What Is a 501-C 7 Corporation?

By Bryan Driscoll, J.D.

What Is a 501-C 7 Corporation?

By Bryan Driscoll, J.D.

A 501-C 7 is a type of corporation that is exempt from taxes if it meets certain requirements as a social or recreation club. The Internal Revenue Service (IRS) provides for tax-exempt status for different types of corporations.

Group of friends sitting at an outdoor restaurant laughing

These entities fall under Section 501(c) of the Internal Revenue Code. There are many types of businesses that the IRS provides tax exempt or tax break status to so long as they meet the requirements.

501-C 7 Corporation

According to the IRS, in order for a social club to receive tax-exempt status, a significant portion of all of its activities must further pleasure, recreation, and other similar purposes. This can include country clubs, garden clubs, and alumni association.

There are many types of non-profit corporations that might fall under this category. It's even possible to turn an existing business into a 501-C 7 organization. To be eligible for tax-exempt status, however, all companies must adhere to several requirements.

 

 

Limited Membership

Each entity must have limited membership. However, this does not mean your corporation is allowed to discriminate. Geographic area, college affiliation, or sport enthusiasm are ways to accomplish this requirement.

No Discrimination

No organization that desires tax exempt status can discriminate against employees or members. As noted above, membership can and should be exclusive, but it cannot be discriminatory.

Organizational Support

To fall under 501-C 7 tax exempt status, the corporation must not be in business to make money. Rather, it must rely on its membership for financial support. This is usually accomplished by monthly dues or membership fees but could also include rental fees. A country club could rent out the golf course or space for an event and charge money for the use of it.

Obtaining 501-C 7 Status

As with most legal processes, an organization cannot declare itself tax exempt. There is a process that each entity, whether a new non-profit or established one, must follow to apply for such status with the IRS.

1. File IRS Form 1024. This form is the application that the IRS uses to process your request for your corporation to become tax exempt.

2. File IRS Form 8718. This form must be filed alongside IRS form 1024.

Filing two forms may sound easy, but the IRS is a stickler for detail. You must make certain you have provided the most accurate and up-to-date information on both documents. You must also provide them with documentation about your organization showing your purpose, membership, and club information.

Without this detailed information, they will deny your submission. Once you have provided all the information, it can take months before you hear a response. That's why it's critical to ensure you provide the IRS with the correct information and all the information from the beginning. Each time they have to request additional information from you, the longer the application process takes. And during this process, you still have to continue paying taxes for your corporation. It isn't until they grant you 501-C 7 status that you can stop paying corporate taxes.

This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.

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