Compare 501(c)(3) Charity to 501(c)(7) Social Club

The IRS offers more than a dozen different classifications of tax exempt status.  The most popular by far with 80% of the total is the 501(c)(3) “Qualified charity status.”

Many homeschool organizations may qualify to be 501(c)(3) qualified charities with an educational purpose or 501(c)(7) Social Clubs.

Here’s a comparison of 501(c)(3) “qualified charity” status and 501(c)(7) Social Club.

In general, homeschool co-ops fall under 501(c)(3) “qualified charity” because they have an educational purpose, while homeschool support groups fall under 501(c)(7) Social Club.

501(c)(3) Qualified Charity 501(c)(7) Social Club
Purpose Religious, Educational, Charitable, Scientific, Literary, Pleasure, recreation, social activities
Examples churches, charities, private schools, homeschool co-ops with an educational purpose Fraternities, sororities, country clubs, hobby clubs, homeschool support groups
Requirements No private inurement allowed. Upon dissolution all assets must be distributed to another 501(c)(3) organization. Personal contact, fellowship and co-mingling of members. No private inurement allowed.
Activities Can hold programs, sell services and products as part of their exempt purpose. Can provide meals or services only to members in connection with club activities
Tax deductible donations allowed Yes No
Tax exempt (no taxes on profits) Exempt from Federal income tax unless the organization has unrelated business income Exempt from Federal income tax on income derived from members; other income taxed
Source of Income Membership fees, fees for services, donations, fund raisers, program fees Primarily (65% or more) from membership fees.
Membership Open to public Limited membership and consistent with the purpose of the club.
IRS Application Required? Yes, if gross revenues over $5,000/year. File Form 1023 No. The IRS does not require 501(c)(7) organizations to file an application. They can “self-proclaim” tax exempt status.
Annual IRS Reporting Form 990N, Form 99EZ or Form 990 Form 990N, Form 99EZ or Form 990
Legislative Lobbying permitted? Insubstantial lobbying allowed (less than 20% of total expenses). No endorsement of a candidate. No limit on legislative activity as long as it furthers the exempt purpose

I hope that helps!

Carol Topp, CPA

Comments

  1. Dennis Fermaint says:

    You stated “No. The IRS does not require 501(c)(7) organizations to file an application. They can “self-proclaim” tax exempt status.”
    Where can I reference this so I can have it ready if they ask me why I didn’t file a 1024? Is it somewhere in the 557 pub? How do I document that is the reason why I didn’t file one.

    THank you
    Dennis

  2. Carol Topp says:

    I answered that question in another blog post.
    Read it here: http://homeschoolcpa.com/can-a-homeschool-group-self-declare-501c7-social-club-status

    You won’t find the information on “self declaring” 501c7 Social Club status in IRS Pub 557.
    I asked a question at an IRS webinar and it was answered there.
    Here’s the link to the IRS webinar: http://www.irsvideos.gov/StartingOffRightNON501c3/player/frame-wm.htm

    Carol Topp, CPA

  3. Charles Narh says:

    As a Social Club are we required to file Annually or IRS Reporting.

  4. Carol Topp says:

    Yes, the new-ish requirement (since 2007) from the IRS is that all nonprofits, including 501(c)(7) tax exempt social clubs file the annual information return Form 990/990EZ or 990N.

  5. Jeff Skelding says:

    We are a small wrestling club that practices at a public school building. We are considering filing for non-profit status. A 501c3 sounds like the way we should go, does practicing for free at a public school hurt us. We mainly fundraise to help parents pay for tournaments that their children attend weekly during season. There are no paid coaches or administrators.

  6. Carol Topp says:

    Jeff,
    Most youth sports organizations qualify for 501(c)(3) status as educational organizations. The fact that you practice at a public school will not affect your tax exempt status. Schools are tax exempt educational organizations, too! Please contact me if you’d like help applying for 501c3 tax exempt status.
    Carol Topp, CPA

  7. We’re a small community pool/swim club set up as a 501(c)(7). We’re considering conducting a few fundraisers to help generate extra funds needed for capital improvements to our pool. More fundraising=less impact on members’ annual dues! The programs we’re looking into do not assess sales tax. Would we need to pay taxes on funds generated via our members or friends/family of members with these fundraisers (online chocolates, restaurant spirit nights, plant sales, etc.)? Any other rules/regulations we should be mindful of as we fund-raise?

    Thank you – Kathy

  8. Carol Topp says:

    Kathy,
    This website is to assist homeschool organizations with federal tax exempt status. I’m not familiar with the sales tax laws for your state (nor did you even mention your state). My advice is to contact your state’s Department of Revenue and ask about sales tax on fundraisers held by a swim club. Most states do not give sales tax exemption to 501c7s, so it is possible that your swim club does have to collect and submit sales tax on items they sell.
    Also watch out that at least 65% of your total revenues come from member fees. IOW, only 35% can come from fundraisers and other non-member sources of revenues (like interest).
    Carol Topp, CPA

  9. Jeff Skelding says:

    I’m sorry it took so long to respond, we just started for the season. I am very interested in filing for 501c3 status. I guess I need the easiest way to do this as I work, and run our club 5 days a week. Is there a “short form” for this?
    Thanks.

  10. Carol Topp says:

    Yes, in July 2014 the IRS introduced the Form 1023-EZ for small, qualified nonprofit organizations to receive 501(c)(3) tax exempt status. Read more here: http://homeschoolcpa.com/new-irs-form-1023-ez-make-applying-for-tax-exempt-status-easier/

    I have helped several groups use the new 1023-EZ. I’m happy to help your organizations as well. Learn more here: http://homeschoolcpa.com/services/501c3-tax-exempt-status/

    Carol Topp, CPA

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