Expert: Harvey Mechanic - 10/23/2009

Question
QUESTION: IRS pub 4221 presents great detail for recordkeeping, reporting and disclosure.  But the whole pub only refers to organizations classified as 501 (c) (3).  Does this imply that these requirements are NOT applicable  to 501 (c) (7) organizations? And if so, is there some other reference applicable to those organizations?

ANSWER: www.irs.gov/pub/irs-pdf/p4221nc.pdf
is the applicable booklet. It is for exempt organizations other than 501(c)(3) organizations.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com


---------- FOLLOW-UP ----------

QUESTION: IRS pub 557 (pg 48) under 501 (c) (7) recreation clubs, and pub 4221 (private inurnment) there is language that states no part of the organization's net earnings my benefit a person, such as a Board officer, even if it pertains to undistributed earnings.  Example given: a decrease in membership dues.

If a board member (president or treasurer) receives free tuition in return for their volunteering to be the president or treasurer,does this violate the aforementioned IRS pubs?  Tuition is something all members pay for their children to participate in a recreational activity).

Answer
It depends how the Board words the resolution.  They may certainly give reasonable compensation to a officer for services rendered and that may be in the form of a reduction in fees. Then the word "volunteer" would not apply. Note that, under that scenario, the IRS would not consider the reduction in family fees as a gift.  The Internal Revenue Code at section 102(a) provides that generally gifts are not income. As long as the recipient is not a an employee or board member or related to an employee or board member of the donor then the gift is not taxable to the
recipient. Section 102(a) has "Gross income does not include the value of property acquired by gift..."
http://bit.ly/QEZhX

However, section 102(c) of the Code has "Subsection (a) shall not exclude from gross income any amount transferred by or for an
employer to, or for the benefit of, an employee....For provisions excluding certain employee achievement awards from gross income,
see section 74 (c). For provisions excluding certain de minimis fringes from gross income, see section 132 (e)."
http://bit.ly/10Ipu6

That compensation is generally taxable.

Harvey Mechanic, Attorney at Law -
Harvey108@hotmail.com