I attended a phone forum on 501(c)(7) tax exempt social clubs put on by the IRS recently.
The IRS didn’t address homeschool support groups specifically, but many homeschool support groups fit the definition of a social club because they are organized as a group of people with a common interest who gather face-to-face for pleasure, social or recreational purposes.
Here are some things I learned. The italics are from the IRS slides. The translation is my application to homeschool support groups:
Social clubs are tax exempt because “Members who pool their funds for recreational and social purposes should not be worse off than those who obtain recreational and social benefits on an individual basis.”
Translation: If homeschool support group members pool their money for a field trip, the support group does not pay tax on this pooled money.
Social Clubs should not have written policy which discriminates against individuals seeking membership on the basis of race, color, or religion.
Exception: A social club can limit its membership to a particular religion if the limitation is a good faith attempt to further the teachings or principles of that religion and isn’t intended to exclude individuals of a particular race or color.
Translation: A homeschool support group may have a statement of faith for its members, but it must be because they wish to advance their religious views. The group cannot exclude people because of their race or color.
Substantially all of income must be from members for traditional recreational/social services or facilities.
Translation: At most 35% of your support group’s income can come from sources like fundraisers; most of your money needs to come from membership dues.
A club that meets the requirements of exempt status can operate without recognition of its exempt status, but has no assurance the IRS agrees that the club is exempt.
Translation: A social club doesn’t have to file the IRS paperwork or pay their fees! They can “self declare” tax exempt status!
A social club files the appropriate Form 990 series return (990, 990EZ, 990N) each year.
Translation: A homeschool support group should be filing the online 990N (it’s only 8 simple questions) if their annual income is less than $50,000. If annual income is more than $50,000 they must file the longer Form 990EZ or 990.
A social club’s exemption will be automatically revoked if it fails to file its required Form 990 for three consecutive years.
Translation: Three strikes and you’re out! So file those 990Ns!
A social club must file Form 990T (including Schedule G for investment income) for years in which it has $1,000 or more in gross unrelated taxable income
Translation: If you have more than $1,000 of your income from fundraisers or interest on a savings account, you have to file a tax form 990T and may owe tax on the fundraising profits. So keep those fundraisers to a minimum; most of your income should some from members’ dues.
If you’d like to see the slides from the phone forum they are available here: http://www.irs.gov/pub/irs-tege/c7%20phone%20forum%20slides_Aug%202013-_finalv2.pdf
If you have any questions on whether your homeschool group fits the definition of a 501(c)(7) Social Club, read this article. Homeschool Groups As Social Clubs
Still unsure or have more questions? Consider a phone consultation with me.
Carol Topp, CPA