Noprofit Sports Club

[Gunter]

I am trying to establish a nonprofit sports club in my town. we would like to sell products and merchandise to raise money for events and maintenance on our course. We would also like to be able to accept donations and have them be tax write offs for our donors. Is this still considered a 501c3 or is this under a a different filing? Thank you!

[Armen]

First I need to know whether the club is almost entirely composed of youth.  If not, it appears that you are referring to a 501(c)(7) recreational or social organization about which the IRS writes at www.irs.gov/irm/part7/irm_07-025-007.html

Please note that donations to such c7 organizations are not deductible by the donors. Also such an organization may be granted and be able to maintain exempt status only if if it does not receive 35% of its gross receipts from outside its membership and receives no more than 15% of its gross receipts from nonmember use of club facilities. www.irs.gov/irm/part7/irm_07-025-007.html#d0e461 IRS Publication 598 "Tax on Unrelated Business Income of Exempt

Organizations" at

www.irs.gov/pub/irs-pdf/p598.pdf

explains that,  if products or services are not directly related to

the charitable, educational, religious or other purpose or function

constituting the basis for its exemption(other than for production

of income), then the activities are generally taxable.

Their exact wording is found in the middle column of page 3

"Unrelated business income is the income from a

trade or business that is regularly carried on by

an exempt organization and that is not substan-

tially related to the performance by the organiza-

tion of its exempt purpose or function, except

that the organization uses the profits derived

from this activity."

The IRS has declared, "Nonprofit organizations that are granted

Federal tax exemption based on their mission-related purposes

are allowed by the IRS, within certain limits, to generate income

from unrelated business activities."

www.irs.gov/pub/irs-soi/97eounrl.pdf on pdf page 1. But, the

organization could, if it has more unrelated activities than

the IRS's vague "certain limit", be jeopardizing its exemption

depending upon the facts and circumstances. Two of the main factors

is the gross income of the activity in relation to the gross income

of the organization's total income and staff time spent on the

activity. Court cases reveal that 5% is probably safe, whereas 20%

or more can jeopardize exempt status. Harvey Mechanic, Attorney at Law - [email protected]

P.S. This response is intended to be a general statement of law, should not be relied upon as legal advice and does not create an attorney/client relationship.