IRS revokes a campground social club's section 501(c)(7) exemption

Plain-English summary

The IRS proposed revoking a campground social club's exemption under IRC section 501(c)(7). The organization had sold its assets to pay liabilities, distributed the remaining funds to members, and no longer had members or operated for social and recreational purposes. It also failed to file its required Form 990 and did not respond to IRS requests for the delinquent return. The examination concluded that the organization no longer met the requirements for section 501(c)(7) status and should be revoked effective April 1 of the redacted year.

Ruling snapshot

• Question: Whether the organization continued to qualify as a social club exempt under IRC section 501(c)(7) after ceasing operations and failing to file its annual information return.
• Outcome: Revocation of exemption, effective April 1 of the redacted year.
• Key authorities: IRC §§ 501(c)(7), 6001, and 6033; Treas. Reg. §§ 1.6001-1(a), 1.6001-1(c), 1.6001-1(e), and 1.6033-1(h)(2); Rev. Rul. 59-95.

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Tax Exempt and Government Entities Division

Exempt Organizations: Examinations

3730 S. Elizabeth Street 901-07.00
Independence, MO 64057

Release Number: 201317014

Release Date: 4/26/2013

Date: January 13, 2013 Taxpayer Identification Number:
Form:
Tax Year(s) Ended:
Person to Contact/ID Number:

ORG - Organization name Contact Numbers:
XX - Date Address - address Telephone:
Fax:

Certified Mail - Return Receipt Requested
Dear

We have enclosed a copy of our report of examination explaining why we believe revocation of
your organization's exempt status is necessary.

If you do not agree with our position you may appeal your case. The enclosed Publication
3498, The Examination Process, explains how to appeal an Internal Revenue Service (IRS)
decision. Publication 3498 also includes information on your rights as a taxpayer and the IRS
collection process.

If you request a conference, we will forward your written statement of protest to the Appeals
Office and they will contact you. For your convenience, an envelope is enclosed.

If you and Appeals do not agree on some or all of the issues after your Appeals conference, or if
you do not request an Appeals conference, you may file suit in United States Tax Court, the
United States Court of Federal Claims, or United States District Court, after satisfying
procedural and jurisdictional requirements as described in Publication 3498.

You may also request that we refer this matter for technical advice as explained in Publication
892, Exempt Organization Appeal Procedures for Unagreed Issues. If a determination letter is
issued to you based on technical advice, no further administrative appeal is available to you
within the IRS on the issue that was the subject of the technical advice.

If you accept our findings, please sign and return the enclosed Form 6018, Consent to
Proposed Adverse Action. We will then send you a final letter revoking your exempt status. If
we do not hear from you within 30 days from the date of this letter, we will process your case on
the basis of the recommendations shown in the report of examination and this letter will become
final. In that event, you will be required to file Federal income tax returns for the tax period(s)
shown above. File these returns with the Ogden Service Center within 60 days from the date of
this letter, unless a request for an extension of time is granted. File returns for later tax years
with the appropriate service center indicated in the instructions for those returns.

Letter 3610 (Rev 11-2003)
Catalog Number 34801V

You have the right to contact the office of the Taxpayer Advocate. Taxpayer Advocate
assistance is not a substitute for established IRS procedures, such as the formal appeals
process. The Taxpayer Advocate cannot reverse a legally correct tax determination, or extend
the time fixed by law that you have to file a petition in a United States 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. You may call toll-free 1-877-777-4778 and ask for
Taxpayer Advocate Assistance. If you prefer, you may contact your local Taxpayer Advocate
at:

If you have any questions, please call the contact person at the telephone number shown in the
heading of this letter. If you write, please provide a telephone number and the most convenient
time to call if we need to contact you.

Thank you for your cooperation.

Sincerely,

Nanette M. Downing
Director, EO Examinations

Enclosures:
Publication 892
Publication 3498
Form 6018
Report of Examination
Envelope

2 Letter 3610 (Rev 11-2003)
Catalog Number 34801V

Form 886A Department of the Treasury - Internal Revenue Service Schedule No.
Explanation of Items or Exhibit
Name of Taxpayer Year/Period
ORG 20XX03

LEGEND
ORG - Organization name XX - Date City - city State - state

EMP-1 - 1st EMP

ISSUES:
Whether exempt organization qualifies for exemption under Section 501(c)(7) of the Internal Revenue Code?

FACTS:

The organization is currently exempt under 501(c)(7). The purpose of the organization is to manage, operate, and
maintain a social and recreational campground near City, State, for the pleasure, social, recreational, and other
similar nonprofitable purposes of its members. The organization ran into financial difficulty and was ordered by the
court to sell its assets to pay the organization's liabilities. The organization received the funds from the sale after
paying off its liabilities on January 20XX. The organization made disbursement of the remaining funds to its
members in October 20XX. The organization no longer has any members nor does it organize for pleasure,
recreation, or other nonprofitable purposes.

The organization failed to file Form 990 for the year ending March 31, 20XX, terminating the organization, or file
documents authorizing dissolution. The agent requested the delinquent return from the organization. The agent
mailed by certified mail to the organization requesting it to file the return with the Area Office within 90 days. The
agent received confirmation the letter was picked up by EMP-1 on 8/6/XX. The organization failed to respond to the
Internal Revenue Service correspondence or file the Form 990 for the tax period ending March 31, 20XX.

LAW:
Organization exemption under IRC 501(c)(7) needs to satisfy the following statutory requirements:
• A club,
• Organized for pleasure, recreation, and other nonprofitable purposes,
• Substantially all of the activities of which are for such purposes,
• No part of the net earnings of which inures to the benefit of any private shareholder, and
• The club does not have a written policy which discriminates against individuals seeking membership on the
basis of race, color, or religion.

Section 6001 of the Code provides that every person liable for any tax imposed by the Code, or for the collection
thereof, shall keep adequate records as the Secretary of the Treasury or his delegate may from time to time prescribe.

Section 6033(a)(1) of the Code provides, except as provided in section 6033(a)(2), every organization exempt from
tax under section 501(a) shall file an annual return, stating specifically the items of gross income, receipts and
disbursements, and such other information for the purposes of carrying out the internal revenue laws as the Secretary
may by forms or regulations prescribe, and keep such records, render under oath such statements, make such other
returns, and comply with such rules and regulations as the Secretary may from time to time prescribe.

Section 1.6001-1(a) of the regulations in conjunction with section 1.6001-1(c) provides that every organization
exempt from tax under section 501(a) of the Code and subject to the tax imposed by section 511 on its unrelated
business income must keep such permanent books or accounts or records, including inventories, as are sufficient to
establish the amount of gross income, deduction, credits, or other matters required to be shown by such person in any
return of such tax. Such organization shall also keep such books and records as are required to substantiate the
information required by section 6033.

Form 886-A (rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -1-

Section 1.6001-1(e) of the regulations states that the books or records required by this section shall be kept at all
times available for inspection by authorized internal revenue officers or employees, and shall be retained as long as
the contents thereof may be material in the administration of any internal revenue law.

Section 1.6033-1(h)(2) of the regulations provides that every organization which has established its right to
exemption from tax, whether or not it is required to file an annual return of information, shall submit such additional
information as may be required by the district director for the purpose of enabling him to inquire further into its
exempt status and to administer the provisions of subchapter F (section 501 and the following), chapter 1 of the Code
and section 6033.

Rev. Rul. 59-95, 1959-1 C.B. 627, concerns an exempt organization that was requested to produce a financial
statement and statement of its operations for a certain year. However, its records were so incomplete that the
organization was unable to furnish such statements. The Service held that the failure or inability to file the required
information return or otherwise to comply with the provisions of section 6033 of the Code and the regulations which
implement it, may result in the termination of the exempt status of an organization previously held exempt, on the
grounds that the organization has not established that it is observing the conditions required for the continuation of
exempt status.

In accordance with the above cited provisions of the Code and regulations under sections 6001 and 6033,
organizations recognized as exempt from federal income tax must meet certain reporting requirements. These
requirements relate to the filing of a complete and accurate annual information (and other required federal tax forms)
and the retention of records sufficient to determine whether such entity is operated for the purposes for which it was
granted tax-exempt status and to determine its liability for any unrelated business income tax.

TAXPAYER'S POSITION:
The agent cannot determine the taxpayer's position since they have not responded to any correspondence requesting
filing of information returns.

CONCLUSION:

The organization no longer has any members and is not organized for the pleasure of its members, which is a
requirement for recognition as exempt from federal income tax under 501(c)(7) of the Internal Revenue Code. The
organization failed to file the required information return and self-terminated. The organization's exempt status
should be revoked effective April 1, 20XX.

Form 886-A (rev. 4-68) Department of the Treasury - Internal Revenue Service
Page: -2-