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 with a social or recreational purpose.
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 programs with an educational or religious 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) of the income must come from the membership |
| Membership | Serving the public or the “public good” (i.e. the education of children is a public good) | Limited membership and consistent with the purpose of the club |
| IRS Application Required? | Yes, if gross revenues over $5,000/year. File Form 1023 or 1023-EZ | 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 990-N, Form 990-EZ or Form 990 | Form 990-N, Form 990-EZ 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 |
Need more help understanding your tax exempt status?
My book, The IRS and your Homeschool Organization is a good place to start.
I hope that helps!
Carol Topp, CPA
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
I answered that question in another blog post.
Read it here: https://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: https://www.irsvideos.gov/StartingOffRightNON501c3/player/frame-wm.htm
Carol Topp, CPA
As a Social Club are we required to file Annually or IRS Reporting.
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.
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.
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
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
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
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.
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: https://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: https://homeschoolcpa.com/services/501c3-tax-exempt-status/
Carol Topp, CPA
We are a 501c7, because our kids are involved in monthly fundraisers they and have separate accounts set up. we were unable to get the 501c3 (NY). We are all volunteer and I allow all children from ages 3-18 to join our all star cheer gym. But they fundraise to help pay for their fees (uniforms; competitions, travel…). Is there another way that we can do this and keep the individual accounts for each child? without the fundraising most would not be able to participate and we really want to get grants to supply the gym with equipment. HELP
Lorrie,
My understanding is that setting up private fundraising accounts is what the IRS calls “inurement” (individuals benefiting from the revenues of the nonprofit). It is forbidden and could cause a nonprofit to lose its tax exempt status.
This blog post explains why IFAs are prohibited. Do Not Use Individual Fundraising Accountshttps://homeschoolcpa.com/do-not-use-individual-fund-raising-accounts/
Parent Booster USA says that “Only in very limited circumstances are IFAs considered legal fundraising activities of booster clubs. Parent Booster USA can provide assistance in obtaining a legal review of an organization’s IFA policy.”
Perhaps you should consider contacting Parent Booster USA and see of they can help.
Carol Topp, CPA
Do you have to incorporate to become a 501c3 or can you do it as an association.
Your organization can be an association, or more specifically an unincorporated association, and apply for tax exempt status, but if your organization decides to incorporate in the future, then you must get a new EIN and reapply for tax exempt status, because you have formed a new legal, entity, a nonprofit corporation.
So that’s something to think about…might your organization desire to become a nonprofit corporation in the future? There are many advantages to nonprofit incorporation. If so, it’s advisable to incorporate now and then apply for tax exemption as a nonprofit corporation.
I’d estimate that probably 80-90% of 501c3 tax exempt organization are nonprofit corporations, not unincorporated associations.
We are a social dance club, that is currently a 501 c 7; but because we also teach weekly classes (Int/Adv classes have an entrance fee, beginner classes are free) to the public, we would like to become a 501 c 3. Do the benefits outweigh the costs of making this transition, and would the IRS consider our request valid?
I specialize in homeschool organizations, not dance clubs. I recommend that you contact a few local dance clubs or national dance club associations and ask what tax exempt status they have, c3 (educational) or c7(social).
Or search Guidestar.org for “dance clubs” and see how they are classified.
Good luck!
What would you think the cost would be to go from a c7 to a c3? Thanks Ed.
IRS fee: $400 to $850
Nonprofit incorporation in your state: varies from $25 to $150
Professional help: varies from $200 to thousands if you need to hire an attorney
Can I put a homeschool under a non profit organization as one of the things we offer to the community ?
The non profit organization is already in operation. we feed the homeless and we give out care package to the community.
Gina,
Offering additional services may fall under your mission as a tax exempt nonprofit if it was initially mentioned in your original application for 501c3 status with the IRS. You’ll have to dig out your Form 1023 and your Articles of Incorporation to see what you told the IRS about your mission.
If education of children or homeschool program was mentioned in the original application, then yes, you can add a homeschool program to your other activities.
From what you stated, it seems your mission (what the IRS calls your exempt function) is feeding the homeless and giving care packages to the needy in your community. That’s very admirable, but not inclusive of the education of children.
You see, when an organization applies for 501c3 tax exempt status, it is for a specific purpose -what the IRS calls your scope or exempt purpose. 501c3 status is not blanket permission to do any and all charitable, educational, religious, etc activities.
This blog post may be helpful: https://www.501c3.org/the-challenges-of-expanding-your-nonprofit/
You state that roughly 65% of 501(c)(7) income comes from membership fees. I am curious as to where the other portion may come from.
I am a part of a social fraternity trying to host a philanthropic event for the betterment of at-risk youths.We are in need of funding and at wits end on how to obtain that outside of fundraising.
The other 35% can come from fundraisers or fundraising events like you’re planning.
I am starting a homeschool sports program. I believe that we would be a 501(c)(7), but that looks more expensive to file then if I was a 501(c)(3). What would the benefits of filing as a 501(c)(7) vs c3 be?
Also Can either a c7 or c3 have branches in multiple locations or states (but file as one)?
Thanks so much.
Eden,
I hope my chart in the blog post you referenced explained the differences and benefits of 501c3 vs 501c7.
Usually, I tell clients if they are eligible for 501c3 status (and youth sports are eligible as c3s because they are educational organizations), then file for the 501c3. It has more benefits (donations, fundraisers, etc).
You asked, “Can either a c7 or c3 have branches in multiple locations or states (but file as one)?” Yes, but that is called a group exemption. a group exemption cots $3,000.
If you want to discuss your options and group exemption, I would be happy to arrange a phone consultation with you. Contact me to arrange a time.
Hi does charging members for tickets to functions we run ; family picnics for our members , Christmas parties for members kids , family night at baseball stadiums count towards the 65%income ? Thank you
Yes, Jim, all those sources of income are from your members and count toward the 65% of income that needs to come from your membership in a 501(c)(7) social club.
Hi Thank you for a very quick response. It answered some of my concerns. I am a retired union carpenter in nj.20 years ago I started up an entertainment committee that provided an annual Christmas party for the members kids , family picnics and father and son trips to ballgames.we were highly successful and popular for 16 years. The local bankrolled us when we fell short. No 501. Then there was a merge of locals. We were told to fold our picnic; the merged locals would now hold a picnic. They had a joint picnic for 2 years and it folded. The entertainment committee was disbanded.
I went to a few meetings recently and other carpenters have asked me if I’m going to start a xmas party for the kids again.This is what prompted me to research 501c3 and 501c7. As a social-recreation group ,which is the better exemption to pursue? After the politics of my last experience I want this club /assn. to be independently funded. Not rely on the local paying and controlling the events the members want. The goal is no politics , run by the members , for the members. I didn’t mean for it to be so wordy but I felt you should know as much as possible in order to answer my questions.
Should we call it a club or assn.? The local has over 3000 members. A large base to appeal to.
Should we be incorporated?
Should we seek a 501c3 or a 501c7 ?
Can we sell 50/50 raffle tickets at monthly meetings ? Seed money for our club / assn
Can we sell t-shirts to local members ? Profit for seed money.
A lot of questions. I know. I’m trying to get as much info as possible together before I approach the board.
What types of fundraising can’t be done without a 501 ?
What types of fundraising can be done if you are waiting from the IRS on your 501 application?
A lot of questions. I know. I’m trying to get as much correct info as possible and educate myself before approaching the board with this idea. We don’t need their permission, but would like their support.
Whatever you can offer in response to my very very long message would be greatly appreciated.Thank you Thank you Jim
How long does it take to get approval of a 501c7 vs a 501c3?
It depends. They typical time for a small 501(c)(3) using the online Form 1023-EZ is about 2 weeks.
Larger 501(c)(3) applications can take 6 weeks to 6 months for IRS approval.
501(c)(7) applications can take from 3 weeks to several months.
We are a non-profit historical society
(fraternity) group, ECV out of Pershing County NV. Definitely most of our income comes from our members. I see the benifits for both 501c3 and c7, but i was told that if a non-profit has a c3, anyone can join in their events and with a c7 we can only have specific persons attend the same events. Which would be better for ECV?
Thank you!
Dan,
It’s difficult to answer your question, “Which would be better for ECV?” with knowing so little about your group, its activities, mission, and future plans.
But I can clarify some things:
While 501c3 organizations must service a public good, they don’t have to open their events or services to everyone. For example a private school or college has an admission process; not just anyone can come and sit in on a class! Many of my clients are homeschool groups that restrict their activities to dues-paying members who are homeschool families. They serve the public good (i.e., the education of children), but for the safety of the children don’t let anyone walk into their activities at any time.
That being said, if you don’t serve a public good or a charitable class (a charitable class includes the elderly, ill, infirm, poor, children, etc) and only serve your members, it’s proper for ESV to stay a 501c7 social club.
Carol Topp, CPA
HomeschoolCPA.com
Thank you for replying!
ECV is a men’s only club, the money we receive is literally from our own members. With that money we put up historical plaques, mainly in the west coast.
I see nothing mention about Veteran Clubs, 501c19. If they have Home Associations, could they be listed under
501c03 or 501c07. Which might provide non-veterans to have membership in the Home Association. Do I need to look
somewhere else.
Ken,
Thank you for leaving a comment on my website HomeschoolCPA.com. This is a website for homeschool organizations, not veteran’s organizations, and not nonprofit organizations in general.
Your question would be best answered by a website geared toward veterans nonprofit organizations.
Carol Topp, CPA
In reviewing your comparison I see that if we decided on the 501 (C)7 as a homeschool support group. It will be more beneficial. Do you know if I need to file with the Secretary of State also? Since it is a member based organization do we need an EIN? Thank you
Cortina,
You didn’t say what state you are in, so I cannot research what your SoS’s requirements for 501c7 social clubs are. It would take some time to research my reply. I am happy to research your question and reply via email. I charge a reduced rate for answering questions via email instead of a phone consultation. Please email me at https://homeschoolcpa.com/contact/ and tell me what state you are in.
If you want to open a checking account or pay anyone your organization will need an EIN.
Carol Topp, CPA
We are a 501c7 social club in Ga. Can a member cater our events using their personal business? Can they be a member and a vendor?
Roy, Yes your club can use a member as a vendor to provide services to your club. Just be sure your board has shopped around to make sure your club is getting a fair price and that you are not giving the member an unfair advantage.
Carol Topp, CPA
The vendor used is a member and the wife of the President. She was ” awarded” the catering contract without shopping around. Ninety days before the event, the Executive Board rejected the use of his wife for reasons of conflict of interest and possible 501c7 violations for a second time.The president agreed to get another caterer, but didn’t. He used is wife’s company.
What legal options do we have?