
Contributions & Disclosures
Charitable Contributions
A benefit of having 501(c)(3) status is eligibility to receive taxdeductible charitable contributions. Note that the Internal
Revenue Code applies substantiation requirements for donors,
and disclosure requirements for charitable organizations, in
connection with such contributions. For a detailed discussion of
the substantiation and disclosure requirements for charitable
contributions, see Publication 1771, Charitable
Contributions: Substantiation and Disclosure Requirements.
Public Disclosure Requirements
In addition to these disclosure requirements for charitable
contributions, the law requires tax-exempt organizations to
make key documents publicly available. The IRS also makes
these documents available. For more information, see Public
Disclosure
Others have done it – so can you!
BLUE RIDGE SOARING SOCIETY INC
NEW CASTLE
VA
CENTRAL FLORIDA GLIDERS INC
ALTAMONTE SPG
FL
COLLEGIATE SOARING ASSOCIATION INC
WHEAT RIDGE
CO
DALLAS GLIDING ASSOCIATION INC
CARROLLTON
TX
FINGER LAKE SOARING INC
ROCHESTER
NY
GREATER HOUSTON SOARING ASSOCIATION INC
HOUSTON
TX
HARRIS HILL SOARING CORPORATION
HORSEHEADS
NY
ILLINI GLIDER CLUB INC
CHAMPAIGN
IL
LOUISVILLE SOARING CLUB
LOUISVILLE
KY
MINDEN SOARING CLUB INC
MINDEN
NV
MOHAWK SOARING CLUB INC
ALPLAUS
NY
SILVER CREEK GLIDER CLUB LTD
NEW DOUGLAS
IL
SOARING CLUB OF HOUSTON INC
BELLAIRE
TX
SOARING TIGERS
PRINCETON
NJ
ST LOUIS SOARING ASSOCIATION INC
SAINT LOUIS
MO
TEXAS SOARING ASSOCIATION INC
MIDLOTHIAN
TX
TUCSON SOARING CLUB INC
TUCSON
AZ
WILLAMETTE VALLEY SOARING CLUB INC
PORTLAND
OR
Migration from 501c(7) to 501c(3)?
• Modified vision of club and operations
• Amended or restated articles, or separate entity
– Soaring Club of Houston
Ancillary 501c(3)
May operate in parallel with existing club or
commercial operation
– Mile High Youth Gliding Association
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Articles & Amendments
Filing for exemption
Form 1023
Form 1023 continuation sheets
Follow-up one
Follow-up two
New in 2004
Form 1023 was revised in October 2004
(making the example herein somewhat
dated). Form 8718 is now in Part XI of
Form 1023.
There is now a requirement for annually
reviewing a Conflict of Interest policy
statement, signed by all board members.
Electronic filing of Form 990/990EZ
(currently supported by 37 states)
501c(7) Walk the walk, talk the talk
Limitations
The membership in a social club must be limited.
A club that issues corporate memberships is
dealing with the general public in the form of the
corporation's employees. Evidence that a club's
facilities will be open to the general public
(persons other than members or their dependents
or guests) may cause denial of exemption. This
does not mean, however, that any dealing with
outsiders will automatically deprive a club of
exemption. ¹
501c(7) Walk the walk, talk the talk
Gross receipts limitations
In general, a club should be supported solely by
membership fees, dues, and assessments. A
section 501(c)(7) organization may receive up to 35% of
its gross receipts, including investment income, from
sources outside of its membership without losing its taxexempt status. Of the 35%, not more than 15% of the
gross receipts may be derived from the use of the club's
facilities or services by the general public or from other
activities not furthering social or recreational purposes
for members. If an organization has nonmember income that exceeds these limits, all the facts
and circumstances will be taken into account in
determining whether the organization qualifies for
exempt status. ¹
501c(7) Walk the walk, talk the talk
Activities
38. Flying club—A flying club providing economical flying facilities for
its members but having no organized social and recreation
program does not qualify for exemption under IRC 501(c)(7).
Rev. Rul. 70–32, 1970–1 C.B. 132.
39. Dues and fees; active and associate members—A social club
whose active members pay substantially lower dues and
initiation fees than associate members, although both classes
enjoy the same rights and privileges in the club facilities, does
not qualify for exemption under IRC 501(c)(7). Rev. Rul. 70–48,
1970–1 C.B. 133.
43. Flying club—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 for a hobby, constantly commingle in informal meetings,
maintain and repair aircraft owned by the club, and fly together in
small groups, qualifies for exemption under section 501(c)(7) of
the Code. Rev. Rul. 74–30, 1974–1 C.B. 137. ²
501c(7) Example
• Bay Area Soaring
Associates (BASA)
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No basic training
No tow services
No public rides
No competing
Regular monthly
member meetings at
restaurant or barbeque
– Two member levels
• Sponsor
• Associate
Audit
Don’t panic
• Unless you are hiding unqualified income.
– IOW, not making 200 non-member tows and scenic flights against
an equal number of member flights. See gross receipts limits.
• As long as you are doing substantially what you are
incorporated to do, the IRS is not out to get you.
• Keep good books.
• Albuquerque Soaring Club 2003 Audit
– Red flag was $2400 in unreported dividend income on proceeds
from 2000 SSA Convention (over $1000 unrelated income limit.)
– Initial reaction was to consider hiring tax attorney, however cooler
heads prevailed, to see what the IRS wanted
– IRS auditor pointed out deficiencies in 1099 reporting and verified
that club was not in direct competition with commercial operation at
the same airport. Taxes paid on unreported dividend income.
Questions / Answers / Stories?
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How hard is this?
Is it ( was it ) worth it?
What does it cost?
How big do you have to
be to do this?
Footnotes
1.
2.
http://www.irs.gov/charities/nonprofits/article/0,,id=96189,00.html
http://www.irs.gov/irm/part7/ch10s10.html