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 2008) 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.

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