AboutHarvey Mechanic Expertise US Federal tax issues of nonprofit 501(c)(3) public charities only. Establishing and maintaining legal requirements for such non-profit organizations in the United States, including Internal Revenue service filings and requirements. I will not be working on this free forum to answer questions about Nonprofit's unrelated or for-profit businesses or how to fill out forms. This forum is only for general questions about federal tax law, not as the law applies to your specific situation.
To search my previous answers you can do a Google search: site:allexperts.com/q/nonprofit [with your other search terms appended].
Experience I have been practicing law and especially the law of nonprofit organizations since 1990 when I was admitted to the New York Bar.
Education/Credentials B.S. Columbia University in New York City, 1970
J.D. (Law Degree) Brooklyn Law School, 1990 -- Cum Laude
Question QUESTION: I have been reading info on the IRS website and it seems that our summer swim team (which receives dues from swimmers and income from small fund raisers and pays the coaches) would be a 501(c)7 organization. I was ready to apply with the NC SOS and applying for the tax exempt EIN but was stumped by the choice of "social/savings club" or "sports team". The sports team is explained as just needing an TIN for banking purposes. Could we actually only be set up for banking purposes or do we need to incorporate and choose the social club option? Thank you so much for your help.
ANSWER: You mentioned "fund raisers". By "fund-raisers" it appears that you are referring to sales. Unless the organization receives nonprofit status the net on the sales will be taxable like for an ordinary business. Even if the organization is an IRS approved nonprofit, it may still need to pay taxes on the sales. See www.irs.gov/pub/irs-pdf/p598.pdf
IRS Publication 598 "Tax on Unrelated Business Income of Exempt
Organizations"
and there you will see that such activities are generally
taxable.
The "social/savings" club is not applicable for an organization that engages in sales business.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
---------- FOLLOW-UP ----------
QUESTION: Thank you for your response. Let me tell you what we have more specifically:
Income:
Dues: $9500
Carwash $300
Umbrella Sales Profits $650
Sponsors (we have a sign with their ad at our pool) $600
Expenses:
Pay 5 Coaches $2500
Supplies/Equipment to Run Swim Meets $2500
Scholarships for Graduating Seniors $1000
(We are saving for a automatic timer.)
Our season lasts about 7 weeks. We practice and have meets once a week. We do not charge for the meets.
What type of tax exempt/nonprofit status do you recommend?
Thank you for your help so far.
Answer If the team is composed of almost all youth under the age of 18 the organization may be approved as a 501(c)(3) organization. Otherwise, not.
The IRS has written regarding 501(c)(3) organizations that are
athletic in nature:
---Start of Excerpt--
An amateur athletic organization may qualify for IRC 501(c)(3)
exemption under three different rationales. First, an amateur
athletic organization may be classified as "educational" under
IRC 501(c)(3) on the grounds that it teaches sports to youth or
is affiliated with an exempt educational organization. Rev. Rul.
80-215, 1980-2 C.B. 174; Rev. Rul. 77-365, 1977-2 C.B. 192; Rev.
Rul. 67-291, 1967-2 C.B. 184; Rev. Rul. 64-275, 1964-2 C.B. 142;
Rev. Rul. 55-587, 1955-2 C.B. 261. Second, an amateur athletic
organization may be classified as "charitable" under IRC
501(c)(3) on the grounds that it combats juvenile delinquency or
lessens the burdens of government. Rev. Rul. 80-215, 1980-2 C.B.
174; Rev. Rul. 59-310, 1959-2 C.B. 146.
---End of Excerpt--
www.irs.gov/pub/irs-tege/eotopice87.pdf on page 1
Note that the IRS has taken a position that "[a]n organization
may be educational within the meaning of IRC 501(c)(3) if it
teaches sports to youth or by being affiliated with an exempt
educational organization. Such educational organizations may also
provide facilities and equipment."
www.irs.gov/irm/part7/ch10s27.html#d0e103784
However, the equipment needs to be owned by the 501(c)(3) organization and only used for their purposes.
A 501(c)(3) organization allows donors to take deductions from their taxes.
Harvey Mechanic
Attorney at Law
Harvey108@hotmail.com
