Determination 200540011: Social club exemption revoked over nonmember income

Plain-English summary

The IRS revoked a club's exemption under section 501(c)(7) because its income from nonmembers exceeded the limits described in the letter. The agency concluded that the organization was no longer operating as an exempt social club. The club signed a form agreeing to the revocation, effective on a redacted date. The letter instructs it to file corporate income tax returns on Form 1120.

Ruling snapshot

• Question: Could the club keep its social club exemption despite its nonmember income?
• Outcome: Revocation, effective on the redacted date.
• Key authorities: IRC § 501(c)(7); Public Law 94-568.

Full text (IRS public release)

INTERNAL REVENUE SERVICE
DEPARTMENT OF THE TREASURY
10 MetroTech Center
625 Fulton Street
Number: 200540011
Brooklyn, NY 11201
Release Date: 10/7/05
UIL: 501.07-00, 501.07-05

Date: 6/1/05

LEGEND: EIN: NUMBER
NAME=ORG
Person to Contact: --------------------
EIN # =NUMBER
Identification Number: ------------
DATE1=Effective Date
Contact Telephone Number: -------------------
------------------------------------------------------------------------------------------------------------
In Reply Refer to: TE/GE Review Staff

Dear ----------------:

This is a Final Adverse Determination as to your exempt status under section 501(c)(7) of the Internal Revenue Code.

Our adverse determination was made for the following reasons:

The ORG fails to meet the requirement for exemption under IRC 501(c)(7). IRC 501(c)(7), as changed by the Tax Reform Act of 1969 provides for the exemption 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.

Your organization has exceeded the safe harbor limitations on non- member income as outlined in Public Law 94-568. As a result, it has been determined that you are not operating as a social club within the meaning of section 501(c)(7).

Based on the above, we are revoking your organization's exemption from Federal income tax under section 501(c)(7) of the Internal Revenue Code effective Date1.

You are required to file Federal income tax returns on Form 1120. You have executed the Form 6018 agreeing to this revocation.

You are required to file Form 1120, U.S. Corporation Income Tax Return. Form 1120 must be filed by the 15th day of the third month after the end of your annual accounting period. A penalty of $20 a day is charged when a return is filed late, unless there is reasonable cause for the delay. However, the maximum penalty charged cannot exceed
$10,000 or 5 percent of your gross receipts for the year, whichever is less. This penalty may also be charged if a return is not complete, so please be sure your return is complete before you file it.

You have the right to contact the office of the Taxpayer Advocate. However, you should first contact the person whose name and telephone number are shown above since this person can access your tax information and can help you get answers. You can call 1-877-777-4778 and ask for Taxpayer Advocate assistance. Or you can contact the Taxpayer Advocate from the site where the tax deficiency was determined by calling Taxpayer Advocate assistance cannot be used as a substitute for established IRS procedures, formal appeals processes, etc. The Taxpayer Advocate is not able to reverse legal or technically correct tax determinations, nor extend the time fixed by law that you have to file a petition in the United States Tax Court. The Taxpayer Advocate can, however, see that a tax matter that may not have been resolved through normal channels, gets prompt and proper handling.

If you have any questions, please contact the person whose name and telephone number are shown in the heading of this letter.

Sincerely yours,

R. C. Johnson
Director, EO Examinations