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There are many types of nonprofits, and the 501(c)(7) status is for social or recreational club organizations. Though net earnings do not serve a charitable purpose, they are exempt from paying federal income taxes under the Internal Revenue Service (IRS) Section 501(c)(7).
The status assists social clubs in staying financially secure to continue providing recreational, pleasurable, and other non-profitable activities.
If your club offers access to recreational facilities, such as golf courses, hobbies, clubhouses, and swimming pools, applying for a 501(c)(7) status is a good idea.
This article will explain the meaning of this tax exemption, its requirements, benefits, and steps for starting a nonprofit social club.
A 501(c)(7) organization is a social or recreational club that has tax exemption from federal income by the IRS if it is "organized for pleasure, recreation, and other nonprofitable purposes." This differs from many public charities or 501(c)3 organizations for tax-exempt purposes, where funds are paid primarily through donations.
501(c)(7) doesn't rely on donations or fundraising to support its club. Like other tax-exempt entities, a 501(c)(7) organization raises money primarily through membership dues and fees from club members. These organizations exist for private benefit.
Some organizations that can potentially qualify for 501(c)(7) status under the IRS include a club organized as:
College fraternities and sororities
Sports clubs
Country clubs
Dinner clubs
Hobby clubs
Homeowners associations
Other kinds of IRS tax-exempt status to be aware of in the event you fall into these categories are:
501c: A tax exempt status that enables nonprofit organizations to focus more resources on their charitable or social purposes by reducing their tax liability.
501c3: A tax exempt status for charitable organizations that receive donations and grants from the US federal government to cover operational costs.
501c6: A tax exempt status for charitable organizations created by individuals with common business interests rather than the public.
What is the difference between 501(c)(3) and 501(c)(7) tax exempt status?
Responsive Table
501(c)(3) - Charitable Organizations
501(c)(7) - Social Clubs
Who They Serve
Public (general public or specific groups of individuals)
Members (restricted to club members)
Tax-Deductible Donations
Yes, donations are tax-deductible for donors
No, donations are not tax-deductible for donors
Filing Requirements
Form 1023 (Application for Recognition of Exemption)
Form 1024 (Application for Recognition of Exemption)
Revenue Model
Primarily donations, grants, and fundraising activities
Membership fees, dues, and social activities
Use Case
Charitable, educational, religious, or scientific purposes
Recreational or social clubs (e.g., country clubs, hobby clubs)
While both 501(c)(3) and 501(c)(7) social clubs are tax-exempt organizations, there are notable differences between the two. For starters, 501(c)(3) organizations focus on charitable causes, whereas 501c7 nonprofits aim to offer social or recreational activities.
That means 501(c)(3) tax-exempt entities can earn most of their revenue from public donations or government entities. 501(c)(7)social clubs must be supported primarily by membership dues, fees, and assessments. The 501(c)(3) tax-exempt social clubs serve the general public and do not offer benefits to specific members or groups, while 501(c)(7) social clubs exist to serve their members and constituents.
The IRS outlines several exemption requirements for 501c7 social clubs to qualify and secure the status of a 501(c)(7) tax-exempt organization. It's essential to ensure your group meets each of the requirements.
Purpose: Social clubs and their activities must exist for the pleasure and recreation of their members only, as you'd see with many hobby clubs. You must not claim to offer goods and services to the general public or collect gross income related to public benefit.
Personal contact: You must offer members the opportunity for face-to-face interactions, personal contact, and networking with each other. Think about the country and social clubs that often unite people for meetings and gatherings.
Limited membership: Social clubs must limit membership, offering their facilities and activities only to members and their guests, not the general public. This may be for social or recreational purposes such as:
Tennis club admission:
Community associations
Gatherings to practice a particular religion
Club functions for recreational purposes
Charitable organizations looking to raise money
Business leagues for sports or community-building
Events that serve members
A country club with membership requirements
Other sport clubs
Funding: Membership fees, dues, and assessments should support social clubs with net earnings to create an exemption from federal taxation. Up to 35% of your revenue can come from non-membership sources, including investment income. It's essential to collect gross receipts as a way to comply.
501c7 earnings: Your 501c7 social club earnings from members should solely be used to enhance its activities and purpose. It should not be used for the private benefit of any club member.
Equality: You should not discriminate against any individual based on color, race, or religion. You can limit your membership to members of any faith only if the club's purpose is to further the teaching of a particular religion.
Should You Start a 501(c)(7) Social Club?
Starting a social club is complex, but there are benefits and drawbacks. We'll help you understand these below so you can make the most informed decision possible.
Benefits of Starting a 501(c)(7) Social Club
Under the IRS, forming a 501(c)(7) organization offers tax benefits, as these organizations are exempt from paying federal taxes. You can reinvest the revenue you've raised through club activities into the social club, improving your recreational purposes.
A 501(c)(7) status offers social clubs credibility and builds trust, which helps attract new members and partnership organizations.
When you start a club, you meet like-minded individuals who share your values, allowing you to create a more significant impact within your community.
Drawbacks of Starting a 501(c)(7) Social Club
Since 501(c)(7) is not a charitable organization, donors might not receive a tax deduction on donations or contributions. You may even have to pay taxes on funds raised by organizing 501 c7 fundraising events and activities for social clubs.
Tax-exempt social clubs must be very cautious about activities and programs. You must ensure you're by the IRS's tax-exempt purpose. You can't rent out your club facilities for other events for social clubs.
You must file IRS Form 990 annually to ensure ongoing compliance for your 501(c)(7) social club. Although there are several types of Form 990, the kind you must file will depend on your organization's gross receipts.
Once you've decided, it's time to pick a unique and exciting name for your social club. Visit your state's Secretary of State website to see if your selected name is available and register it as soon as possible. Check the domain name availability as well to create a website easily.
What you name your organization is critical to its success, as it will differentiate it from others. A great name will make you memorable while giving the world a sense of your mission. It will also encourage prospective supporters to learn more about your nonprofit. Take time to develop a name aligned with your club's purpose.
Step 3: Create Your Board
Every nonprofit organization should have a board, and the number of members will depend on state laws. Some states only require two members, but most require a minimum of three.
Your board should have a President, also known as Chair, Secretary, and Treasurer. You can also hire a Vice President or Co-Chair. Ensure your nonprofit board members have the skills, knowledge, and experience to serve your club's purpose.
Step 4: Create Your Bylaws and Articles of Incorporation
Consider state- or city-specific requirements when drafting these documents for social clubs.
Getting help from a local attorney with experience in tax-exempt organizations will help ensure compliance with state and local laws.
According to the IRS rules, your nonprofit bylaws should be voted on and passed/accepted by the board of directors. These documents explain how your organization operates and guide your club internally. The IRS will review your bylaws to ensure your purpose and procedures comply with the 501(c)(7) requirements.
Your bylaws must be well-written, and everyone involved in your 501 c7 social club must have a copy.
Articles of Incorporation are needed for your organization to become a legal entity in the state where you're operating. This document will comprise your club's name, registered address, name and address of board members, and purpose.
Note: Both these documents will be sent to the IRS for review.
Step 5: Get an Employer Identification Number
An Employee Identification Number (EIN) is essential for several reasons. This 9-digit ID lets you file for tax exemption with the IRS, create a bank account for your club, and make payroll if your club grows.
To apply for EIN status, you must fill out IRS Form SS-4 online and provide information, including the social security number of the organization's primary contact.
Step 6: Start a Nonprofit Bank Account
Once you've acquired the EIN, set up your nonprofit organization's bank account. Find a bank that offers good perks for social and recreational clubs. Consider features like minimal fees, digital banking tools, high yield, and alignment with your values.
When opening your account, take the following documents with you:
Nonprofit bylaws
Articles of Incorporation
EIN details
A list of staff members with their ID cards
Step 7: Apply for Tax Exempt Status
File for IRS Form 1024 to secure the tax-exemption status. You can fill it out online or download the application and fill in the details. Since the IRS form is lengthy and can be rejected for a minor error, hiring a legal expert to guide you through the paperwork is better.
Initial IRS Filing Path to get 501c7 Status
If You Are a...
File This Form
Estimated Cost
Timeline
Maintaining Your Status
501(c)(3) Charity
Form 1023 or 1023-EZ
$275–$600
2–12 months
File Form 990 annually, maintain records of charitable activities, and ensure ongoing compliance with tax-exempt purposes
501(c)(7) Social Club
Form 1024
$600
~6–12 months
File Form 990 or 990-EZ annually, avoid excessive nonmember income (typically no more than 35% of total income), file Form 990-T for UBI, comply with state/local requirements, maintain proper governance (membership lists, bylaws, criteria), and avoid private benefit and political activity
Step 8: Find an Online Membership Management Software
Once you've completed the legal aspects of the 501(c)(7) organization, you can focus on its operational side.
You will require a solid solution to collect membership fees and organize your members' data—contact information, membership status, renewal dates, and engagement history.
Step 9: Identify Members and Start Promoting Your Club
Now that you're done setting up your 501(c)(7) organization, you must identify your ideal members. Depending on the type of 507c7 social club you're operating, your members will comprise friends, classmates, community members, neighbors, colleagues, and online communities.
Create a list of potential members and promote your club to them via different communication channels. Use social media, direct mailing, emails, and word-of-mouth to grow visibility around your club. In promotions, highlight all social and recreational activities your club offers.
Case study: How 501c7 Delta Sigma Theta Sorority saved over $14K in fees with Zeffy's free membership software
The East Harris Chambers Liberty County Alumnae Chapter of Delta Sigma Theta faced a common challenge for social clubs: balancing IRS requirements with creating an engaging member experience. Additionally, they need to drive participation and foster a sense of community through events and social experiences
With Zeffy, they were able to do everything for free, including:
Collect membership dues: With Zeffy, Delta Sigma Theta collected dues online (mobile + desktop), automated reminders and renewals, and tracked membership status and revenue in one place. As a result, they raised $114K through membership dues and saved +$5,680 in credit card and platform fees.
Run events and drive engagement: Using Zeffy's free event ticketing, they hosted about 30 fun events (Ugly Sweater Christmas Party, Crawfish Boil Fundraiser, red carpet event, and more), and even sold merchandise. As a result, they raised $152K and saved $7,632 in fees.
In total, Delta Sigma Theta was able to raise $285,133 with Zeffy and save $14,527 in fees — all while staying compliant with IRS 501(c)(7) requirements AND offering an exceptional experience to members.
How 501(c)(7) Social Clubs Can Grow with Zeffy
Starting a 501(c)(7) organization requires careful planning, adherence to legal guidelines, and a clear vision for fostering community among members.
Zeffy supercharges 501(c)(7) clubs with zero-fee tools that maintain IRS compliance while supercharging growth. From membership management to seamless event management that boosts engagement and attendance, Zeffy eliminates thousands in processing fees and administrative headaches.
The result? More resources for creating exceptional member experiences and a professional, cohesive club presence that attracts and retains members.
FAQs on 501(c)(7) Status and Tax Exempt Organizations
According to the Internal Revenue Service, donations to 501(c)(7) organizations are not tax-deductible. However, if they are ordinary and necessary in the taxpayer's business, they can be deductible as business expenses or trade with valid gross receipts. The organization must make certain disclosures and pay a proxy tax related to the due payments.
A 501(c)(7) organization is designed to serve the personal and private interests of its members, focusing on providing social and recreational benefits rather than serving the broader public interest.
A 501(c)(7) organization can generate revenue on gross receipts but must adhere to specific Internal Revenue Service regulations to maintain its tax-exempt status. Organizations like country clubs or social clubs should have primary income through membership dues, fees, and assessments, not private interest or unrelated business income.
These funds should further benefit members through the club's recreational, social, or similar purposes. Social clubs can earn revenue from other sources, but it has restrictions. The Internal Revenue Service allows these organizations to receive up to 35% of their gross receipt from sources aside from nonmember investment income.
Unrelated business income refers to revenue your 501(c)(7) tax exempt organization earns from conducting activities unrelated to its tax-exempt purposes. It is subjected to unrelated business income tax. Some of these unrelated business income activities for social clubs are:
Renting out the club facilities to non-members for events.
Selling timber cut from club land.
Selling food and drinks to non-members.
Accepting advertising in club newsletters or more publications.
Proceeds from the total liquidation of club assets or partial liquidation of club assets.
For the social club's exempt purpose, a 501(c)(7) organization needs to know about investment income and how it relates to personal and private interest of members.
Dividends and interest are subject to Unrelated Business Income Tax (UBIT).
No more than 35% of total social club income can come from nonmember income, and no more than 15% can come from nonmembers' use of the club's facilities.
Social clubs funded by nonmember income need to be aware that no more than 35% of total social club income can come from nonmember income, and no more than 15% can come from nonmembers' use of the club's facilities.
Violations will jeopardize income taxation and status as an exempt organization
To apply for 501(c)(7) tax exemption status in Texas, you’ll need to file your organization’s Articles of Incorporation with the state, apply for an Employer Identification Number (EIN) with the Internal Revenue Service, and submit IRS Form 1024 for tax-exempt recognition. Don’t forget to create bylaws and ensure your purpose aligns with social club guidelines.
Sports fan clubs can qualify as 501(c)(7) organizations as long as they operate primarily for recreational or social purposes and meet the Internal Revenue Service requirements for membership-based social clubs.
To start a 501(c)(7) in Indiana, you must incorporate your club with the Indiana Secretary of State, obtain an EIN from the Internal Revenue Service, and apply for federal tax exemption status using Form 1024. Be sure to check Indiana-specific rules for nonprofits!
Creating a 501(c)(7) involves drafting your club’s mission, filing Articles of Incorporation with your state, applying for an EIN, and submitting IRS Form 1024. You’ll also need bylaws and a clear plan for maintaining your social club’s purpose and membership structure.
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