I help homeschool groups file for tax exempt status with the IRS.
Most of them are homeschool co-ops and want 501(c)(3) status as a “qualified charity” because they have an educational purpose and desire tax deductible donations, tax -free profits and sometimes other perks that come with 501(c)(3) status.
But there is another type of tax exempt status that may apply to homeschool support groups: 501(3)(7) Social Club.
Here’s what it takes to be classified as a 501(c)(7) Social Club:
1. Purpose is for pleasure, social or recreation. A nonprofit motive and no part of the net earnings may inure to the benefit of any person having a personal and private interest in the activities of the organization
There must be an established membership of individuals, personal contacts and fellowship. A commingling of the members must play a major role in the life of the organization.
Common examples include college fraternities or sororities, country clubs, garden clubs, hobby clubs, etc.
2. Limited membership: membership is limited and consistent with the character of the club
3. Supported by membership fees. In general, your club should be supported solely by membership fees, dues, and assessments. A section 501(c)(7) organization can receive up to 35% of its gross receipts from sources outside of its membership without losing its tax-exempt status. For example, up to 35% of your total revenues can come from fund raising.
4. Business activities. If your club will engage in business, such as selling products or services, it generally will be denied exemption. However, your organization can provide meals, refreshments, or services related to its exempt purposes only to its own members or their dependents or guests.
5. Tax treatment of donations. Donations to social clubs are not deductible as charitable contributions on the donor’s federal income tax return.
These criteria fit a homeschool support group. The members are limited to homeschool parents (or those interested in homeschooling), meet for social reasons, are supported by membership fees (and maybe a little bit of fund raisers), do not sell products or services and do not collect tax deductible donations.
So most homeschool support groups can be considered 501(c)(7) Social Clubs.
Most homeschool co-ops do not fit this description because they sell services (classes) and have an educational purpose, not a social or recreational purpose. They may qualify for 501(c)(3) tax exempt status as an educational organization.
Confused about whether your organization is a 501(c)(3) “qualified charity” or 501(c)(7) Social Club?
This chart may help: Compare 501c3 to_501c7
Here’s the good news: If your organization fits the bill to be a 501(c)(7) Social Club, you do not have to file the IRS application (Form 1023 or 1024) like 501(c)(3) organizations must. 501(c)(7)s are allowed to “self-proclaim” their tax exempt status.
Here’s the bad news: The IRS requires all tax exempt organizations for file an annual information return , Form 990/990EZ or 990N. Failure to file the Form 990/990EZ/990N for 3 consecutive years means your tax exempt status is automatically revoked. Need help getting your tax exempt status reinstated? I can help.
Carol Topp, CPA