IRS denies social-club exemption to online firearms forum

Plain-English summary

An unincorporated association operated an internet forum devoted to a for-profit company's firearms and accessories. Anyone with an email address could join, nonmembers could read the site's content, and only the board had voting and management rights. The group had no regular facility or established face-to-face meetings, although it might later arrange local meetups or shooting matches. The IRS concluded that online interaction did not provide the personal contact, fellowship, and commingling required of a social club under § 501(c)(7). It also found that the group lacked a genuine limited membership and was organized partly to promote a for-profit company. The IRS therefore denied tax-exempt status.

Ruling snapshot

• Question: Did an open online firearms forum qualify as a social club under § 501(c)(7)?
• Outcome: Denied
• Key authorities: IRC § 501(c)(7); Treas. Reg. § 1.501(c)(7)-1; Rev. Ruls. 55-716, 58-588, 58-589, 70-32, and 74-30

Full text (IRS public release)

Department of the Treasury
Internal Revenue Service

1111 Constitution Avenue, N.W.
IRS Washington, D.C. 20224

Release Number: 201451030
Date: September 25, 2014
Release Date: 12/19/2014
Uniform Issue List:
501.00-00
501.07-00

Employer ID Number:
Contact Person/ID Number:

Contact Telephone Number:
Form You Must File:

Tax Years:

Dear

This letter is our final determination that you don’t qualify for tax-exempt status under Section
501(c)(7) of the Internal Revenue Code (the Code). Recently, we sent you a proposed adverse
determination in response to your application. The proposed adverse determination explained
the facts, law, and the basis for our conclusion, and it gave you 30 days to file a protest. Because
we didn’t receive a protest within 30 days, the proposed determination is now final.

You must file federal income tax returns for the tax years listed at the top of this letter using the
required form (also listed at the top of this letter) within 30 days of this letter unless you request
an extension of time to file.

We’ll make this final adverse determination letter and the proposed adverse determination letter
available for public inspection (as required under Section 6110 of the Code) after deleting certain
identifying information. Please read the enclosed Notice 437, Notice of Intention to Disclose,
and review the two attached letters that show our proposed deletions. If you disagree with our
proposed deletions, follow the instructions in the Notice 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 contact the person listed at the top of this letter.
If you have questions about your federal income tax status and responsibilities, call our customer

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

service number at 1-800-829-1040 (TTY 1-800-829-4933 for deaf or hard of hearing) or
customer service for businesses at 1-800-829-4933.

Sincerely,

Tamera Ripperda
Director, Exempt Organizations

Enclosures:
Notice 437
Redacted Letter 4034, Proposed Adverse Determination Under Section 501(a) Other Than 501(c)(3)
Redacted Letter 4040, Final Adverse Determination Under Section 501(a) Other Than 501(c)(3)

Letter 4040 (Rev. 7-2014)
Catalog Number 47635Z

Department of the Treasury
Internal Revenue Service

1111 Constitution Ave, N.W.
IRS Washington, DC 20224

Date: August 11,2014

Uniform Issue List: Employer ID number:
501.00-00 Contact person/ID number:
501.07-00

Contact telephone number:

Contact fax number:

Legend

State =
Date =

Company =
Organization =

Dear

We have considered your application for recognition of exemption from Federal income tax under Internal Revenue Code
section 501(a). Based on the information provided, we have concluded that you do not qualify for exemption under Code
section 501(c)(7). The basis for our conclusion is set forth below.

Facts

You are an unincorporated association formed under State law on Date. Your charter provides that you were organized
for the purpose of promoting for-profit Company’s firearms via an online web forum. Your charter also provides that
you will engage in “other activities pertaining to promoting Company brand firearms and accessories,” disseminating
information about safe firearms use for recreational or sports competition, and engaging in legal firearms use.

According to your application, you are an internet-based organization engaged primarily in operating and maintaining a
website for your members, for the purpose of promoting and sharing information about Company. Your website contains
a forum through which members can obtain and exchange information about Company and Company’s products and
accessories. Through this forum, your members make contact with each other through posting comments.

You established the website and forum “open to any person with access to the Internet and an email account.” You state
that “[n]onmembers may read all information and view all illustrations submitted to the website by members.” While
you occasionally solicit donations from users of your website, “[i]t is not required to be a member.” To become a member

Letter 4034 (Rev. 7-2014)
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of your website, individuals must agree not to post inappropriate material and sign the member agreement. Otherwise,
“the only information required for registration is a username and valid email account.”

Your bylaws provide that “[voting] membership shall consist only of the members of the board of directors.” Your board
of directors has exclusive voting and management rights. Your board controls your day-to-day operations. You have four
board members, including your founder.

Presently, you do not engage in any face-to-face interaction amongst or between members. You do not have a facility
where members gather. You state that you may, in future, organize ‘meetups,’ or face-to-face meetings between two or
more members residing in the same area to share fellowship and information. You may also organize sporting matches
for shooting. You would charge entrance fees for the matches and participants would pay their own expenses for both
meetings.

Your funding comes from donations from individuals who use your website and income from advertisements on your
website. You may also engage in online raffles to raise funds to operate the website. Upon dissolution, all funds will be
donated to the Organization.

Law

I.R.C. § 501(c)(7) provides for an exemption from U.S. federal income tax for clubs organized substantially for pleasure,
recreation, and other nonprofitable purposes, no part of the net earnings of which inures to the benefit of any private
shareholder.

Treas. Reg. § 1.501(c)(7)-1 provides that this exemption generally extends to social and recreation clubs that are
supported solely by membership fees, dues, and assessments. In addition, a club that engages in a business is not deemed
organized and operated exclusively for pleasure, recreation, and other nonprofitable purposes and, thus, is not deemed
exempt under § 501(a).

Rev. Rul. 55-716, 1955-2 C.B. 263, holds that an organization formed for the purpose of furnishing television antenna
service to its members is not entitled to exemption from federal income tax under § 501(c)(7). The term "club," as used
within § 501(c)(7), contemplates the commingling of members, one with the other, in fellowship. Personal contacts and
fellowship must play a material part in the life of an organization for it to come within the meaning of the term "club."

Rev. Rul. 58-588, 1958-2 C.B. 265, denied exemption under § 501(c)(7) to an organization whose members had no voice
in the management of the organization and whose only rights were to use the organization's facilities upon the payment of
the specified fees.

Rev. Rul. 58-589, 1958-2 C.B. 266, sets forth the criteria or tests for determining whether an organization qualifies for
exemption from tax under § 501(c)(7). In making this determination, all facts pertaining to the organization's form,
method of operation, and activities should be considered. The organization must establish that (1) it is a "club" organized
and operated exclusively for pleasure, recreation, or other nonprofitable purposes and (2) no part of its net earnings inures
to the benefit of any private shareholder or individual. To be deemed a 'club," there must be an established membership
of individuals, personal contacts, and fellowship. A commingling of the members must play a material part in the life of
the organization.

Rev. Rul. 70-32, 1970-1 C.B. 132, holds that a flying club providing economical flying facilities for its members but
having no organized social and recreation program does not qualify for exemption under § 501(c)(7). In this case, the sole
activity of the club involved the ownership, operation, and maintenance of the aircraft for use by the members, and there
was little commingling among members for social or recreational purposes. For the club to be exempt, the ruling explains
that there must be an established membership of individuals, personal contacts, and fellowship. Also, commingling of
members must play a material part in the organization's activities. This organization's sole activities consisted of

Letter 4034 (Rev. 7-2014)
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rendering flying services to its members, and there was no significant commingling of its members.

Rev. Rul. 74-30, 1974-1 C.B. 137, holds exempt under § 501(c)(7) a flying club of limited membership that provided
flying privileges solely for its members, assessed dues based on the club's fixed operating costs, and charged fees based on
variable operating expenses. The organization's members were interested in flying for a hobby, constantly commingled in
informal meetings, and had constant person-to-person association. This organization was found distinguishable from the
flying club in Rev. Rul. 70-32, supra, because there the club was open to all persons interested in flying, members did not
join to participate as a group in a hobby for recreation, and the members had no expectation of personal relationship with
other members.

Application of Law

Organizations seeking exemption under § 501(c)(7) need to satisfy the following statutory requirements: (1) be a club; (2)
be organized for pleasure, recreation, and other nonprofitable purposes; (3) have substantially all of its activities devoted
to such purposes; (4) have no part of its net earnings inure to the benefit of any private shareholder; and (5) have no
written policy that discriminates against individuals seeking membership on the basis of race, color, or religion. See, §
501(c)(7) and Rev. Rul. 58-589, supra. You do not satisfy the requirements for recognition under section 501(c)(7) as you
do not meet the definition of a “club” within the meaning of § 501(c)(7) for the reasons provided below.

Commingling and the promotion of fellowship are not a material part of your activities. Commingling is a necessary and
material part in the life of an organization exempt under § 501(c)(7) and is deemed present if such things as meetings,
gatherings, and regular facilities are evident. See, Rev. Ruls. 70-32, supra, and 74-30, supra. Face-to-face interaction is
important for members of a social club. Organizations that do not afford opportunities for this personal contact among
members are not entitled to exemption under § 501(c)(7), even though they may be organized not for profit with no part of
their earnings inuring to the benefit of shareholders. See, Rev. Rul. 55-716, supra. You are organized for the purpose of
promoting Company, a for-profit company, via an online forum dedicated to Company and its products. You have not
established that you will have any formal meetings, gatherings, recreational events, or other activities that involve actual
personal contact among or between your members. You do not have regular facilities at which your members meet.
While your members do interact through your members’ only forum on your website, this is the only means of
membership interaction that you have established. As such, fellowship and commingling do not constitute a material part
of the life of you as an organization, as required by § 501(c)(7).

Moreover, you are entirely an internet-based organization and your website is open to the general public. Because of the
very nature of the Internet and its public access, it is impossible to determine that your website will serve only your
membership, a limited group of individuals. While your members can meet online in your members’ only forum, your
website is open to the general public with the intention of reaching out to the general public. Thus, rather than having a
limited membership as required by § 501(c)(7) (See, Rev. Rul. 74-30, supra), nonmembers are also allowed to participate
in your activities.

Even if you were found to be operated for exempt purposes, you lack true membership. Similar to the organization
described in Rev. Rul. 58-588, supra, you provide an unlimited amount of memberships based on basic membership
requirements that involve signing up for your forum and agreeing to your website use agreement. Essentially, anyone
who signs up for your website may join your club.

In addition, like the organization described in Rev. Rul. 58-588, supra, your members do not exercise any control over
you and do not have a voice in the management of the club, since the board of directors is selected by your founder.
Instead, your board exercises exclusive control over your management and day-to-day operations. In addition, upon
dissolution, your assets will not be disbursed amongst your members. The only rights accorded your members are the
rights to use your website and make online posts to your website’s forum. For these reasons, you lack true membership as
required by § 501(c)(7).

Letter 4034 (Rev. 7-2014)
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We conclude that you lack the § 501(c)(7) requirements of having personal contacts, commingling, and fellowship among
your members. See, Rev. Ruls. 58-589, supra, 70-32, supra, and 74-30, supra. Thus, you lack sufficient indicia of a
"club" for purposes of qualifying for exemption under § 501(c)(7).

Conclusion

Based on the facts provided above, we hold that you do not meet the requirements for tax exemption under § 501(c)(7) of
the Code. You lack true membership and the promotion of commingling and fellowship are not a material part of your
operations. As a result, you do not operate substantially for pleasure, recreational or other nonprofitable purposes and are
not exempt under § 501(c)(7) of the Code.

If you don’t agree
You have a right to file a protest if you don’t agree with our proposed adverse determination. To do so, you must send a
statement to us within 30 days of the date of this letter. The statement must include:

• Your name, address, employer identification number (EIN), and a daytime phone number
• A copy of this letter highlighting the findings you disagree with

• An explanation of why you disagree, including any supporting documents

• The law or authority, if any, you are relying on

• The signature of an officer, director, trustee, or other official who is authorized to sign for
the organization, or your authorized representative

• One of the following declarations:

For an officer, director, trustee, or other official who is authorized to sign for the organization:
Under penalties of perjury, I declare that I examined this protest statement, including

accompanying documents, and to the best of my knowledge and belief, the statement

contains all relevant facts and such facts are true, correct, and complete.

For authorized representatives:

Under penalties of perjury, I declare that I prepared this protest statement, including
accompanying documents, and to the best of my knowledge and belief, the statement
contains all relevant facts 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 he or she hasn’t already done so. You can
find more information about representation in Publication 947, Practice Before the IRS and Power of Attorney.

We will review your protest statement and decide if you provided a basis for us to reconsider our determination. You also
have a right to a conference after you submit your statement. If you want a conference, you must request it when you file
your protest statement.

You can also ask the Office of Appeals to review your application for tax-exempt status. Your right to request Appeals
review is in addition to your right to a conference, as outlined in Revenue Procedure (Rev. Proc.) 2014-4 and Rev. Proc.
2014-9. You must notify us in writing if you want us to forward your case to the Appeals Office. You can find more

Letter 4034 (Rev. 7-2014)
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information about the process and the role of the Appeals Office in Section 7 of Rev. Proc. 2014-9 and Publication 4227,
Overview of the Appeals Process.

If the person representing you in this process is not an officer, director, trustee, or other official who is authorized to sign
for the organization, he or she must file Form 2848, as explained above, and otherwise meet the requirements in
Publication 216, Conference and Practice Requirements.

Where to send your protest
Please send your protest statement, any request for consideration by the Office of Appeals, Form 2848, if needed, and any

supporting documents to the applicable address:

U.S. mail: Street address for delivery service:

You can also fax your statement 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 he or she received it.

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.

You can find all forms and publications mentioned in this letter on our website at www.irs.gov/formspubs. If you have
questions, you can contact the person listed at the top of this letter.

Sincerely,

Matthew A. Weir
Director, EO Rulings & Agreements

Enclosure:
Publication 892

Letter 4034 (Rev. 7-2014)
Catalog Number 47628K