If a nonprofit social club exempt under IRC § 501(c)(7) has unrelated business income of less than $1,000 after deductions, does it still have to file Form CT-13 and pay New York's $250 minimum unrelated business income tax?

Plain-English summary

An accounting firm asked on behalf of a social club exempt under IRC § 501(c)(7) (organizations "organized for pleasure, recreation, and other nonprofitable purposes") whether the club had to file New York's unrelated business income tax return (Form CT-13) and pay the $250 minimum tax, given that its deductions had reduced its unrelated business income below $1,000. The premise behind the question was the federal rule, which doesn't require an organization to pay unrelated business income tax at all unless its unrelated business taxable income exceeds a minimum dollar amount.

New York taxes any organization described in IRC § 511(a)(2) -- which specifically includes § 501(c)(7) social clubs -- on unrelated business income, at 10% of that income or $250, whichever is greater. The Department explained that New York's statute borrows the federal definition of who's covered (organizations described in IRC § 501(c)), but does not borrow a federal-style minimum-income threshold before the tax kicks in. New York's unrelated business income starts from the taxpayer's federal unrelated business taxable income, adjusted by a handful of New York-specific modifications, but nothing in the New York statute exempts small amounts of income from tax. As a result, the club owes the $250 minimum tax and must file Form CT-13 within four and a half months after the close of its reporting period, regardless of how little unrelated business income it actually has -- there's no dollar amount below which the return isn't required.

What this means for you

Social clubs, fraternal organizations, and other § 501(c)(7)-type nonprofits with any unrelated business activity

Don't assume that small amounts of unrelated business income (rental income, non-member sales, etc.) escape New York tax just because they might fall below a federal exemption threshold. If your organization has any unrelated business income under IRC § 511(a)(2), New York requires filing Form CT-13 and paying at least the $250 minimum tax.

Accountants preparing returns for tax-exempt clients

New York's Article 13 unrelated business income tax piggybacks on the federal definition of "unrelated trade or business" but is stricter than federal law on the threshold question -- there is no de minimis exception. Even a single dollar of unrelated business income triggers the filing requirement and the $250 minimum.

Common questions

Q: Does this apply to all types of tax-exempt organizations, or just 501(c)(7) clubs?
A: The ruling addresses a § 501(c)(7) organization specifically, but the statute reaches any organization described in IRC § 511(a)(2), which covers organizations exempt under IRC § 501(c) generally.

Q: Is there any dollar amount of unrelated business income below which no New York filing is required?
A: No. The Department was explicit: there is no minimum dollar amount below which Form CT-13 need not be filed.

Q: Can another exempt organization rely on this specific ruling?
A: No. It binds the Department only for this petitioner's facts and can't be relied upon by other organizations, though the underlying statutory rule (no minimum threshold) applies generally.

Citations and references

Statutes and regulations:

• Tax Law Article 13 § 290(a) (imposition, 10% or $250 minimum)
• IRC § 511(a)(2) (organizations subject to the tax); § 501(c)(7) (social club exemption)
• Tax Law § 292(a)(1)-(3) (New York modifications to unrelated business taxable income)

Source

• Landing page: https://www.tax.ny.gov/pubs_and_bulls/advisory_opinions/corporation_ao_1987.htm
• Opinion: https://www.tax.ny.gov/pdf/advisory_opinions/corporation/a87_27c.pdf

Original ruling text

New York State Department of Taxation and Finance

Taxpayer Services Division
Technical Services Bureau

TSB-A-87 (27) C
Corporation Tax
October 22, 1987

STATE OF NEW YORK
COMMISSIONER OF TAXATION AND FINANCE
ADVISORY OPINION

PETITION NO. C870714B

On July 14, 1987, a Petition for Advisory Opinion was received from Sciarabba Walker &
Co., 200 E. Buffalo Street, Ithaca, New York 14850.
The issue raised by Petitioner is whether an organization which is exempt under § 501(c)(7)
of the Internal Revenue Code and has deductions reducing its' unrelated business income below
$1000, is required to file form CT-13 and pay the minimum tax of $250.
New York State imposes an Unrelated Business Income Tax on "every organization
described in section 511(a)(2) of the Internal Revenue Code ... carrying on an unrelated trade or
business in New York ... at the rate of ten percent ... or two hundred fifty dollars, whichever is
greater. (Tax Law, Article 13, §290(a)).
To determine what organizations are subject to tax on unrelated business income, Internal
Revenue Code section 511(a)(2) states, in part, that the tax "shall apply to any organization described
in I.R.C. §501(c)."This is the precise section upon which the Petitioner is basing its inquiry.
Section 501(c)(7) provides that:
"[c]lubs organized 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."
Accordingly, an organization exempt under §501(c)(7) of the Internal Revenue Code carrying on an
unrelated trade or business in New York is subject to tax on unrelated business income.
The unrelated business income taxable to a taxpayer, for New York State purposes, shall be
the taxpayers federal unrelated business taxable income subject to modifications enumerated in
Sections 292(a)(1) through (3) of Article 13 of the Tax Law. Unlike the Federal tax law, New York
does not provide for a minimum dollar amount to be reached before tax is imposed. As a result, a
minimum tax of $250 is imposed on unrelated business income regardless of the amount of income
realized by the organization.

RODERICK G. W. CHU, COMMISSIONER
TP-8 (3/83)

GABRIEL B. DiCERBO, DEPUTY COMMISSIONER
FRANK J. PUCCIA, DIRECTOR

-2­
TSB-A-87 (27) C
Corporation Tax
October 22, 1987

New York State Department of Taxation and Finance Form CT-13 is an Unrelated Business
Income Tax Return. Every organization described in section 511(a)(2) or (b)(2) of the Internal
Revenue Code carrying an unrelated trade or business in New York must file this return and pay the
appropriate tax due. This form must be filed within four and one-half months after the close of the
reporting period. There is no dollar amount below which a return is not required to be filed.

DATED: October 22, 1987

s/FRANK J. PUCCIA
Director
Technical Services Bureau

NOTE: The opinions expressed in Advisory Opinions
are limited to the facts set forth therein.