Can we “self proclaim” tax exempt status?

Carol,
I’m pretty sure that we meet all of the requirements to be a 501c 7 social club—your website talks about the ability to “self proclaim” their tax exempt status and the fact that a tax return is not necessarily required—I’ve searched the IRS website but cannot find that mentioned.

-Bill in FL

 

Bill,

I found two sources where the IRS explains that 501(c)(7) social clubs do not have to file an application to be considered tax exempt:

1. From the IRS manual Section 7.25.1.1 http://www.irs.gov/irm/part7/irm_07-025-001.html (Accessed 8/20/2012. Emphasis added)

IRS Manual 7.25.1.1  (11-01-2003) Overview

The Service will recognize qualified organizations as exempt from federal income tax in response to requests submitted by the organizations. Except for most organizations described in paragraphs (3), (9), or (17) of section 501(c), the Internal Revenue Code does not require organizations to apply for recognition of exemption. An organization qualifies for exemption if it meets the requirements of the Code. However, an organization is subject to tax until it establishes that it qualifies for exemption, and most organizations find that filing an application for recognition of exemption is the least burdensome way to establish that they qualify.

2. The IRS hosted a webinar titled: Starting off right- what new non 501(c)(3) organizations need to know. You can view it here: http://www.irsvideos.gov/StartingOffRightNON501c3/

In the transcript of the webinar (page 39) they addressed a question I had emailed:

“I’ve heard that organizations such as the ones you are discussing today – 501(c) 4s, 5s, 6s, 7s, 8s, and 10s – are not actually required to complete and submit Form 1024, Application for Recognition of Exemption Under Section 501(a). In other words, an organization that believes it qualifies for exemption under one of these subsections can simply say it does and start to operate. Is that true?”

It is true the Tax Reform Act of 1969 requirement to “give notice,” (to apply for recognition of tax-exempt status) applies only to organizations wanting section 501(c)(3) status. So, although other types of organizations are not required to file Form 1024, they may still wish to do so in order to receive a determination letter of IRS recognition of their status. Having the determination letter ensures public recognition of their status and may enable exemption from some state taxes.

Also, even though an organization may “self-proclaim” its tax-exempt status, it is still subject to the rules governing its particular sub-section. It is also subject to IRS examination to determine whether it meets the requirements for the exemption it is claiming.

Source:http://www.irsvideos.gov/StartingOffRightNON501c3/files/Powerpoint_Slide_Presentation_with_Transcript.pdf (page 39) accessed August 20, 2012

I hope that helps!

Carol Topp, CPA

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